Hughes Aircraft Asks $1 Billion From U.S. Over Satellite Patent Ralph Vartabedian from the Los Angeles Times February 3, 1988 Reprinted With Permission
In the first day of what was described as the largest patent infringement trial ever, Hughes Aircraft claimed Tuesday that the federal government stole a key satellite design that eventually became the basis for a world revolution in communications technology.
The Los Angeles-based aerospace company is seeking damages of $1.2 billion from the federal government in U.S. Claims Court. The trial, the final phase of a 17-year legal dispute, opened in a courtroom at the U.S. 9th Circuit Court of Appeals in Pasadena.
Hughes has already won two previous trials, in which federal courts upheld Hughes’ claim to a valid patent on the satellite device and then ruled that the government had infringed on it.
The current trial, which involves the penalty portion of the complex legal case, is expected to go on for six to nine months. Hughes attorney Sheldon Karon of Chicago said the amount of damages sought is a record.
“This dwarfs anything before it,” Karon said. “There has been nothing that even approaches it.” If Hughes wins the $1.2 billion it seeks, it would be the largest award for patent infringement ever made. But a current case that Polaroid has brought against Kodak could also reach the billion-dollar level and might be trebled under certain circumstances. Under patent law, damages awarded against the government cannot be trebled.
Justice Department attorneys Tuesday sharply disputed Hughes’ claims.
“It is overstated by many, many, many millions of dollars,” Thomas J. Byrnes, the Justice Department attorney representing the government, said in an interview. He added that the Justice Department recently filed a motion for a new trial on the portions of the case that upheld the patent and that found the government infringed on the patent.
At issue is a patent granted to Hughes for a simple way of controlling satellites in orbit. The device was the invention of Donald D. Williams, a young, Harvard-educated physicist on Hughes’ staff in the 1960s.
“The guy was a genius,” A. W. (Tony) Karambelas, Hughes’ staff vice president for patents and licensing, said during a recess at the trial. “We will introduce evidence that over 100 satellites have used this Williams’ patent.”
The crux of the case is the allegation that the Air Force appropriated the Williams’ patent for use on military satellites produced by other contractors, such as Ford Aerospace, TRW and Rockwell International, Karambelas said. Those companies are protected by the government against patent-infringement actions, but Hughes alleges that it was never compensated by the government for its invention.
At Tuesday’s court session, Albert Hibbs, a former scientist at the Jet Propulsion Laboratory in Pasadena, testified about the critical importance of the Williams’ invention in allowing satellites to be controlled in orbit.
The Williams’ device involved use of a single rocket thruster, the firing of which could be precisely timed to stabilize and control the position of a spinning satellite. By firing the thruster in timed pulses, it could accomplish what otherwise would require a heavier system.
To explain the concept to Claims Court Judge James T. Turner, a videotape was used showing a computer simulation of a satellite in orbit. Justice Department attorneys objected to the demonstration, saying that a computer simulation does not amount to “substantive evidence.” Turner took the objection under advisement and said he would rule later.
Williams died in January, 1966, nearly a decade after his invention had revolutionized communications technology, without gaining wide recognition for his accomplishments. But an account of his work in the Hughes Aircraft employee newspaper noted that he once volunteered his life savings to the company when funding for his satellite work was jeopardized.
“When he put that check down on my desk, I became convinced that this type of dedication just has to be supported,” Hughes Aircraft General Manager Pat Hyland was quoted as saying.
On Friday, the court will convene at Hughes Aircraft’s Space & Communications Group’s satellite facility in El Segundo, where Hughes Aircraft Chairman Albert Wheelon will testify.
Judge in $1.2-Billion Case Sees How Satellites Are Built
Hughes Aircraft Patent Suit Shifts to Plant Ralph Vartabedian from the Los Angeles Times February 6, 1988 Reprinted With Permission
U.S. Claims Court Judge James T. Turner traded his black judicial robe for a white one Friday as he convened an extraordinary court session inside the El Segundo satellite production facilities of Hughes Aircraft, which is suing the government for patent infringement.
Donned in a technician’s white smock, Turner was given a nearly three-hour show-and-tell session by Hughes Aircraft Chairman Albert Wheelon, who explained in detail how communications satellites are built.
Hughes is suing the federal government for $1.2 billion for infringing on a key patent that Hughes believes enabled the creation in 1963 of practical communications satellites and their growth into a multibillion-dollar industry.
The trial, which began earlier this week, is the final phase of a 17-year legal battle that Hughes has pressed to obtain recognition and compensation for what is known in the company as the “Williams patent.” It is named for Donald Williams, a Harvard-educated scientist who invented it in the early 1960s.
Hughes has already won in two trials in which federal courts upheld that the Los Angeles-based aerospace company holds a validpatent and that the government had infringed on it. The current trial is the penalty portion of the case.
Wheelon testified Friday that Williams’ patented invention is used in virtually all of the 82 Hughes commercial satellites produced since 1963, worth $5.8 billion.
“I believe it (the patent) has been the essential ingredient in our business,” Wheelon told the judge, as he pointed to a table containing scale models of more than a dozen Hughes satellites.
An entourage of court clerks, attorneys and reporters followed Wheelon around the facility, known in the industry as a “high bay,” as he explained each of the steps of producing a satellite and how the complex machines work in the cold vacuum of space.
Justice Department attorneys have sharply disputed Hughes’ claims in the case and said they are exaggerated many times over. But at Friday’s session, Wheelon clearly enjoyed a home court advantage inside the spacecraft production facility.
At one point, Justice Department attorney Thomas J. Byrnes demanded to know whether a screw used on one satellite was of the common household variety.
“It isn’t as simple as that,” Wheelon explained patiently with a smile, launching into a technical discussion of the thermal loads that are generated by solar rays as a satellite circles the Earth.
A few unusual interruptions marked the court session, such as when a fork-lift truck intervened as Wheelon was describing the operation of the huge Intelsat VI satellite, a 5,000-pound behemoth that Hughes is building for international telephone communications.
A young woman, loaded onto something called a “diving board,” was hoisted high above the Intelsat satellite to make some adjustments to the craft’s antennae as the court session continued below.
“This is the largest insured value in the world,” Wheelon said about his spacecraft plant. “It is higher than Tiffany’s.”
Hughes officials said they wanted Judge Turner to see exactly how complex are the production and testing requirements in the communications satellite industry.
If Turner was impressed, he did not show it. He listened quietly to Wheelon’s long discourse on satellites, occasionally asking a question. He pointed to a rocket nozzle and asked Wheelon if Hughes still uses only a 5-pound thruster to control the several-ton satellites.
Much like the system used in 1963 for Hughes’ Syncom, the first practical communications satellite, only one small thruster is used to control Hughes satellites in space, Wheelon said.
A. W. (Tony) Karambelas, Hughes’ patent attorney, said more than 100 satellites have been built by the government using the Williams patent.
“When Williams first conceived of the idea, the government said it would never work,” Karambelas recalled in an interview Friday. “After Williams proved that it could work, the government said, ‘Thank you very much, we own it.’ After we fought them on it and won our patent, they said, ‘What? Pay for that? It’s worthless.’ We have had little choice but to fight them all these years.”
The size of patent infringement awards has grown dramatically in recent years as courts increasingly are willing to recognize the claims of major corporations.
Legal Blunder May Be Costly to Hughes Aircraft
Could Lose $270-Million Claim; Judge in Patent Case Cites Error by Lawyers Ralph Vartabedian from the Los Angeles Times February 6, 1988 Reprinted With Permission
A legal blunder in a patent infringement case brought by Hughes Aircraft against the federal government, the largest patent case in history, may end up costing the company $270 million, The Times has learned.
The blunder came to light in a ruling handed down last September by U.S. Claims Court Judge William T. Turner, who said Hughes’ lawyers had made a “unilateral mistake.” The ruling was only recently published in a patent law journal.
In addition, five knowledgeable sources–including lawyers, government officials and individuals close to Hughes–said it is widely accepted that a legal oversight caused the potential financial setback.
Hughes officials and attorneys declined to comment. John F. Walker, managing partner at Latham & Watkins, the law firm representing Hughes in the case, said his firm had not made any error.
Hughes Aircraft, a General Motors subsidiary, has been suing the federal government during the last 18 years for patent infringement on a complex device used to control orbiting satellites. Hughes is claiming $3.16 billion in damages, according to court documents.
Says U.S. Stole Design
Turner’s ruling found that Hughes had inadvertently released the government from some of its liability when the company signed a separate legal settlement with Ford Motor, which it was suing for infringement of the same patent.
The patented machine was invented in the early 1960s by Donald Williams, a young genius at Hughes who later commited suicide.Hughes claims that the government stole the design and used it on 108 satellites without any royalties being paid to Hughes.
The device allows a single small rocket motor to control the orbit of a spinning satellite by employing gyroscopic principles.Hughes has asserted that the invention enabled the creation of practical communications satellites, today a multibillion-dollar industry.
But government attorneys say that Hughes has overblown its claims “many times over” and that it does not possess a validpatent.
Nonetheless, the Los Angeles-based aerospace firm has already won two previous trials against the government, in which federal courts have found that Hughes has a valid claim to a patent on the device and that the government infringed on that patent.
Until Turner’s decision in September, which was reprinted in the U.S. Patent Quarterly, it appeared that the company was on the home stretch toward winning a giant award. The current phase of the case involves setting the penalty against the government.
Hughes is seeking a royalty of 15% of the cost of the government satellites, in addition to “delay compensation” to make up for the years that it was denied the royalties.
But Hughes’ legal position was rocked Sept. 29, when Turner threw out Hughes’ infringement claims on 13 government satellites, which were built by Ford Aerospace, a unit of Ford Motor. At least two requests for a rehearing on the ruling have been denied, but an appeal is expected.
The royalties and delay compensation on those 13 satellites represented $270 million worth of claims against the government, according to a secret court filing that Hughes made Oct. 7. Under the Justice Department’s method of valuing the satellites, however, the 13 spacecraft might be worth only $50 million.
Reported in Results
The ruling that threw out claims on the 13 satellites was based on wording contained in an out-of-court settlement with Ford. That settlement was never disclosed by either Hughes or Ford, but knowledgeable sources said Ford agreed to pay Hughes $75 million.
A Ford spokeswoman declined to comment other than to say that the money was properly reported in the auto maker’s financial results for 1987, even though it was not specifically identified in that report.
Sources close to the patent case say Ford wanted to keep the agreement secret because it was embarrassed by the large amount of the loss. At the same time, the award provided Hughes with badly needed income at a time when its operations were being hurt by other problems.
Turner, who sits on the U.S. Claims Court bench in Washington, wrote in his ruling last September that “the agreement provided for payment to Hughes by Ford of an amount which, though shielded from public disclosure, may fairly be characterized as highly significant even to large corporations in the aerospace industry.”
Used 2 Law Firms
In the settlement, which was executed Sept. 10, 1987, Hughes agreed to a provision that released Ford customers from any liability for infringement. Turner quoted the secret agreement as saying, “The license granted hereunder shall extend to all customers for and users of said devices made or sold by Ford. . . . ”
When the Justice Department heard about the Ford settlement, its patent attorneys immediately believed that the provision would release the government from any liability on the satellites that Ford built for the government.
And Turner ruled that the language of the agreement “could hardly be more clear cut.”
Turner went even further in his opinion, saying: “Hughes, drafter of the settlement agreement, could have avoided the current dispute merely by inserting ‘except the United States’ after the language releasing Ford customers and users of Ford products.”
The reason such language was not inserted may be related to the fact that Hughes had two different law firms pursuing its patentinfringement claims.
For more than a decade, well-known patent attorney Sheldon Karon of Chicago successfully represented Hughes in its case against the government. But in the Ford settlement, Hughes’ in-house lawyers turned to Latham & Watkins of Los Angeles.
Asked why he had not handled the Ford settlement, Karon responded: “I don’t know. You would have to ask Dick Alden that.”
The reference was to Richard Alden, who was both general counsel of Hughes Aircraft and a senior parter of Latham & Watkins for many years. In 1985, he retired from the law firm but remained at Hughes, taking the additional title of vice chairman there, until his retirement last year. He could not be reached for comment.
Walker, the managing partner of Latham & Watkins, said he is not familiar with the details of the Ford settlement, but he asserted strongly that the law firm had not erred.
“If you are asking whether Latham & Watkins made a mistake,” he said, “everything I know is that we didn’t make a mistake at all in the case.”
Karon said he did not personally believe that the Ford settlement was flawed.
“I wasn’t there in the negotiation,” he remarked. “I have seen enough of these situations where hindsight is 20/20. I don’t know what kinds of things were left vague in the hopes of getting by.”
Karon asserted unsuccessfully before the Claims Court that since Hughes had never claimed any liability by the government in its suit against Ford, there could not be a release of government liability in the settlement.
Turner rejected that and other Hughes arguments. He found that Ford had fully understood what the release meant and that there had not been a “mutual mistake.”
The judge wrote: “At best, therefore, there was a unilateral mistake, which is insufficient as a matter of law to invalidate the release.”
After Turner’s ruling, Hughes made several attempts to obtain a rehearing. And still another law firm began representing Hughes.Kirkland & Ellis, a big Chicago law firm, made court filings asking for a rehearing on the matter.
U.S. in Last-Ditch Effort to Thwart Suit by Hughes
Aerospace: The Pentagon allegedly stole satellite technology. A judgment up to $1.2 billion is expected in 23-year-old case. Ralph Vartabedian from the Los Angeles Times May 23, 1994 Reprinted With Permission
WASHINGTON — Staring at a likely $1-billion judgment, the federal government is making an 11th-hour effort to undermine apatent infringement case brought by Hughes Aircraft 23 years ago.
A final ruling on the amount owed to Hughes by the government is expected to be handed down by the end of May by U.S. Court of Claims Judge James T. Turner, who presided over a one-year trial in 1988 and has been methodically considering a final ruling for five years.
Attorneys close to the case and outside experts predict that Turner’s ruling is likely to fall in a range of $800 million to $1.2 billion, making it the largest patent judgment in history against the federal government.
Even now in the face of the verdict, lawyers from the Justice Department are searching for a magic bullet that would deflate theHughes case, which alleges the Pentagon stole the technology that enabled the communications satellite revolution.
Justice Department attorneys are seeking any information or theories from outsiders or experts that might blow a hole in Hughes’case, according to several defense-industry and patent attorneys across the country.
“They are having apoplexy because they are afraid Congress is going to kill them,” said Herbert Fenster, a leading defense-industry lawyer. “They are trying to find some technical way to kill the case.”
Justice attorneys declined to be interviewed, but in response to a question about the efforts, department spokesman John Russell acknowledged: “We are always looking for evidence for bolstering our arguments.”
The last-ditch effort has amazed Hughes attorneys. “They have dredged up everything over the years,” said Sheldon Karon, a Chicago attorney who represents the company. “Some of it has been in the class of Elvis sightings. I can’t imagine what they would find at this stage.”
Hughes asserted in the case that the Pentagon infringed on an invention by Donald Williams, a brilliant young engineer at Hugheswho in the early 1960s developed a simple lightweight device for controlling a communications satellite in orbit. With Williams’ concept, a spinning satellite can be controlled in every axis with just a single rocket thruster.
The Claims Court has already ruled that Hughes’ patent was valid and that the government indeed infringed upon it. The last step is the monetary ruling.
The award will depend on two parts, the royalty rate on the value of the satellites and the interest rate to compensate Hughes for the long delays in getting its money. Hughes is seeking a 15% royalty rate, while the Justice Department has argued for 1%.
And the Justice Department has also suggested that the interest accruing on those royalties should be based on short-term Treasury Department bills, while Hughes has argued that its annual return on equity would represent how it could have invested the royalties.
The judgment could be as little as $84 million if Turner fully accepts the Justice Department’s formula, according to Victor Savikas, a Hughes attorney in Los Angeles. But Savikas added that the Los Angeles-based defense contractor could realize a mind-boggling $6 billion under the company’s preferred formula.
Turner, who is widely praised for his careful rulings, is likely to throw out both positions, striving for a conservative decision that will withstand likely appeals. Experts say the most probable outcome is a 5% to 8% royalty rate and interest based on the same rate that the IRS uses to compensate taxpayers on old refunds. On that basis, the verdict would fall into a range of $800 million to $1.2 billion.
Hughes attorneys say they give Justice Department lawyers credit for stalling the patent award for so many years. “The government hasn’t paid a dime,” Karon said. “They have done a good job of staving off judgment day. John Gacy went 14 years before he took his final walk. This is even longer.”
Hughes Wins $114 Million in Patent Case
Technology: It is the largest such award ever against the U.S. government, but it falls far short of the company’s expectations. Ralph Vartabedian from the Los Angeles Times June 18, 1994, Reprinted With Permission
After a two-decade legal battle, a judge Friday awarded Hughes Aircraft $114 million for the aerospace firm’s patent claim that the U.S. government stole the technology that enabled the communications satellite revolution.
Although the award ranks as the largest ever levied against the federal government for patent infringement, it falls far below even the smallest sum that Hughes hoped to win in the high-stakes case. Both sides are expected to appeal.
When the trial began in 1988, Hughes had sought an award of $1.2 billion, and at one time company attorneys speculated about a potential award of $6 billion. But the firm’s high hopes were dashed Friday by a 26-page opinion from U.S. Court of Claims Judge James T. Turner.
“I am shocked that it is this low,” said Mark Meltzer, a former Hughes attorney who worked on the patent case. “This is a lot lower than anybody expected. Taxpayers should be delighted.”
But Victor Savikas, an attorney representing Hughes, said the award “is a lot of money, though we asked for more.”
Justice Department lawyer Vito Di- Pietro, representing the government, said Turner’s decision on the actual value of the patent“was exactly what we had proposed and exactly what was supported by the evidence.”
The Hughes patent involved a device invented by Donald T. Williams, a brilliant young Harvard-educated engineer at Hughes in the 1960s who later committed suicide. Williams devised a simple, lightweight system to control the attitude of a satellite with a single rocket thruster.
In 1963, Hughes launched its Syncom, the first communications satellite. It paved the way for Hughes to dominate the world market, which it does even today. The effort was all the more impressive given that the Pentagon’s own attempt to build such a spacecraft resulted in a design so heavy that no rocket at the time could launch it.
As a result of the technical success of the Williams patent, Hughes had long expected to reap major rewards. Last fall, Turner ruled that the government had infringed the patent on 81 satellites over the years, worth a total of $3.5 billion.
The final step in the case involved determining the royalty rate and an interest penalty. In both areas, Hughes got less than it wanted.
Turner rejected the company’s assertion that it deserved a royalty of 15% on the $3.5 billion worth of government satellites using the device. Instead, Turner awarded a 1% royalty rate, exactly what the Justice Department had proposed as fair.
Among the millions of documents involved in the case, a few key pieces of evidence appear to have seriously deflated Hughes’claims.
In his ruling, Turner found that shortly after obtaining its patent, Hughes offered a direct competitor a license at a rate equivalent to about 1.2%. In a letter, Hughes cited that as its normal royalty for scientific and experimental satellites.
Moreover, Hughes was never able to license the invention to even a single company, excluding Ford Motor Co., which settled a separate infringement suit by Hughes.
But Savikas said the letter cited by Turner was involved in settlement negotiations for a civil suit and thus should not have been admitted as evidence–apparently raising a potential appeal issue. And he said the failure to obtain other licenses resulted in large part from the government’s infringement in the first place.
For Judge Turner, the ruling means he is free at last of the long-running dispute, and in honor of the occasion, he retreated to his chambers and broke open a bottle of champagne after handing down his decision.
How much of the award will be consumed by legal fees remains unclear. Meltzer said Hughes’ past legal expenses have amounted to “a significant percentage of this award.” But Savikas, Hughes’ current attorney, insisted that the company’s legal fees are “not anywhere near a substantial part of the award.”