Investors Now Bet on Smith in Patent Suit

As Smith International and Hughes Tool Co. began the closing-arguments phase of their bitter, 13-year patent infringement suit on Wednesday, Wall Street seemed to reverse its outlook on the likely outcome.

Smith International Inc. rebounded in heavy trading from its recent losses to post the day’s single largest percentage price gain on the New York Stock Exchange. Common shares of its competitor and legal foe, Hughes Tool Co., slipped to a new 12-month low.

Newport Beach-based Smith closed at $5 a share, up $1.13 for the day, an overall improvement in price of 29%. Houston-based Hughes Tool hit a new low of $10.63 a share, before moving up slightly to close at $10.75, down 75 cents from Tuesday’s close.

Smith’s recovery came just one day after Standard & Poor’s Corp. announced that it had placed Smith on its “CreditWatch” list in anticipation of a possible reduction of the company’s BBB-bond rating.

Although Smith officials declined to comment about the company’s stock price, industry observers speculate that the rebound signals investor confidence in a favorable outcome for Smith.

Hughes is seeking $1.2 billion in damages based on lost royalties, sales and interest arising from what it alleged was Smith’s pirating of a rock drill bit more than 13 years ago. The damages Hughes has asked are nearly twice the $747 million Smith had in 1984 revenues.

Lawyers, employees, stock brokers and bankers filled a Los Angeles courtroom Wednesday to watch the closing arguments before U.S. District Judge Harry L. Hupp. For the first time since the trial began on Jan. 2, Jerry Neely, Smith’s chairman, was in the courtroom.

Observers said a ruling on the amount of damages to be awarded will probably come today or Friday.

“It’s still a horse race,” commented one Smith attorney as he left the courthouse late Wednesday.