## Facts

- Hughes owned U.S. Patent No. 3,397,928 covering an O-ring seal used in the enclosed journal bearings of rolling-cutter rock bits for oil and gas drilling.
- The claims required an O-ring “squeeze” of not less than about 10% (preferably about 15%) of the O-ring’s cross-sectional thickness when assembled.
- Industry practice and design references generally cautioned against high compression in rotating applications due to expected friction and accelerated wear.
- Hughes presented evidence that higher squeeze improved sealing performance in the harsh rock-bit bearing environment, extended bit life, and achieved substantial commercial success.
- Dresser, a competitor, manufactured and sold rock bits using an O-ring seal configuration found to meet the claimed squeeze limitation.
- The district court held the asserted claims valid and infringed and awarded $132,096,430.92 in damages based on a reasonable royalty using a 25% rate applied to Dresser’s projected profits; it denied certain post-trial motions and limited prejudgment interest for a period when another court had found the patent invalid.
- Dresser appealed validity, infringement, and damages; Hughes cross-appealed on increased damages and prejudgment interest.

## Issues

1. Whether the asserted claims were invalid as obvious, given prior art O-ring sealing teachings and alleged routine optimization of squeeze.
2. Whether Dresser’s accused rock bits met the claim limitations, particularly the minimum O-ring squeeze.
3. Whether the reasonable royalty award (including a 25% rate and the profit base used) was supported by accurate economic evidence and proper hypothetical-negotiation analysis.
4. Whether prejudgment interest (and related monetary relief) was properly limited for a period during which the patent had been held invalid in other litigation.

## Decision

- The Federal Circuit affirmed the judgment that the asserted claims were valid and nonobvious.
- The court affirmed the finding of infringement.
- The court vacated the damages award and remanded for recalculation of a reasonable royalty because the rate/base rested on clearly erroneous economic findings.
- The court remanded for reconsideration of prejudgment interest and related monetary issues in light of the revised damages determination and applicable law.
- Disposition: affirmed in part, vacated in part, and remanded.

## Legal Principles

- A numerical limitation can support nonobviousness when it reflects a critical parameter that runs contrary to accepted technical teaching and is not suggested or motivated by the prior art.
- Prior art that discourages the claimed approach may constitute “teaching away,” supporting a nonobviousness finding.
- Objective indicia (such as commercial success, long-felt need, and copying) may corroborate nonobviousness and support the trial court’s factual findings under the Graham framework.
- Reasonable royalty damages must reflect the economic reality of a hypothetical negotiation at the time infringement began and must be grounded in accurate financial data and a logically supported royalty base and rate.
- A damages award may be vacated where the trial court misreads financial projections or applies a royalty to an inflated or incorrect profit measure.
- Prejudgment interest is ordinarily awarded to make the patentee whole, subject to equitable considerations; when damages are recalculated, interest determinations may require reconsideration.

## Conclusion

The Federal Circuit upheld Hughes’s patent and infringement verdicts because the claimed high O-ring squeeze was shown to be a nonobvious, critical departure from conventional sealing practice supported by objective evidence, but it set aside the nine-figure reasonable royalty award due to erroneous economic assumptions and remanded for a corrected royalty and renewed consideration of prejudgment interest and related monetary relief.


Hughes Tool Co. v. Dresser Indus., Inc., 816 F.2d 1549 (Fed. Cir. 1987)