locascio westerngeco trial vol. 1 pm.pdf

8/10/2019 Locascio WesternGeco Trial Vol. 1 PM.pdf

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Johnny C. Sanchez, RMR, CRR - [email protected]

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FOR ION GEOPHYSICAL CORPORATION:David L. BurgertSusan Kopecky HellingerJonathan M. PierceJonna N. StallingsRay T. TorgersonEric D. Wade

PORTER & HEDGES LLPReliant Energy Plaza1000 Main Street, 36th FloorHouston, Texas 77002713.226.6694

FOR FUGRO GEOTEAM, INC.:Gordon T. ArnoldJason A. SaundersAnthony HongARNOLD KNOBLOCH LLP

4900 Woodway DriveSuite 900Houston, Texas 77056

James M. ThompsonROYSTON RAYZOR VICKERY & WILLIAMS LLP

Pennzoil Place711 Louisiana Street, Suite 500Houston, Texas 77002713.890.3218

Court Reporter:Johnny C. Sanchez, RPR, RMR, CRR515 Rusk, #8016Houston, Texas 77002713.250.5581

Proceedings recorded by mechanical stenography. Transcriptproduced by computer-assisted transcription.

Case 4:09-cv-01827 Document 427 Filed in TXSD on 07/24/12 Page 2 of 98


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179

I N D E X

WITNESS PAGE

THOMAS SCOULIOS

DIRECT EXAMINATION BY MR. LOCASCIO............. 241



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THE COURT: Mrs. Loewe is checking with the

jurors what hours they want to work, so we'll have that

information for you later.

After thought, I am going to allow

Mr. Sim's testimony. It will not be before Monday,

earliest he can be presented by plaintiff, and defendants

will have an opportunity to take his deposition at the time

of their choosing. It will be of unlimited duration, and

no questions would be considered inappropriate.

If defendants do want to file another

Daubert motion, they're certainly entitled to. I do agree

it's a very close question, but I am going to allow it.

Okay. Do you want to tell Mr. Parker

it's --

MR. BURGERT: Your Honor, and will be we be

allowed to file a rebuttal report?

THE COURT: Yes. Yes.

MR. THOMPSON: Your Honor, will be required for

rebuttal report or will our rebuttal witnesses be allowed

to testify outside the scope of their initial report?

THE COURT: They'll be allowed to testify

outside the scope.

Okay, Mr. Parker, we're ready.

For those of you who came in late, the

only reason I'm so casually dressed is I can't get my hand



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through a dress shirt much less tie a tie. My apologies

for my appearance.

Opening statements, 45 minutes maximum. I

advise you not to use all of it if you can find your way to

be more concise.

CASE MANAGER: We're going to need a few

minutes. They're not all back there.

THE COURT: They're not all back yet?

CASE MANAGER: No.

(The following was held before the jury)

THE COURT: Members of the jury, please be

seated.

Okay. We begin with opening statements.

By tradition, plaintiff always goes first.

MR. LOCASCIO: May I proceed, Your Honor?

THE COURT: You may.

MR. LOCASCIO: This is a big case, but it is

also a simple case. WesternGeco, through invention, a lot

of hard work and over a hundred million dollars in

investment, developed a revolutionary system to image the

sea floor and underneath the sea floor to find oil and gas

reserves. For their work, WesternGeco received four United

States patents. They cover a system you will hear called

lateral steering. Lateral being side to side, steering

streamers.



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These streamers you'll hear

are up to 6 miles long behind a ship in the high seas.

They allow WesternGeco, this technology of steerable

streamers, to steer what are actually the largest manmade,

moveable structures on the planet.

ION and Fugro infringed these

patents. Since 2007, ION and Fugro have partnered together

to offer WesternGeco's technology to oil and gas customers

in competition with WesternGeco.

How does their partnership

work? Well, ION makes equipment. They sell that equipment

to Fugro, and Fugro uses that equipment to perform these

surveys. WesternGeco on the other hand,

makes its equipment and performance services. So this

collaboration of ION and Fugro compete with WesternGeco to

take business away.

The Court has already decided

that ION and Fugro infringed one of these patents. So you

will not be asked if ION and Fugro infringed, but rather,

how many of these patents and claims they infringed, and

how much they should pay for that infringement.

What is infringement? It's

when you take something that doesn't belong to you. ION

and Fugro took WesternGeco's technology. If you take

something, the right thing to do is to stop using it, and



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pay for what you took. But you'll see that's not what ION

and Fugro did.

After WesternGeco caught

them, ION and Fugro kept on infringing. After their own

oil and gas customers told them, we think you're infringing

WesternGeco's patents. They kept on infringing.

After their own employees

rang the alarm bell and said, every single survey we do is

infringing. They kept on infringing. And after the Court

decided they had infringed one patent, they still did not

stop.

Worse still, after they've been caught,

and so many people instead of making it right they made it

worse. Life is about choices. Do you do the right thing,

or do you do the wrong thing? Do you make something better

after you've made a mistake, or been caught, or do you make

it worse?

We're here today because ION and Fugro made

the wrong choice. They didn't make it right, they didn't

pay, they made it worse.

Over the coming weeks, you will see and

hear from witnesses and documents, what ION and Fugro did,

what ION and Fugro knew, and how that has harmed

WesternGeco.

We'll also ask you to protect the rights of



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those who invent, who invest, and who develop the

technology to find the resources we all need.

My name is Gregg LoCascio, along with my

colleagues, Lee Kaplan, Tim Gillman and Sarah Tsou. We're

proud to represent WesternGeco, the owner of these four

patents.

This case can be boiled down to three

topics, can I switch? Thank you.

ION and Fugro's motive, ION and Fugro's

infringement, and their efforts that have been quite

lengthy to get away with it.

First, what happened? ION and Fugro saw

something they wanted. They realized something that they

could use to make their business better except, you'll hear

it's patented by WesternGeco.

At the time, ION and Fugro were falling

behind, the technology that ION had was becoming

commodified. It was becoming every day off the shelf gear.

It was not aspiring their customers, it was not on the

cutting edge.

Fugro was also falling behind. We've all

seen this come up in everyday life. You may have had a

monitor or television that looks like the one at the bottom

of the screen in red, still have one of those actually.

It's a computer monitor, the upper, on the top you see the



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flat screen. And there was a time where, wow, it was

pretty great to have that big box monitor on your desk.

Now, you don't really want that. If you get

a new computer you probably can't even find one, you get a

flat screen. Over time the technological leadership

changes. That's what patents are all about. To inspire

new inventions like this.

This case has two technologies, the top

conventional streamers, streamers towed behind the ship,

and I'll show you pictures so you'll get a sense of it.

They don't steer. They're behind the ship, and if they

bump into each other and entangle, that's a problem, and

we'll talk about why that's a problem.

And lateral steering, which is the blue

line, which WesternGeco pioneered, patented and the system

of keeping that, keeping that -- keeping those streamers

where you want you will see is no easy task. That's not

what customers want. The surveys they get will be better,

and I'll show you some now.

You'll also hear during the trial, Fugro's

own executives, Mr. Hans Meyer. He was managing director

at the time of Fugro, who says, in 2006, we were not a true

competitor with WesternGeco. They didn't offer as good a

services as WesternGeco.

But they knew that lateral steering, they



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could get into that market, that that would allow them to

be more profitable. It was such a good deal, that since

then, Mr. Meyer, he's been promoted. This decision worked

out quite well for Mr. Meyer. The business was successful,

by using lateral steering, and he moved up.

After they both recognized the need for this

technology, ION and Fugro component maker and survey

company teamed up and agreed to join forces. You'll see

they had a meeting in Rome, and they got together, and they

recognized it would agree to be mutually beneficial to

create a business relationship between the two companies,

to develop control systems around the DigiFIN lateral

control device.

DigiFIN, it's the first time you've heard

that word, is the device on ION and Fugro's side that

steers these streamers. It's called a QFin at WesternGeco,

the Q product, the Q service.

They also identified that this agreement

would accord or give Fugro a competitive advantage and give

ION what they needed; access to survey vessels.

So they've seen a solution, except it's a

problem. It doesn't belong to them. Let's step back. I

want to show you a little bit so you can have an

understanding of what a seismic streamer vessel and array

look like. Here we are in Houston, Texas. And zoom in,



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and you will see 610, going around the city. Conveniently

for the facts of this case, because streamer arrays can be

up to 6 miles long, the 610 is about 12 miles across. So

where we are today is just about the middle, the

courthouse.

A seismic streamer, a seismic survey vessel,

has streamers on it that go back 6 miles behind the ship.

And you'll hear, Mr. Scoulios when he started the guy on

the back of the deck, the new guy, let's say. And he says

when you get out there in the sea, 6 miles away or then it

was shorter, you can't even see the boat you left. That's

how long these are. It's almost a little hard to

comprehend. It's a streamer going from where we are now

out to on the left, and we put the streamers ship on there

for you.

If the boat was where we are, the end of

each of these streamers would be on the left in Memorial

Park. If it went east, that ship would get all the way to

the port of Houston before the streamers passed us at the

courthouse.

We would just keep watching streamers go by

for that ship to go all the way to the port of Houston.

These streamers are up to 6 miles long, and there are more

than one of them.

You think about it, if you tow a car, if you



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tow it with rope, it's harder than with a tow bar. Let's

go with old school. We're going to tow it with rope. You

ought to have a guy in that car probably, hit the brakes

and probably the steer.

Imagine this, you're towing 6 miles long of

something, multiple streamers of them, near each other.

It's not a road, it's water, so you add the effect that

they might go up and down and there's waves and a lot of

other things that probably make it a little bit hard.

The system, WesternGeco patented was a way

to control all of those streamers, all of the devices so

that they don't do what would probably happen if you tried

to tow even a small piece of that car trailer 6 miles

behind you.

Look at that in a second. Here's a

vessel. It's a seismic survey vessel, WesternGeco owns

them, Fugro has some too. We'll talk about that. But what

it does is it goes through the water, which you'll see.

You can see it on the big screen, the lights are on, but I

think you can see it. Right about there, the back of the

ship, it's called an air gunner source. And then this here

is the streamer that runs off the back, that line you see

on the top of the water.

And first, the source submits a seismic

bubble array. You've heard the word seismic before on TV



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in the context of maybe a earthquake. It's essentially a

type of wave that can go through the earth. And it goes

down from the source. And some of it does bounce back off

the bottom of the ocean floor. But some, like Mr. Kaplan

said, bounces off levels underneath the ocean floor. And

then it comes back up those reflections and refractions to

the streamer, and the streamer has microphones since

they're under water, they're called hydrophones on it. And

they pick up all of these bounce back and refracted and

reflected signals.

And from that, it's in computing power, we

start to see what's underneath the sea floor. And you cab

find whether it's a reservoir, maybe it's oil, maybe it's

gas under the ocean.

In the old times, and still sometimes

today, in particular circumstances, you'll see a 2D survey,

2D meaning it's one streamer. It's 2D, because it gets a

slice. It only can detect what's under it. So you see for

instance, in this 2D survey, maybe a little piece of an oil

deposit.

Now, that could be a really small oil

deposit, or it could run on and on in the other direction

for miles. The oil company wants to know that. So people

came up with 3D surveys. What you see here in the 3D

survey are multiple streamers.



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In the 2D version, you didn't have to worry

about your streamer getting tangled with another streamer

because there was only one. And the 3D survey, you have to

make sure that you can do anything you can to try to keep

these from getting tangled. I'll show you that in a

second.

So the 3D survey is now able to go down and

get a 3D cube image of what's underneath the seabed floor.

And what we've seen in red is that reservoir. And now you

know if you did a 3D survey, this is a much better find for

the oil company. You also can figure where maybe we should

drill, as opposed to just hoping to hit it.

You'll hear about something called 4D

surveys. You might think, what's the fourth dimension?

It's time. And so, it's like a time lapse photo. If I

want to know what this block of Houston looked like 50

years ago, and 50 years before that, well, if I had a

cavern at the same exact spot on today, 50 years ago, 50

years before, and I aimed it the same direction, I'd be

able to overlap and see what changed. My guess is not much

stayed the same, but if anything stayed the same you'd see

it.

A 4D survey is the same concept. The oil

company wants to know what's changed. And you will see

there's now a rig where our survey field is, because after



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the 3D survey, there's oil there, let's drill. Now, it's

kind of a problem if you're trying to pull a ship by it

because you've got to go around it.

What's important about 4D survey and why

this technology is so important, is that you need to be in

the same place when you take the picture, like the time

lapse photo.

Because if I'm now a little bit off, when I

take that picture, you're not going to be able to tell what

changed because you're not looking at it from a slightly

different angle. So you have to line up the streamers,

same spot as they were the last time, except you're in the

middle of the ocean in the waves, pulling them by a ship

and they're 6 miles long. That's no easy task.

The 4D survey, you take it a few years later

and maybe you see the reservoir has depleted a little bit,

maybe something has shifted. That's also something oil

companies pay a great deal of money for.

I mentioned tangles. If you have ever been

fishing on a boat with more than one line, if you're like

me, you've probably got it tangled. The first thing you do

is you hold your rod up, and the person next to you holds

the rod down, and you try to sort that out. If it doesn't

work you probably get out a knife or scissors and you cut

the line. Maybe you lose $1.50, a lure and some line, bait



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and lure. You don't cut these loose. Cutting loose a

6-mile long million-dollar streamer is not an option for a

lot of reasons. And so, tangles are a lot more

problematic. And what you see here is in the current, if

you can't steer the streamers. You can't keep them where

you want them, that happens sometimes. And for an oil

company and for Fugro and WesternGeco, the last thing you

want is for that to happen, because not only do you have

damage and cost, but you lose time. And every day this

vessel is out there, costs hundreds, thousands of dollars.

If you lose a week out there, you're looking at a million

dollars. And so, avoiding tangles is a huge benefit to

having the ability to steer the streamers.

You're also going to hear about something

called infill. Infill, you might say, well, what's that?

The thing about it as the wake of the boat causes something

called trouser. I gather it's something that looks like

your slacks. They fan out at the bottom. And what you see

here is a gap in the middle, because the natural tendency

of the wake of the boat is to push those streamers out.

I don't know if you've ever heard that.

I've mowed the lawn a lot when I was a kid. If you mow the

lawn and it's a big straight field, you go one way, you

turn the mower around and you come back.

If you do a good job, the lawnmower lines up



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with the last line. If you're in a rush, maybe not paying

a lot of attention, if you're a little bit off, I want to

finish my job earlier, but when I'm done there's going to

be these little lines that stick out. And with my lawn, my

mom wouldn't have been real happy, the problem now is my

wife wouldn't be happy about it. If I was getting paid to

do it, you might be finished there. That was not an option

to walk out with the strips.

Now, all you had to do, all I did was I

tried to mow around and did another pass, maybe it took a

little fuel, took a little time. If you miss a gap like

that in the sea, it takes these ships 10 to 12 hours to do

one pass, one rundown of the lawn, and then another six

hours to turn the boat around to do the next pass.

So going back to clean up the strips is not

an option. If you do, you pay a lot of money. And people

want as low, as little infill as possible, because they

want the jobs done on time, and they want them done under

budget.

Lateral steering allows you to keep those

streamers where you want them. It keeps them straight, in

this case, something called streamer separation mode.

Think of it as a straight line pattern. But it also allows

you to do other features that didn't exist before lateral

steering.



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Let me talk to you a little bit about how

this all works. On these streamers are devices called

streamer positioning devices. Sometimes you'll hear them

called birds. And I guess they have wings on them at some

level. So that's why people sometimes call these birds.

This bird device or streamer positioning device is smart.

It's not just flaps in the water. It's connected through

the cable, to what's called the lateral controller, which

looks like a lot more advanced than that computer right

there, like the one I have with the big box monitor. And

what it does is it sends signals to that bird, that bird

has its own brain in it at the local level, and it gets

signals, and it constantly tells it every couple of

seconds, how to move to keep that streamer where you want

it.

They're all not doing the same thing

because the current is not the same because it's 6 miles

long. Maybe you're going around an obstruction. And so

now you'll see a full streamer array might have 200 of

these birds on it, and each of these is getting a signal,

not the same single, mind you, because that wouldn't do

much of anything because they're experiencing different

currents, and they're in a different place, and you need to

steer the streamers differently.

And this is all happening in realtime as the



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ship is being pulled across the sea. This technology

allows other things, something called fanning out of the

streamers. That's not the natural shape those streamers

would necessarily take. But in some instances, that's what

an oil company wants to be able to do. They have a wider

back end to your streamer, you want to deploy the streamer,

it's a lot safer to put it out and you can keep it separate

like that.

You'll also hear something about called

feather mode. Feather mode kicks them off to the side. So

now they would have been straight behind my ship, but now I

angle them a little bit. That's certainly not the natural

tendency of those streamers when you're driving you ship in

the water. But that allows you to get to corners and nooks

and go around things, that you wouldn't otherwise be able

to.

Customers want lateral steering, not just to

avoid tangles, but because infill, going back to mow the

pieces of the lawn you missed the first time, it takes time

and costs money. It allows you to turn faster. With this

technology you can control the streamers through a turn in

a way that you couldn't if you just swung it around, if

you're pulling a big trailer and you turn sharply, if

you're towing 10 trailers it's even worse what can happen

if you can't control what they are. It also presents the



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risk of tangles. As a result, if you don't have this

technology, it's slower surveys, and you get worse data,

which is what you've been paid to get, after all.

Lateral steering allows you to have the

streamers where you want them, reduce the amount of infill

time, turn better and faster, more efficiently and avoid

tangles. That leads to faster service, better results, and

not surprisingly more business, because customers want

that.

The oil and gas companies will pay Fugro,

WesternGeco 10, 20, up to 40 or $50 million to shoot one

survey. To go out and get an image with a ship like this.

Fugro is paid on average $13 million per survey. This case

involves over 200 surveys like this.

You'll hear not just from WesternGeco, but

from ION and Fugro themselves. That DigiFIN and lateral

steering control, enable denser spacial sampling. That

means they're closer together when you want them, and

increase productivity. That's on ION's own Website.

That's what they tell their customers because they think

this technology gives them a benefit.

Fugro also points that out. They have

glossy advertisements. They put in trade magazines and

they say at the bottom, the client was very happy with the

results, especially the reduced infill, meaning they didn't



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have to go back and keep doing the same passes over and

over.

You'll also see a video that ION

themselves have on the Website, and it explains this

lawnmower infill scenario quite well. It shows

side-by-side, a job on the left where you have those gaps,

the white spots, and the one red, that's the grass my

customers noticed when I missed it on their lawn.

On the right you have the job where you did

a really good job with your mower, or you have lateral

steering because you didn't have any gaps. And what ION

themselves point out is to go back and fill those in. It

took six more days for those five spots, and cost

1.8 million Euro more, which is almost $2.2 million saved

on a job like this, for just six days more efficiency.

After recognizing the value of this, ION and

Fugro also realized they had a problem because WesternGeco

owned this technology, they had these patents. And their

own internal documents in the course of a case like this,

WesternGeco could have never known about this before now,

in a case like this, you get to see the other side, memos

and business plans we call discovery.

And during that process, we got to see what

inside they were talking about. And we see here the first

one, ION saying currently the only competitor in the cable



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steerage market is WesternGeco with their proprietary Q

system. You recall I said our system is called Q. That's

the system they're talking about. They themselves called

it proprietary. When you see that, think patented. That's

what it means. It's proprietary to WesternGeco. That

means it's owned by WesternGeco. They knew full well, that

this was patented.

They also told people, until now only one

company, they didn't say WesternGeco, had the proprietary

technology to perform this work. You saw in the patent

video the suggestion it's an F1, a patent is like a deed to

your property. The patent describes the boundaries of your

property, what you own and what other people cannot come

on, without asking you and paying you to do so.

So ION sees this property line. They see

the fences, which are four of the United States patents.

And they realize, we don't own this, WesternGeco does. So

what do they do?

Well, they take WesternGeco's technology

anyway. They decide not to do the right thing. They don't

offer to pay us. They don't ask, they just take it. They

know right from wrong. And they also know that patents

again, this is in the video this is a core.

The Judge said at the beginning of your jury

selection, patents were actually in the Constitution with



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all the great things the framers had to deal with,

inventions made the cut. And what they said, and it's in

the Constitution today, is that to promote the progress of

science, Congress has the right to give someone for a

limited time, the exclusive right to use their invention.

Because if you don't have that, the framers realized people

wouldn't innovate. They wouldn't spend hundreds of

millions of dollars to develop the technology because as

soon as you come up with it, somebody else can just come

take it and spend no money in research and development.

Patents have claims. What you see here is

claim 18 of the '520 patent. It describes the boundaries

of WesternGeco's property. And we'll go through this in

detail. You'll hear from experts who will walk you through

what actually is in ION's equipment, how Fugro uses it, and

ultimately how it falls within these patents.

But this claim required three different

modes, the feather we showed you where it kind of kicks off

to the side, and if you do that, you infringe. If you have

this turn control mode, you fringe then too. And if you

have streamers separation mode in a system like this, you

infringe.

It was so clear ION's own Website identifies

that they do not just one of those, but all three of those.

Their own documents on the bottom show the blue being



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streamer separation, the yellow being feather angle, the

green being turn control mode.

This claim, the Court has found is

infringed. There are other claims. There are another 10

claims at issue for you to decide. Under the '520 patent

as it's called there are another five. And you'll hear

Dr. Triantafyllou -- Dr. Triantafyllou is in the gallery

today. He's one of, he would not say this, he's too

modest, the world's leading expert on this type of

technology. He's at MIT. He's hired by the oil companies

all across the spectrum because they want to understand,

get some benefit from his understanding of how technology

works in this area under see marine control systems and

ocean in here.

And he'll explain to you how it works, what

the claims looks like and how the infringing products fall

in this.

You're also going to hear after they

realized how great this was at Fugro, the first 20 months

that Fugro used this, they had it on one ship, and on that

one ship, they made over $150 million in revenue. And

$50 million in profit on the first ship, in the first 20

months.

And what they did and they're very candid

about it is they said, we went all in, we realized it, this



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was great, it was lucrative, and if we're going to have it

on one, let's go all in. And they bought a full fleet's

worth of it. They filled out every single ship on their

fleet with the same infringing technology.

ION and Fugro took this technology, took

nothing and got the benefits of it. And you'll hear what

it takes to actually innovate and invent this technology.

You'll meet Simon Bittleston. Dr. Bittleston is in the

gallery, as well as Marc Zajac. The two of them,

WesternGeco employees, worked tirelessly to innovate and

develop and the company backed them millions of dollars

worth of investment, to invent this very technology.

That's what patents protect.

You'll also hear a little bit about the

patent process. We saw it in the video. By that

investment, companies come up with new ideas, they then

file patent applications, and the patent, has their

experts, they're actually people in each field you have a

chip patent you get a chip expert. If you have a seismic

streamer expert, you get a marine exploration expert, you

file a patent on something else, cellphones you get a

cellphone person.

They have people in each field that this is

all they do. They look at technology and the cutting of

edge of it every day. And two different patent examiners



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looked at these patents and four times granted these

claims. Four times.

Because they realized at WesternGeco that

they would get protection for this, they were willing to

keep investing and keep growing the marketplace and giving

more benefits to the oil and gas companies. And they

invested over a hundred million dollars to not just come up

with the technology of the patents, but to grow the market,

to persuade customers, this will give you a benefit; we can

do things we couldn't do before with this technology and

then, ultimately, the market takes off, and that's when ION

and Fugro step in. Again, you'll see their own documents,

talking about how this was the marketplace they wanted to

break into. By using DigiFIN existing customers, we'll be

able to compete in the proprietary Q-Marine Systems' market

space. The market space of Q lateral steering they,

described as proprietary WesternGeco, and with this

technology, they would enable customers to get into that

space.

The bottom document, you'll see

highlighted. DigiFIN opens the door to 3D vessels, 62 of

which there were at the time, to compete in the market

space that WesternGeco has created. This is not a document

that WesternGeco came up with. This is at ION. They sit

down and they're talking candidly, internally, and they



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say, WesternGeco created this market, it's proprietary to

WesternGeco; but if we do this, we can open the door to

people like Fugro to compete with them.

What happens? It's not surprising what

happens. ION and Fugro aggressively target WesternGeco's

customers. They go to them, and they say, We can offer

this too. And indeed, since we didn't spend as much for

R and D, we can give it to you maybe even a little bit

cheaper.

They're going to tell you now customers

really don't want this, that this isn't the reason

customers buy it, that they use them for other purposes,

and that it's not worth very much at all. Except you're

going to see in their own documents, ION: "Steerable

streamers add definable value propose to oil companies and

seismic contracts. The use of steerable streamers is

increasing year on year and becoming a requirement for many

surveys.

You'll see Fugro talk about customers. This is

a big oil company called Apache, that their surveys will be

full DigiFIN, and this is their expectation. And the

bottom one is tough to read, saying that Apache has stated

steerable is mandatory on 3D and 4D. They're going to tell

you it's not really required. It's an option. They would

have still gotten all these jobs without it. Except they



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decided to go all the way in and spend a lot of money to

put it on the fleet, and their customers told them, You

have to have it if you want our business.

You'll see tenders, and these are long,

the business documents, witnesses who interacted with those

will come up to you and talk about them. But those tenders

also say, You have to have lateral steering. And if you

want this job, think of it as the requirement. I happen to

need a plumber if I was going to replumb some part of my

house, or I might put that out for bid. I might have three

plumbers tell me what they could do it and what it would

cost, kind of like what a tender is. And they come back

and say, We can do it, we all have that equipment, and

here's what it's going to cost. And these tenders say it's

required.

You're also going to see that, right here

in the United States, Fugro was bidding on projects. Fugro

sent this tender you see on the screen in response to a

invitation from a company called StatoilHydro. It sent it

from Houston to Houston, to StatoilHydro. And they touted

how they're digital lateral control system, the infringing

DigiFIN, would give them more success, better features and

how it's installed on all of their 3D vessels.

You'll also see them, in their own

e-mails, perhaps the most candid assessments where people



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are just quickly responding to one other. They're not

thinking it's going to someday be here in front of a jury.

"Question: Would it be possible to get

away without using steerable streamers?"

"Response. Steerable streamers for this

particular job is a MUST," all caps. Indeed, they say, "We

won the job because of it."

And ION, when they're talking about Fugro,

pointed out what I started with. Fugro has gone from

laggard in tech in leading -- to leading the industry in

steerable decisions. That's because they're now using

ION's technology that they opened the door into

WesternGeco's market with.

You're also going to see that on ION's own

Website, despite what they say, that these aren't required

and no one cares with them, what they and ION really think

because, on their own Website, they have had a video, and

the video talks about whether ION thinks steerable

streamers are important or not.

(hereupon, the video was played)

MR. LOCASCIO: So, while in court, you're going

to hear a lot about how steerable is not required, they

didn't win jobs because of it. That's not what ION thought

and thinks when they tell people, their customers and the

public about this. That's what they're going to tell you.



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The result is ION and Fugro took jobs

using WesternGeco's technology. What should they do about

that? What should happen? Well, they should pay for what

me took unlawfully. You'll hear there are 207 surveys.

The total survey revenues, how much they got paid from oil

companies, the people who performed these surveys, is over

$3 billion. And 25 of those surveys, you'll hear

WesternGeco, you'll hear from Ray Sims. He's an economist.

He comes -- he'll look at these bids. You'll also hear

from Robin Walker who works at WesternGeco and describes,

Some of these jobs there's no question we wouldn't have

gotten because there would not have been an option without

the infringement. Not all. We understand that some

customer may really love Fugro. 25 of 207 jobs we're

seeking what we're entitled to, which is the profit we

would have made if they hadn't infringed. And on those 25

surveys, Fugro got paid 319-plus-million dollars. Cost

WesternGeco would have obviously had to spend money for

fuel and equipment and personnel. Back that out, and

WesternGeco is entitled to $159 million dollar for those 25

jobs.

Now, there are 182 jobs where our

technology was used. You'll hear the law requires a

reasonable royalty for that. Essentially, if you're going

to use someone's product to go in their property, you have



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to pay to do it. And you'll see Fugro's own documents

saying they were hoping to charge $20,000 a day on each

survey to use this technology. We'll walk through how many

days they did this work and what's that worth.

For these types of surveys using

WesternGeco technology, the defendants and people who

performed these surveys made over $3 billion. On each one,

Fugro on average makes more than $13 million, and despite

that and knowing they were infringing our technology, ION

and Fugro have never paid WesternGeco anything. Nothing.

Well, what happens? Right now, we're

going to see what happens. You're going to see it here

over the next two weeks, ION and Fugro knew they might get

caught. This wasn't a surprise. They talked about how,

after they did the first study with their technology from

ION, they were concerned that they implicate our patents.

Did that concern change? Did they go down? No, it's

remained about the same today.

Their initial concern, they've had it all

along. You'll see documents like these from Fugro, saying,

I studied the patent documents. We might have problems on

the navigation side, with Geco, that's WesternGeco. The

bottom one, ION wanted them to tell everybody about how

great this was. And they said, We're not at ease with

Geco's patent issues. We need a letter of guarantee from



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us, freeing us from potential claims.

They said, Well, if you want us to go out

there and tell how great the product is, you're going to

have to cover us on the back side because it looks like we

infringe.

And you'll meet Leif Morton By, who says,

after he got a written document from a oil company telling

them that they infringed, he doesn't think anything changed

at Fugro. They didn't change their plans at all. You'll

hear him say they thought they potentially could be

infringing WesternGeco's patents on every single survey,

and despite the fact that this was a serious issue, nobody

ever addressed his concerns. The one thing they did,

though, was ION wanted to make sure Fugro would keep buying

products. So they gave them had a product assurance

pledge, saying, I know you've been accused of infringement,

so if we -- if you keep buying this, we've got your back.

They then went further. Fugro said, Well,

that's nice, but we want a signed contract that says you'll

indemnify, that you'll pay for us if we're found to fringe.

And ION signed that.

THE COURT: Five minutes --

MR. LOCASCIO: Thank you.

THE COURT: -- Mr. LoCascio.

MR. LOCASCIO: What happened then? Did they



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make it right, or did they make it worse? You'll see

discussions at ION and Fugro about keeping this information

confidential. At the top, it says, "Let's keep this under

the radar because these patents issues have been haunting

DigiFIN operations lately."

On the bottom, "We have this lawsuit from

WG," that's WesternGeco, "to handle. I strongly advise not

to include anything about DigiFINs in this published

article." The last sentence, it's highlighted, "If we tell

people about this, we do so, it will only give WesternGeco

a better picture on what we're doing, our inventory and

where we presently are, and, therefore, help them building

a case." They said, Let's hide it. That's not what you do

when you want to make it right, when you've been caught.

Next slide. You'll also see another

example of what -- not making it right, but making it

worse. Before 2010, ION made all this equipment in a place

called Harahan, Louisiana. It's not far from New Orleans.

ION makes this equipment, and Fugro is buying it here in

the United States.

And then what would happen is Fugro would

send that equipment to Houston and then ship it to wherever

they needed it, in this case Norway. Because of that, they

infringed WesternGeco's patents. So after 2010, they

didn't stop. They came up with a new plan. They took half



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this factory, and they put some of the equipment over

there -- the same folks in Louisiana made them, but that

piece of the factory is now called ION International, a

Dubai company. I can assure you these DigiFINs never go to

the Middle East and they're not made in the Middle East.

They're made in Harahan, Louisiana, and they go now not on

the truck that's Fugro's truck, but it's ION

International's truck. And then they go to Houston still,

same as they did before, and make their way to the same

place they went before. Same stuff, made by the same

folks, going to the same place. And the only thing

different is they changed the shipping label, ION

International care of ION Marine Systems, Harahan,

Louisiana.

They thought they'd found some loophole.

They changed some shipping labels instead of stopping what

they were doing. This isn't what you do when you do the

right thing. This is what you do with you're trying to get

away with something and find a loophole. And only now

after it gets outside the United States does the ION

International label fall off and Fugro takes ownership of

it.

You will see that ION and Fugro will

continue to say anything to avoid responsibility. They're

going to tell you that despite four times, two examiners,



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years of examination, these patents were issued. You're

going to hear that their argument is every one of them

issued by mistake, every single one.

What you heard was the patents are presumed

to be valid. Just as an example of their excuses, they're

going to tell you one patent is invalid because the patent

office didn't consider things right; except you'll see on

that very patent the same exact things they point to were

cited by the patent office. The patent office looked right

at them and issued the patent.

THE COURT: You have one minute. One minute.

MR. LOCASCIO: These patents protect

WesternGeco's property. These patents are valid, and ION

and Fugro should not be able to infringe. So you won't see

much dispute over ION and Fugro's infringement. It's

already been decided. You'll be asked how many patents

they infringe. The question you'll face over and over

again is whether you should let ION and Fugro get away with

their infringement. You'll see their own documents, you'll

hear their own witnesses and you'll hear how instead of

once ever doing the right thing, ION and Fugro continue to

do the wrong thing.

Should they be allowed to get away with

it? That's for you to decide. When I come back after

closing argument, I'll ask that you find ION and Fugro



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infringed not one claim but eleven claims, their

infringement was intentional, these patents are valid, and

that they should pay for what me took.

This case is about whether innovation and

the law should be respected, or whether a company can

infringe United States patents by simply making excuses and

looking for loopholes.

Thank you for your service in this case

and reaching the right, just result.

THE COURT: Thank you very much.

Mr. Torgerson.

MR. TORGERSON: Pardon the delay. May it

please the Court?

THE COURT: Counsel.

MR. TORGERSON: Good afternoon. Competition is

the backbone of the American free-market economy. Every

day companies compete on price or perceived benefits or

advantages of their products. And this case is no

different.

While patents protect ideas, the entire

patent system is intended to promote progress and encourage

innovation. Here, WesternGeco has invented a mousetrap,

and my client, ION, built a different, better kind of

mousetrap at the end of the day. Instead of letting the

market decide, and we believe and we'll show you that the



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market has made some decisions on this issue, WesternGeco

sought the intervention of this court system to chill the

market, and that has happened.

We will show you that WesternGeco doesn't

handle competition very well. The truth is that ION did

not take anything from WesternGeco and is not using

anything that belongs just to them. ION's technology was

designed differently and performs differently than the

specific way they claim. You've heard about -- a lot about

the infringement of claim 18 of the '520 patent, but that

finding is not the end of the analysis, however, because an

infringement, as you've heard several times, doesn't matter

if the patent itself isn't valid.

We will show you that the '520 patent and

several of the others never should have been granted in the

first place. We will show you that keeping multiple

streamers apart and separate was shown clearly in another

much earlier patent.

With the introduction of more than one

streamer, and you saw some of that history with

Mr. LoCascio, it's common sense to know that you have the

risk of tangling streamers when there's more than one in

the water.

We will also show you that one infringement

finding called a single claim does not automatically mean



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infringement of the other 10 assorted claims. Only an hour

into trial, WesternGeco has already made that false

insinuation, that you're faced with dominos and your work

there is done and let's turn to the damages.

And finally, we're going to show you that

WesternGeco has not been harmed by the sale or use of ION's

equipment, and certainly not in the inflated manner in

which they claim.

My name is Ray Torgerson, and again, on

behalf of the Porter Hedges team. We're proud and here to

represent the hard-working, honest and innovative men and

women of ION Geophysical.

Now, WesternGeco's patents did not cover the

concept of lateral steering itself -- I need to be clear --

much less all possible devices or modes of control or use.

A slide that Mr. LoCascio displayed read,

"WesternGeco pioneered lateral steering and patented it."

They didn't patent lateral steering. They

patented devices and methods for using those devices. ION

had some patents in the field both before and after to this

day WesternGeco's own patents. You're going to be

presented with other patents including those from ION that

show other types of devices that have lateral steering

capability.

If we could go to the next slide, please.



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For example, there's lots of historical

work in this field, and it's an evolving field since the

1970s. You're going to hear that the subject of lateral

streamer control and even lateral steering devices are a

natural evolution, a natural evolution of the marine

seismic industry that have been discussed since the 1970's

after the first 3D survey was performed right here in the

Gulf of Mexico. And as technology improved, so did the

possible solutions.

Now, to take Mr. LoCascio's lawnmower

analogy, you've got a Lawn Boy mower and a Toro motor --

mower, and you go and mow a lawn. They might have

respective patents, but it's about mowing the lawn. And

sometimes the question is not always who was there first.

But we've got something to say about that too.

WesternGeco broadly claims that you can't

adequately perform these 3D or 4D surveys without lateral

steering even though it's not disputed that 3D and 4D

surveys were performed both before lateral steering and in

their QFin design and even today without lateral steering.

THE COURT: Mr. Torgerson, let me slow you down

just a little bit; okay?

MR. TORGERSON: It's simply not true that each

streamer array as you saw in the slides includes

necessarily lateral steering. Even WesternGeco offers to



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perform lateral steering, or -- I'm sorry -- surveys

without lateral steering, and we'll show you that.

Now, in contrast, the ION technology that

WesternGeco accuses has its roots in a small company in

Harahan, Louisiana, that used to be known as DigiCOURSE.

Although ION bought the company in 1998, most of those same

fine people working back there then still work there today,

and I think that that says something about my client. Now

known as Marine Imaging Systems Division, or MISD, at ION,

the DigiCOURSE people were known for their superior

equipment, such as magnetic compasses, depth control birds

and acoustic ranging equipment.

THE COURT: Slowly now slowly.

MR. TORGERSON: This equipment remains the gold

standard some 20 years later. It might surprise you that

WesternGeco remains a longtime customer of many of these

same ION products, and they deploy those out into the field

along with their own equipment.

The evidence will show that the folks at

DigiCOURSE, and specifically a talented mechanical

engineering engineer named the Andre Olivier, were

developing lateral control devices and strategies for

controlling those streamers in the early 1990s independent

of WesternGeco.

You will hear that before DigiFIN was



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developed starting back in 2004, ION had considered at

least two prior separate mechanical designs and interacted

closely with potential customers on that work. You're

going to see ION's drawings, handwritten notes,

photographs, and even prototypes reflecting ION's own

separate efforts in this field. Indeed, you are going to

hear that ION discussed its work on the subject in 1994 and

1995 with WesternGeco's predecessors, Western Geophysical

and Geco-Prakla, but no business arrangement could ever be

reached.

Along the way, the evidence will show that

ION carefully monitored patents in this field and worked

hard to arrive at its own solutions. ION doesn't go around

stealing other people's ideas. You're not going to see any

evidence of that in this case. And on top of it, it just

makes sense because it's not good business.

Now, if I could have some assistance with

my colleagues, Eric Wade and Jonathan Pierce, I'm going to

show you two of these devices that ION developed.

Now, Mr. Wade, with the all red device,

this is a DigiBIRD, and a DigiBIRD is an exclusively depth

control device. It hangs from a streamer, and we'll show

you later one with cuffs that actually mount to the

streamer, and these wings can go up and down, or are

controlled either automatically or from the boat. This is



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the gold standard in the industry. Everybody uses this

device in marine surveys, including WesternGeco. They put

them only their own boats and lots of lots of volumes.

They're one of our largest customers.

This is a DigiFIN. DigiFIN, you can see, is

a lateral device with a wing that moves and steers. These

are two separate devices, but it's not hard to see how one

could lead to the other. This was developed in the 1980,

and polished into the 1990. And you can see it's not

difficult to arrive at a lateral device when you simply

turn it on its side,

And we're going to tell you that story. You

can see that it's the same equipment, it's the same motors,

and it's based largely on the same software algorithms.

One developed easily into the other, it's a natural

evolution.

Thank you, gentlemen.

Most importantly, one of the messages I

want to leave with you today is that ION is a leader, a

recognized leader in this industry, not a follower.

Other products that WesternGeco accuses of

infringement relate to a company known as Concept Systems

and Edinburgh, Scotland, that became part of the ION family

in 2003. Like DigiCOURSE, Concept had many longtime, loyal

employees. Concept was and still is known for its



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groundbreaking work in command and control software, the

shipboard computer system that communicates with and

manages all of the in-water equipment.

You're going to hear about Spectrum, which

is a product that goes back to 1993, and its latest

iteration, Orca, which was launched in 2003. Concept's

work in this field is well regarded, even by WesternGeco.

The people at ION know that their success

over time comes from working hard, playing by the rules and

respecting others. As an equipment manufacturer, ION

listened to its customers' needs, monitored the market, and

those customers recognized the technical expertise both in

Harahan, Louisiana, and Edinburgh, Scotland, and they

designed streamer systems to meet those needs.

ION remains a contender the old-fashion way,

because they earned it. Now there is an important

distinction between WesternGeco and ION's business models,

and you've heard some of that already. ION designs, sells,

and makes equipment to contractors like Fugro and

WesternGeco. ION doesn't bid on or perform marine seismic

surveys. ION doesn't even own a boat that's capable of

performing one of these surveys.

Now, in contrast, the evidence is going to

show you that WesternGeco had to rely on another company to

build its lateral steering, the QFin. You're going to hear



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that WesternGeco did not have the experience or the

capacity to build such a device and make it work.

More importantly, WesternGeco doesn't sell

equipment including the QFin. So when Mr. LoCascio talks

about it being proprietary, that doesn't mean just that

it's patented. It also means that they don't sell it into

the market. And that means that, until somebody else comes

up with a competing device, a better mousetrap, a different

mousetrap, nobody else can perform that.

When WesternGeco performs a survey, the oil

company receives an answer: Here's what the data shows,

here's the images, here's what your subsurface looks like.

WesternGeco and ION are very different companies, built on

very different principles. But did you see how

Mr. LoCascio tried to push the two companies together? It

was always ION/Fugro or the two circle images with ION on

top and Fugro on the bottom?

There is no special partnership or

collaboration between ION and Fugro. It's just simply a

good customer. It's a good business relationship. Fugro

is and always has been an arm's length business

relationship and customer of ION's. Fugro was, in fact,

the third customer of DigiFIN, not the first, and they had

no input on the design or details as to how that device

would work.



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part of their ongoing business relationship. But it fits

the story for Mr. LoCascio and WesternGeco to tell you that

they're meshed together.

The evidence shows that WesternGeco closely

monitors what other competitive products might be emerging

out there. WesternGeco first heard about the DigiFIN while

it was still under development, and they heard about it

called the DigiWING back in 2004 and 2005.

In June 2006, at an industry trade show,

four WesternGeco representatives, including Mark Zajac, the

inventor of the '038 patent, personally intended an

unveiling of the DigiFIN product, which included a detailed

presentation of ION, about its operational benefits and its

control modes.

Importantly, you are not going to hear that

Mr. Zajac or anyone else at WesternGeco pointed to that and

said infringement. You're not going to hear that.

THE COURT: Slowly now, slowly.

MR. TORGERSON: What you're going to hear

instead is that there was discussion between ION and

WesternGeco personnel about ION selling that equipment to

WesternGeco to put on its other boats that didn't have this

technology. WesternGeco had an incentive by having vessels

without QFin, without the ability to laterally steer, to

purchase equipment off the shelf from a company like ION



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and put it to good use and make still more money. The

point there is that there was not an accusation of

infringement from the beginning. There was instead a

discussion about whether that commercially would make sense

and we could sell it to them.

Internal ION documents will also show that

WesternGeco was identified as a potential customer for this

product.

Now, even inside WesternGeco, well after

this meeting in June 2006, there was no mention of

infringement for some time. The evidence shows that,

instead of immediately defending these patents, WesternGeco

sat back and waited, one, two, and almost three years

before making a public accusation to Western -- or to ION

about potentially infringing these patents.

Now, what was WesternGeco doing during this

time? It was watching the market to see how the DigiFIN

device would be received. Would it work? WesternGeco

technical people had their doubts about ION's design of the

single fin, DigiFIN device. Will contractors buy it?

WesternGeco people said, It sure looked like a lot of

equipment to put on a streamer.

But while WesternGeco sat back, the world

changed at the end of 2008, and we're all familiar with it.

The global recession hit, oil prices dropped, and the



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entire seismic industry went into a slump.

The evidence shows that WesternGeco did

not make a single public accusation of infringement until

the fall of 2008 at an industry trade show in Las Vegas

where several WesternGeco executives confronted Statoil, a

large Norwegian company. Statoil had hired Fugro to

perform a survey using ION's DigiFIN equipment, and Statoil

was pleased with those results.

WesternGeco was not handling the competition

very well. Let's turn to the accusations of infringement

and invalidity. WesternGeco would have you believe that

you are here to protect their intellectual property. That

they invented something new and useful, that had been

blessed by the PTO in the form of several patents, which in

turn, gives them the right to sue ION, my client and Fugro,

for making and selling those products, or their components

from the United States, and for using those products

unquestionably outside the United States.

As the patent video described

earlier, a patent is like deed for a piece of land. Here,

our position is WesternGeco wants to pick up and move its

fences miles back, in all directions and say this is what I

actually meant, this is what I actually claimed in my

invention.

You saw the slide with a



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broken white picket fence. We didn't break the fence. We

just want to show you and have the opportunity to show you

that their fence remains in place and what we do is

different and is outside that fence.

You will even hear from one

of the named inventors Oyvind Hillesund, who doesn't work

at WesternGeco anymore, that even he believes the language

claim by WesternGeco is stretched, his words, stretched,

beyond his original ideas.

We ask that you look closely

and carefully, at these two very different technologies and

go beyond skin deep. You'll find that each one has its own

unique history and the differences between the two

technologies are clear.

We don't have time for much

of these introductions to get into the details of these

differences, so I can't explain all the details now. But

suffice it to say that WesternGeco bears the burden of

proving infringement by a preponderance of the evidence.

And you've already heard that that means more likely than

not.

We are going to show you

patent by patent, claim by claim, line by line, that what

they claim, we don't do.

We only ask that you listen to all of the



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evidence and apply your own common sense. We also intend

to show you that these WesternGeco patents are invalid and

should not have been issued in the first place. We bear

that burden to show you that, by clear and convincing

evidence. That they don't reflect new or useful inventions

and should not have been issued. That's a challenge we

readily accept. We know what the burden is.

Again, we're going to show you in a straight

forward manner, line by line, step-by-step, prior art, that

anticipates or makes obvious and discloses what they are

subsequently claiming.

For example, we're going to show you that a

prior patent, the workman patent discloses each and every

limitation of Claim 18 of the '520 patent. In other words,

the finding of infringement that you've heard so much about

is simply not the end of the story.

And importantly we only need to invalidate

one of those control modes, disclosed in Claim 18. So when

talk about turn control mode, feather angle mode, streamer

separation mode, we're going to show you that in 1998, the

workman patent talks about a streamer separation mode. And

anticipates each limitation in their patent.

Now, let's turn to what WesternGeco is

asking you by way of damages. WesternGeco contends that

it's entitled to over $150 million in lost profits



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associated with 25 surveys. Surveys remind you that they

were competing against Fugro and other companies for.

THE COURT: Slowly, slowly.

MR. TORGERSON: In other words, WesternGeco

wants you to believe, that it would have secured every

single one of those surveys if DigiFIN did not exist and it

was the only company to be able to offer lateral steering

through its QFIN device.

WesternGeco relies primarily on two

theories, first, that Fugro has offered to sell surveys

discussing the use of the accused ION equipment from the

United States. And there is no question that these surveys

occurred more than 12 miles offshore. And you're going to

hear that this Court has ruled that the maximum reach of

U.S. Patent Law into these facts is 12 miles. These

surveys happened far, far away.

You will not hear that performing a survey

in international waters or off the coast of this country or

that country, is in itself an infringing act.

Second, ION and Fugro supply or caused to

be supplied components from the United States that are

intended to be combined outside the U.S., in a manner that

would infringe if combined in the United States.

Recall that WesternGeco does not actually

sell its products including QFin. So to be clear,



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WesternGeco was not harmed by losing sales or profits from

devices that it otherwise would have been competing against

DigiFIN. This is not a DigiFIN versus QFin issue. This is

a survey to survey issue.

Importantly, WesternGeco wants you to hold

ION liable for damages that are unquestionably double,

twice the total gross revenue, not just profits, but total

gross revenue that ION has received for all sales of

DigiFIN's and lateral controls. That's the disconnect

between the amount of money that ION has recogn

locascio westerngeco trial vol. 1 pm.pdf

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