Gryphon Oilfield Solutions, LLC v. Stage Completions Inc. et al

Filing 71

MEMORANDUM AND ORDER denying 10 Motion for Preliminary Injunction.(Signed by Judge Nancy F Atlas) Parties notified.(TDR, 4)

United States District Court
Southern District of Texas

ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
GRYPHON OILFIELD SOLUTIONS, §
LLC,
§
Plaintiff,
§
§
v.
§
§
STAGE COMPLETIONS (USA)
§
CORPORATION, et al.,
§
Defendants.
§

January 17, 2018
David J. Bradley, Clerk

CIVIL ACTION NO. H-17-3220

MEMORANDUM AND ORDER
This patent case is before the Court on the Motion for Preliminary Injunction
(“Motion”) [Doc. # 10] filed by Plaintiff Gryphon Oilfield Solutions, LLC
(“Gryphon”), to which Defendant Stage Completions (USA) Corporation (“Stage”)1
filed a Response [Doc. # 42], Gryphon filed a Reply [Doc. # 47], Stage filed a SurReply [Doc. # 55], and Gryphon filed a Submission of Supplemental Rebuttal
Evidence [Doc. # 58]. The Court heard oral argument on the Motion on December 19,
2017. Having carefully reviewed the record and applicable legal authorities, the Court
denies the Motion for Preliminary Injunction.

1

Defendant Stage Completions, Inc. is a Canadian corporation and has filed a Motion
to Dismiss [Doc. # 59]. Stage Completions, Inc. argues that the case against it should
be dismissed for lack of proper service and for lack of personal jurisdiction. The
Motion to Dismiss has not been fully briefed and is not yet ripe for decision.

P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

I.

BACKGROUND
Gryphon is the current owner of United States Patent No. 9,611,727 (“the ’727

Patent”), having purchased the patent rights from a bankruptcy estate. The ’727
Patent covers an apparatus and method for fracturing hydrocarbon formations utilizing
sliding frac sleeves. Unlike earlier devices that used graduated ball seats that could
receive a ball dropped downhole to create a seal in the wellbore, the device covered
by the ’727 Patent uses darts with dart profiles extending radially outward that mate
with key profiles on the piston of the frac sleeve. The darts travel downhole until they
reach matching key profiles, whereupon they latch into the respective piston of the
frac sleeve to create the seal. Gryphon has developed a system, SUREselect, covered
by the ’727 Patent, but at the time of the hearing had not successfully field tested it or
made any sales of that system.
Gryphon filed this lawsuit, alleging that Defendants’ Bowhead II system
infringes Claim 7 of the ’727 Patent. The Bowhead II system consists of a ball-oncollet assembly in which a ring-shaped collet and ball are dropped downhole. The
protrusions on the collet engage with the grooves in the valve sleeve, the ball seats in
the collet, and a nearby valve in the sleeve opens to allow fracking. When fracking
is complete, the ball dissolves and the collet remains in place. The interior diameter
of the collet is sufficiently large to allow unrestricted flow through the wellbore.

P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

2

Gryphon filed its Motion for Preliminary Injunction. The Motion has been fully
briefed, and the Court has heard oral arguments. Consequently, Gryphon’s Motion
is now ripe for decision.
II.

STANDARD FOR PRELIMINARY INJUNCTION
To obtain a preliminary injunction in a patent case, the plaintiff must establish

“that he is likely to succeed on the merits, that he is likely to suffer irreparable harm
in the absence of preliminary relief, that the balance of equities tips in his favor, and
that an injunction is in the public interest.” Revision Military, Inc. v. Balboa Mfg. Co.,
700 F.3d 524, 525 (Fed. Cir. 2012) (quoting Winter v. Natural Res. Def. Council, Inc.,
555 U.S. 7, 20 (2008)). A preliminary injunction enjoining patent infringement
“involves substantive matters unique to patent law and, therefore, is governed by the
law of [the Federal Circuit].” Id. (quoting Hybritech Inc. v. Abbott Labs., 849 F.2d
1446, 1451 n.12 (Fed. Cir. 1988)).
III.

ANALYSIS
A.

Likelihood of Success on the Merits

Gryphon asserts that the Bowhead II system infringes Claim 7 of the ’727
Patent. Stage denies infringement.2 To prove patent infringement, a comparison of

2

In addition to arguing that the Bowhead II system does not infringe Claim 7 of the
’727 Patent, Stage argues that the ’727 Patent – if it is construed as asserted by
(continued...)

P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

3

the asserted claims to the accused device must show that every claim limitation or its
equivalent is found in the accused device. See Planet Bingo, LLC v. GameTech Int’l,
Inc., 472 F.3d 1338, 1343 (Fed. Cir. 2006). The comparison is only to the patent
claims, not to any specific embodiment in the patent specification or to the patent
holder’s commercial embodiment. See Amgen Inc. v. Hoechst Marion Roussel, Inc.,
314 F.3d 1313, 1347 (Fed. Cir. 2003). The patent holder bears the burden of proving
infringement by the preponderance of the evidence. See Octane Fitness, LLC v. ICON
Health & Fitness, Inc., __ U.S. __, 134 S. Ct. 1749, 1758 (2014); Cephalon, Inc. v.
Watson Pharms., Inc., 707 F.3d 1330, 1340 (Fed. Cir. 2013) (citing Tech. Licensing
Corp. v. Videotek, Inc., 545 F.3d 1316, 1327 (Fed. Cir. 2008)).
Claim 7 of the ’727 Patent claims:
7. A system of valves and at least one dart for use downhole in a well,
the system comprising:
at least two valves, each valve comprising:
a)

2

a tubular valve body comprising upper and lower ends defining
communication therebetween, the valve body further comprising
at least one port extending through a sidewall thereof nearer the
upper end;

(...continued)
Gryphon – is invalid based on prior art. Gryphon argues that Stage is estopped to
challenge the validity of the ’727 Patent. The Court does not reach this issue at this
stage of the proceedings and will base its analysis of the “likelihood of success on the
merits” factor only on the non-infringement arguments.

P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

4

b)

c)

d)

a tubular piston slidably disposed in the valve body and
configured to provide communication therethrough, the piston
closing the at least one port in a closed position, the piston
opening the at least one port in an open position;
a key profile disposed on an interior sidewall of the piston and
comprising at least two grooves and a locking shoulder, the key
profile for moving the piston from the closed position to the open
position when a downward force is placed on the piston; and
a tubular end cap disposed on the lower end of the valve body, the
end cap configured to stop the piston when the piston moves from
the closed position to the open position;

where the key profiles of the at least two valves have the locking
shoulders in different locations relative to the two grooves within their
key profile, and
the at least one dart comprising a longitudinal shaft comprising upper
and lower ends, the lower end comprising a dart profile, the dart profile
configured to engage grooves and locking shoulder of a matching key
profile, the upper end comprising at least one dart cup configured to seal
off communication through the piston when the dart profile has engaged
the corresponding key profile,
where the location of the two grooves and locking shoulder in the dart
profile is configured to specifically bypass unmatching key profiles and
specifically engage the key profile of a targeted valve.
U.S. Patent No. 9,611,727, Claim 7.
The Court finds, based on the current record, that Gryphon has failed to
demonstrate a likelihood of success on the merits of its infringement claim against
Stage. The Court notes that it has not yet conducted a claim construction hearing. As
a result, the Court’s findings herein are limited to this preliminary injunction phase.
The Court’s statements regarding claim terms will not bind the Court in later phases
P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

5

of this litigation, and they are not to be viewed as the Court’s final construction of
disputed claim terms. Final claim construction rulings will not be issued until the
Court has conducted a full claim construction hearing.
1.

Two Grooves and a Locking Shoulder

Claim 7 includes the limitation that there are two grooves and a locking
shoulder. Gryphon argues that the two grooves and the locking shoulder need not be
separate elements but, instead, the locking shoulder can be part of one of the two
grooves. Gryphon has not shown a likelihood of success on this argument because its
proposed interpretation is inconsistent with the clear claim language and the
prosecution history. Claim 7 requires that the locking shoulder be in a different
location “relative to the two grooves.”3 This would not be possible if the locking
shoulder were part of one of the two grooves because, in that case, the locking
shoulder could not be in a different location “relative to” the groove of which it is a
part.
Additionally, in the prosecution history, the claim that ultimately issued as
Claim 7 was amended to clarify that each key profile is different based on the location
of the locking shoulder relative to the two grooves within that key profile. This

3

It is notable that the claim does not say that the shoulder must be in a different
location “relative to at least one of the grooves.”

P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

6

amendment was necessary to distinguish prior art that disclosed a locking shoulder
that was part of a single groove.
Based on the claim language and the prosecution history, the Court finds that
Gryphon has not demonstrated a likelihood of success on the merits of its
infringement claim regarding Claim 7 of the ’727 Patent.
2.

Key Profile

The lack of likelihood of success also relates to the ’727 Patent Claim 7
requirement of a “key profile” which, like a door key, includes a matching relationship
between the protrusions, or darts, and the grooves. Indeed, the claim language
requires that “the dart profile is configured to specifically bypass unmatching key
profiles and specifically engage the key profile of the targeted valve.” Gryphon has
not demonstrated a likelihood of success on its argument that the Bowhead II system
includes a one-to-one, matching relationship between the protrusions and the cavities.
Instead, it appears from the evidence submitted that the protrusions on the Bowhead
II can engage with any cavity that is wide enough to accept it.
3.

Dart Cup

Further, Claim 7 of the ’727 Patent contains the limitation that there be “at least
one dart cup configured to seal off communication through the piston when the dart
profile has engaged the corresponding key profile.” A “dart cup” is a specific type of

P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

7

seal, specifically a circular seal with a depressed center and raised sealing lips that are
designed to contain high pressure in one direction but not in the other.4 Gryphon’s
infringement argument is based on its position that the term “dart cup” include many
other types of seals, including the bonded seal on the Bowhead II collet. Gryphon has
failed to demonstrate a likelihood of success on the merits of this argument.
There is no evidence that the Bowhead II system includes a “dart cup” as that
term appears to be understood in the industry. The bonded seal used in the Bowhead
II system is shaped differently and performs in a manner distinct from the “dart cup”
limitation in Claim 7. A “dart cup” will flare out to create a seal when pressure is
applied. A compression seal such as the bonded seal used in the Bowhead II system
will compress, not flare out.
Gryphon has not demonstrated, on this record, that the specific term “dart cup”
as used in Claim 7 of the ’727 Patent, and the more general term “seal” are
synonymous and interchangeable. As a result, Gryphon has not shown a likelihood
of success on its argument that the Bowhead II system infringes Claim 7 of the ’727
Patent.

4

See Declaration of David J. Speller, Defendant’s expert witness, Exh. H to
Defendant’s Sur-Reply, ¶ 29.

P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

8

B.

Likelihood of Irreparable Harm

Gryphon argues that it will suffer irreparable harm if there is no injunction
against Stage’s marketing of the Bowhead II system because Gryphon will lose
market share and because problems with the Bowhead II system will have a negative
impact on Gryphon’s reputation. Gryphon has failed to demonstrate the likelihood of
irreparable harm on either basis.
Originally, Gryphon argued that sales of the Bowhead II system were depriving
it of market share in the developing market for “profile selective frac sleeves.”
Gryphon asserts that Stage is its only competitor in this market. In support of its
argument regarding loss of market share as irreparable harm, Gryphon cites Celsis In
Vitro, Inc. v. CellzDirect, Inc., 664 F.3d 922 (Fed. Cir. 2012), and Trebro Mfg., Inc.
v. Firefly Equip., LLC, 748 F.3d 1159 (Fed. Cir. 2014). In each of those cases,
however, the patent holder was actually selling product in the identified relevant
market, giving the patent holder market share that could be lost to the alleged
infringer. Here, to the contrary, Gryphon currently has no share of the market for
“profile selective frac sleeves” because it has not sold any devices covered by the ’727
Patent in that identified market. Although Gryphon claims that it is developing a new
product for the “profile selective frac sleeves” market, it is undisputed that the new
product at the time of the hearing had not yet reached the field testing phase.

P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

9

In its Reply, Gryphon redefines the relevant market as the broader “completions
market,” in which it does currently sell products. There is no evidence that sales of
the Bowhead II system have caused – or are causing – Gryphon to lose market share
in this redefined market. In this broader market, Gryphon competes with many large
competitors such as National Oilwell Varco, Baker Hughes, Schlumberger,
Weatherford, Halliburton and others. As a result, Gryphon has failed to demonstrate
that any potential loss of market share in the broad “completions market” would be
the result of sales of Stage’s system rather than sales of similar products by any of the
major competitors in that market.
With reference to irreparable harm to its reputation, Gryphon alleges that there
have been “documented problems” with the Bowhead II system. The only problem
identified involved the first field test of the system in a wellbore for Blackbird Energy
Inc., in which some of the valves failed. After an investigation revealed that there was
an erosion issue, the problem was resolved to Blackbird’s satisfaction. Indeed,
Blackbird now uses the Bowhead II system exclusively, has openly praised the
system, and has taken a 10% equity interest in Stage.
On the other hand, the only field test installation of Gryphon’s SUREselect
system covered by the ’727 Patent, in February 2014, was unsuccessful. None of the
darts engaged with the corresponding valve sleeve and, as a result, none of the valves

P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

10

opened. The attempt to retrieve all of the darts from the wellbore was only partially
successful, causing damage that led to the payment of approximately $500,000.00 to
the energy company for which the SUREselect system was installed. Since that time,
almost four years ago, no company has purchased or installed the SUREselect system.
As a result, the Court finds that Gryphon has failed to demonstrate a likelihood that
it will suffer an irreparable injury to its reputation if an injunction is not granted and
Stage continues to market its Bowhead II system.
Gryphon has failed to establish that it is likely to suffer irreparable harm absent
an injunction preventing Stage from marketing the Bowhead II system. Gryphon does
not currently sell a device in the “profile selective frac sleeve” market, and there is no
evidence that it is losing market share in the broader “completions” market that is
attributable to Stage’s Bowhead II system. Gryphon has not shown a likelihood that
continued sales of the Bowhead II system will have a negative impact on its reputation
in either of the identified markets. Consequently, Gryphon has failed to establish a
likelihood of irreparable harm, the second factor in the preliminary injunction
analysis.
C.

Balance of Equities

As discussed above, Gryphon is not currently selling the SUREselect system
and has not demonstrated the likelihood of irreparable harm if an injunction is not

P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

11

issued. Stage, on the other hand, currently has eighteen Master Service contracts
which involve the installation of the Bowhead II system. Stage will suffer harm if it
is prohibited from complying with its contractual obligations under these Master
Service agreements. Additionally, the Bowhead II system is Stage’s only product,
which it spent considerable time and revenue developing. An injunction against
marketing the Bowhead II system would likely destroy Stage as a viable company.
Based on these considerations, the Court finds that the balance of the equities
weighs heavily in Stage’s favor. This balancing of the equities weighs in Stage’s
favor particularly since Gryphon has failed to show a likelihood of success on the
merits of its infringement claim.
D.

Public Interest

The public interest generally favors protecting patent rights. See, e.g., Celsis
In Vitro, 664 F.3d at 931. This is not always true, however, particularly where the
patent holder has no viable product in the marketplace. See, e.g., eBay Inc. v.
MercExchange, LLC, 547 U.S. 388, 396-97 (2006) (Kennedy, J., concurring).
The public interest favors competition and, in this case the resulting potential
for lower oil prices, where an asserted patent may be invalid or the accused system
may be non-infringing.

P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

12

The public interest does not weigh in favor of either party in this case. As a
result, this factor does not support issuance of the preliminary injunction requested by
Gryphon.
IV.

CONCLUSION AND ORDER
Gryphon has failed to demonstrate a likelihood of success on the merits of its

patent infringement claim or a likelihood that it will suffer irreparable harm as a result
of a preliminary injunction being denied. Neither the balance of equities nor the
public interest favor issuance of the preliminary injunction Gryphon requests. As a
result, it is hereby
ORDERED that Plaintiff’s Motion for Preliminary Injunction [Doc. # 10] is
DENIED.
SIGNED at Houston, Texas, this 17th day of January, 2018.

NAN Y F. ATLAS
SENIOR UNI
STATES DISTRICT JUDGE

P:\ORDERS\11-2017\3220MPrelimInj.wpd 180117.1051

13