Drill bits: Baker Hughes claims espionage.
Baker Hughes claims drill bit espionage
Services and equipment giant Baker Hughes sued rival Varel International over claims the smaller company “cloned’’ one of Baker Hughes’ best-selling drill bits.
Varel managers who used to work at Baker Hughes allegedly obtained stolen internal design specifications from Baker Hughes - some with the word “confidential’’ covered in white-out - and used them to copy a popular proprietary bit for Varel’s product line, according to a lawsuit filed in Houston state court yesterday.
The “cloning effect took a couple of weeks to complete’’ in 2003, Baker Hughes lawyer Michael Sutton said in court papers.
“Without the information contained in the Baker Hughes documents, the creation of all the dimensions and features of the drill bit would have taken multiple years.’’
“We think the actual damages could be on the order of tens of millions of dollars,’’ Sutton said in a telephone interview with Bloomberg today.
Houston-based Baker Hughes seeks a temporary restraining order, the return of its allegedly stolen internal documents and “uncapped’’ exemplary damages.
Damages should include Baker Hughes’s research and development costs for its 7-7/8 inch tricone bit, as well as all profits Varel made off the allegedly “cloned” products, which Baker Hughes claims Varel sells as its High Energy and Challenger series of bits.
Bill King, director of marketing and intellectual property in Varel’s Houston office, didn’t immediately return a call seeking comment on the suit.
Varel International Energy Services is the world’s largest independent drill bit supplier, with revenue of $276 million last year, according to its website.
Varel was bought for $369 million by a unit of Arcapita in November 2007.
Houston-based Baker Hughes, which pioneered roller-cone drilling bits almost 100 years ago, had revenue of $2.23 billion during the third quarter this year.
Gary Flaharty, Baker Hughes investor relations manager, didn’t immediately return a call seeking comment on the lawsuit.
Baker Hughes provided the court with an affidavit from former Varel engineer Tze Liang Lee, who claims he created Varel’s drill bit from the stolen Baker Hughes documents in the 2003 “cloning project.’’
Sutton said Lee recently contacted Baker Hughes about the stolen data, which he claims to have downloaded in last year onto a memory device.
“Lee was told to shred the evidence and he didn’t’’ after duplicating the drill bit design, Sutton said.
“We’ve never seen such an egregious situation, with a company taking so many documents and using them to clone a competitive product.’’
Lee allegedly provided copies of Baker Hughes documents containing design specs and training manuals created at the Hughes Christensen technology division in The Woodlands, north of Houston.
The same documents bear the digital footprint of a fax machine registered to Varel’s Oklahoma City office, according to the lawsuit.
The case is Baker Hughes versus Varel Holdings and Varel International, 2009-75553, in the 269th Judicial District Court of Harris County, Texas (Houston).