UNITED STATES PATENT AND TRADEMARK OFFICE
`___________________
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`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`___________________
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`BAKER HUGHES INCORPORATED and
`BAKER HUGHES OILFIELD OPERATIONS, INC.,
`Petitioners
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`Vs.
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`PACKERS PLUS ENERGY SERVICES INC.,
`Patent Owner
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`___________________
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`EXPERT REPORT OF HAROLD E. McGOWEN III, PE
`Prepared on Behalf of Patent Owner
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`Mail Stop “PATENT BOARD”
`Patent Trial and Appeal Board
`U.S. Patent and Trademark Office
`P.O. Box 1450
`Alexandria, VA 22313-14
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`Expert Report of Harold E. McGowen III, PE
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`Table of Contents
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`1
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`2
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`3
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`Summary of Oil and Gas Experience ....................................................................................................... 1
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`Compensation ......................................................................................................................................... 3
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`Scope of Work ......................................................................................................................................... 3
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`4 Understanding of Patent Law ................................................................................................................. 4
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`4.1
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`4.2
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`4.3
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`Person of Ordinary Skill in The Art (“POSITA”) ............................................................................... 4
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`Anticipation ..................................................................................................................................... 4
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`Obviousness .................................................................................................................................... 5
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`5 Materials Reviewed ................................................................................................................................ 6
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`Summary of the Invention Disclosed in the 774 Patent. ........................................................................ 7
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`Background Information ......................................................................................................................... 8
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`7.1
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`7.2
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`7.3
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`7.4
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`7.5
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`7.6
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`Annulus ........................................................................................................................................... 8
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`Packers and Hydraulic Fracturing ................................................................................................... 8
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`Solid Body Packer versus Inflatable Packer .................................................................................. 10
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`Horizontal Borehole ...................................................................................................................... 10
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`The 774 Patent and Complex Hydraulic Fracture Networks ......................................................... 12
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`Second Open-Hole Segment ......................................................................................................... 16
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`8
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`Perspective of Person of Ordinary Skill in the Art Circa 2001 ............................................................... 17
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`8.1
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`8.2
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`8.3
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`8.4
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`POSITA Background and Methodology ......................................................................................... 17
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`POSITA and Risk Analysis .............................................................................................................. 18
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`POSITA and Reliability Analysis ..................................................................................................... 19
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`POSITA and Engineering Economic Analysis ................................................................................. 20
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`Conventional Wisdom Teaches Away from 774 Patent/Invention ...................................................... 20
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`9.1
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`9.2
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`Characteristics of Open-hole Teach Away from the 774 Patent .................................................. 21
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`Plug and Perf Acceptance Teaches Away from 774 Patent .......................................................... 22
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`9.3
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`Conventional Wisdom Regarding Fracture Initiation Teaches Away from 774 Patent ................ 23
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`The 774 Patent Defied Conventional Wisdom .................................................................................. 25
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`Analysis of Thomson ......................................................................................................................... 27
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`11.1 Overview of Thompson ................................................................................................................. 27
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`11.2
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`Thompson is Not Relevant to the 774 Patent/Invention .............................................................. 27
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`11.3 Risk Factors Highlighted by Thompson ......................................................................................... 28
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`11.4 Acid Frac Conditions vs. Conventional Hydraulic Stage Fracturing .............................................. 29
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`11.5
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`Thompson’s Conclusions Suggest High Risk and High Expense .................................................... 29
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`11.6 Conclusions Regarding Thompson ................................................................................................ 30
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`Analysis of Ellsworth ......................................................................................................................... 32
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`12.1
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`Ellsworth is Very Different From the 774 Patent/Invention ......................................................... 32
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`12.2
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`Economic Results of Ellsworth Teaches Away from use of Design Elements ............................... 32
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`12.3 Circulating Corrosion Inhibitor has nothing to do with Hydraulic Fracturing ............................... 34
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`12.4
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`Ellsworth Does Not Address Hydraulic Fracturing ........................................................................ 35
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`12.5
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`Ellsworth does not Mitigate the Risk Factors described in Thompson ......................................... 36
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`12.6 Conclusions Regarding Ellsworth .................................................................................................. 37
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`Additional Prior Art Discussed in Daneshy ....................................................................................... 38
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`Objective Evidence That Claimed Invention was not Obvious ......................................................... 39
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`14.1 774 Patent Inventor Proceeded Contrary to Accepted Wisdom in the Field ............................... 39
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`14.2
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`Satisfaction of a long-felt need ..................................................................................................... 39
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`14.3
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`Invention Achieved Unexpected Results ...................................................................................... 40
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`14.4 Commercial Success as Result of the Merits of the Claimed Invention ....................................... 41
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`14.5 Others Copied the Invention ......................................................................................................... 42
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`14.6 Others in the Field Praised the Invention ..................................................................................... 44
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`14.7
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`Schlumberger Acquired a Stake in Packers Plus to Gain Access to Technology ........................... 46
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`Conclusions ....................................................................................................................................... 47
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`Expert Report of Harold E. McGowen III, PE
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`My name is Harold E. McGowen, III. I have been a Registered Professional Engineer licensed in Texas since
`1989. By my education and experience, reflected in my CV, I am qualified to render the opinions delivered
`in this report. I have been retained by the Patent Owner in this matter.
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`The opinions provided herein are based upon the information reviewed by me at the time of the writing of
`this report. Unless stated otherwise, the opinions contained in this report are based on a reasonable
`degree of engineering probability. If I review, receive or discover new and pertinent information related
`to the matter at hand I may augment, adjust, or change my opinions and request to file a supplemental
`expert report.
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`1 SUMMARY OF OIL AND GAS EXPERIENCE
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`I have been employed in the oil and gas industry since 1983 as a Petroleum Engineer, manager, and
`executive. I am a Registered Professional Engineer in the State of Texas and I received a B.S. in Mechanical
`Engineering from Texas A&M University in 1982. I was initially cross-trained as a Petroleum Engineer over
`a four-year period at Union Pacific Resources Company and I have continued my education through self-
`study and various industry schools ever since. I am a Registered Professional Engineer in the State of Texas
`with decades of experience as a Petroleum Engineer having personally designed numerous hydraulic
`fracturing treatments and/or directed the drilling, completion and operation of numerous wells.
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`I have considerable experience with downhole tools having started my career in the engineering
`department at an oil tool/service company and subsequently having analyzed the inner workings of
`numerous pieces of equipment over the years. I have also worked on several multi-million dollar patent
`cases as an expert witness or engineering consultant. Over the past 33 years, I have studied and gained
`considerable experience in various technologies, procedures, processes, and methods related to
`stimulation of oil and gas wells, including but not limited to acidizing and hydraulic fracturing. I have
`recently applied my training and experience to various horizontal drilling and horizontal stage fracturing
`projects where I was the engineer responsible for the completion design, economic evaluation, and
`execution; therefore, I have current knowledge concerning matters relevant to this case.
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`In 2003, I started the process of building a one man consulting business into an oil and gas exploration and
`production company called Navidad Resources, Inc. (“NRI”). I was the founder, CEO and Chief Engineer of
`NRI. From 2003 until 2007, NRI took on shareholders, hired employees, and acted as a both a consulting
`engineering/operations management firm and a joint interest exploration partner with Neumin Production
`Company (Neumin). At NRI I lead a multi-disciplinary technical team that built considerable shareholder
`value through drilling, completing, and hydraulic stage fracturing of numerous natural gas wells in East
`Texas. In 2007, NRI and EnCap Investments, L.P. (“EnCap”) formed a new special purpose vehicle named
`Navidad Resources, LLC (“NRL”) designed to build and sell within three to seven years. EnCap Investments,
`LP, is one of the largest energy focused Private Equity firms in the world. At the time NRL was sponsored,
`EnCap had billions of dollars under management and 55 oil and gas companies in their portfolio.
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`As President, CEO and Chief Engineer of NRL from 2007 until October 2013 I was directly responsible for
`the planning and execution of numerous operations that resulted in the economic production of oil and
`gas. NRL was formed by combining the oil and gas properties and prospects from NRI with an initial $50MM
`capital commitment from EnCap. NRL discovered a new hydraulic stage fracturing technology driven oil
`play we named the Buda-Rose in Houston and Madison Counties, Texas. NRL et al formed a 50/50
`partnership with another operator to develop the play. At NRL, I oversaw creation of a large, mostly
`contiguous, producing property with over 200 identified drilling locations. In mid-2013, Navidad et al
`controlled more than 100,000 gross acres and gross production of over 5,500 barrels of oil equivalent per
`day from about 50 wells with an estimated gross market value of about $525MM.
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`At NRL we performed the first slick-water stage fracs in the Buda, Georgetown, Edwards, and Glen Rose
`formations in the Ft. Trinidad field. We were the first operator to vertically stage frac (hydraulically
`fracture) and commingle the nine producing intervals over a 1,400’ vertical interval that comprise what is
`now known as the Buda-Rose play. We were also the first operator to horizontally drill and hydraulically
`stage fracture the Buda in the Ft. Trinidad field in Houston and Madison County. I dedicated many years
`to researching the application of hydraulic fracturing in low-permeability naturally fractured carbonate
`reservoirs. As Chief Engineer at Navidad I leveraged this research to personally develop the vertical and
`horizontal slick-water stage fracturing technique that unlocked the value of these overlooked formations
`in Houston and Madison Counties, Texas. These were reservoirs that either had never been hydraulically
`fractured in the area or had been unsuccessfully hydraulically fractured using conventional bi-wing fracture
`theory and viscous cross-linked gel fracturing fluids. As per our business plan, NRL sold its assets for a profit
`in 2013 and ceased operations.
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`I led the effort that resulted in the Buda-Rose play, which grew to cover an estimated 300,000 gross acres
`as numerous new operators came into the area and surrounded our position. In 2013 I was selected by
`the Texas Independent Producers and Royalty Owners Association as one of the top 15 CEOs of a medium
`sized exploration and production company. In 2012 Navidad was honored by the Aggie100 program at
`Texas A&M as the fastest growing Texas A&M University graduate run company. In 2013 Aggie100 honored
`Navidad as the 4th fastest growing Aggie run company and in 2014 NRI was honored as the 3rd fastest
`growing Aggie run company.
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`Since 2013, through Navidad Energy Partners, LLC and Navidad Energy Advisors, LLC, I have been pursuing
`various business opportunities and providing management and engineering services. Over the past three
`years I have provided expert witness services on numerous cases related to oil and gas operations,
`intellectual property, and oil and gas related patents.
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`2 COMPENSATION
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`I was retained by the attorneys representing the patent owner to provide my expert opinion related to
`these matters. I am currently billing counsel for the patent owner at an hourly rate of $350 per hour for
`my efforts on this project. I am also being reimbursed for reasonable expenses I incur in relation to my
`work on this proceeding. I will be compensated regardless of the outcome in the preceding.
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`3 SCOPE OF WORK
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`I have been engaged by counsel for the owner of U.S. Patent No. 7,861,774 (hereinafter referred to as the
`“774 Patent” or the “774 Patent/Invention”) to provide engineering consulting, and expert witness services
`as required. I have been asked to review the 774 Patent and Baker-Hughes challenge to said patent and
`document my opinion vis a vis the 774 Patent and the Baker-Hughes challenges thereto, from the
`perspective of a person of ordinary skill in the art (hereinafter “POSITA”) as defined herein, having a
`knowledge of the pertinent art, as of November 19, 2001 (hereinafter referred to as “as of 2001” or “circa
`2001”). I have formed my opinions taking into account my understanding of patent law, based on the
`information provided by counsel for the patent owner regarding the relevant patent law as described
`herein.
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`4 UNDERSTANDING OF PATENT LAW
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`I am not an attorney. My understanding of the law is based on information provided by counsel for the
`patent owner. I have been advised by counsel for the patent owner of the following general principles of
`patent law to be used in formulating my opinions presented in this Declaration.
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`I understand that the Petitioners bear the burden of proof in this proceeding such that they must show
`that a claim is un-patentable by a preponderance of the evidence. I understand the preponderance of the
`evidence to require a slight advantage in weight of evidence in favor of the challenger.
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`4.1 PERSON OF ORDINARY SKILL IN THE ART (“POSITA”)
`I understand that in determining whether a patent claim is valid the claim must be evaluated from the
`perspective of a person of ordinary skill in the art at the time of the purported invention. I understand that
`this proceeding is an inter partes review and that an inter partes review is a trial proceeding conducted at
`the Board to review the patentability of one or more claims in a patent. I understand that in the context
`of an inter partes review proceeding, claim terms are given their broadest reasonable interpretation in
`view of the specification and file history. I also understand that in a district court litigation, claim terms are
`given their plain and ordinary meaning in view of the specification and file history. For purposes of this
`proceeding I have applied the broadest reasonable interpretation standard.
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`4.2 ANTICIPATION
`I understand that a claim is anticipated under 35 U.S.C. § 102 when a single prior art reference discloses,
`expressly or inherently, every limitation of the claimed invention as arranged in the claim. Information is
`expressly disclosed if it is actually disclosed in a reference as would be understood by a person of ordinary
`skill in the art. Information is inherently disclosed in a reference if it is necessarily present in the subject
`matter disclosed and would be understood to be so by those of ordinary skill in the art. I understand that
`the fact that a certain result or characteristic may occur or might be present in the prior art is not sufficient
`to establish the inherency of that result or characteristic.
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`4.3 OBVIOUSNESS
`I understand that a claim would have been obvious under 35 U.S.C. § 103 if one or more prior art references
`in combination with the knowledge of one of ordinary skill in the art disclose, expressly or inherently, every
`claim limitation so as to render the claim, as a whole, obvious to a person of ordinary skill in the art at the
`time the purported invention was made. The relevant standard for obviousness is as follows:
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`A patent may not be obtained, though the invention is not identically disclosed or described as set forth in
`section 102 of this title, if the differences between the subject matter sought to be patented and the prior
`art are such that the subject matter as a whole would have been obvious at the time the invention was
`made to a person having ordinary skill in the art to which said subject matter pertains. Patentability shall
`not be negatived by the manner in which the invention was made. (35 U.S.C. § 103)
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`In determining whether or not a patented invention would have been obvious, the following factors must
`be considered: (a) the scope and content of the prior art; (b) the differences between the prior art and the
`claims at issue; (c) the level of ordinary skill in the art; and (d) objective evidence of non-obviousness.
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`I understand that that the existence of each and every element of the claimed invention in the prior art
`does not necessarily prove obviousness. Most, if not all, inventions rely on building blocks of prior art. In
`evaluating whether a claim is obvious, I have considered whether there was a reason that would have
`prompted a person having ordinary skill in the art to combine the known elements in a way the claimed
`invention does, taking into account such factors as (1) whether the claimed invention was merely the
`predictable result of using prior art elements according to their known function(s); (2) whether the claimed
`invention provides an obvious solution to a known problem in the relevant field; (3) whether the prior art
`teaches or suggests the desirability of combining elements claimed in the invention; (4) whether the prior
`art teaches away from combining elements in the claimed invention; (5) whether it would have been
`obvious to try the combinations of elements, such as when there is a design need or market pressure to
`solve a problem and there are a finite number of identified, predictable solutions; and (6) whether the
`change resulted more from design incentives or other market forces. I understand that for a claimed
`invention to be obvious, the prior art must provide a reasonable expectation of success.
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`I also understand that when the prior art “teaches away” from combining prior art references or certain
`known elements, discovery of a successful means of combining them is more likely to be non-obvious. A
`prior art reference may be said to “teach away” from a patent when a person of ordinary skill, upon reading
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`the reference, would be discouraged from following the path set out in the patent or would be led in a
`direction divergent from the path that was taken by the patent. Additionally, a prior art reference may
`“teach away” from a claimed invention when substituting an element within that prior art reference for a
`claim element would render the claimed invention inoperable.
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`I also understand that it is not permissible to use hindsight in assessing whether a claimed invention is
`obvious. Rather, I understand that, to assess obviousness, you must place yourself in the shoes of a person
`having ordinary skill in the relevant field of technology at the time the inventions were made who is trying
`to address the issues or solve the problems faced by the inventor and ignore the knowledge you currently
`now have of the inventions.
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`I understand that certain “objective evidence” (also known as “secondary considerations”) may be relevant
`in determining whether or not an invention would have been obvious. This evidence may be particularly
`important to avoid relying on hindsight. This evidence includes: (1) Whether the invention was
`commercially successful as a result of the merits of the claimed invention (there must be a nexus between
`the commercial success and the claimed invention); (2) Whether the invention satisfied a long-felt need;
`(3) Whether others had tried and failed to make the invention; (4) Whether others invented the invention
`at roughly the same time; (5) Whether others copied the invention; (6) Whether there were changes or
`related technologies or market needs contemporaneous with the invention; (7) Whether the invention
`achieved unexpected results; (8) Whether others in the field praised the invention; (9) Whether persons
`having ordinary skill in the art of the invention expressed surprise or disbelief regarding the invention; (10)
`Whether others sought or obtained rights to the patent from the patent holder; and (11) Whether the
`inventor proceeded contrary to accepted wisdom in the field.
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`5 MATERIALS REVIEWED
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`I have reviewed the exhibits of record and the Petition in addition to the materials cited herein.
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`6 SUMMARY OF THE INVENTION DISCLOSED IN THE 774 PATENT.
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`The claimed technology provides a method of fracturing multiple stages of an open-hole horizontal
`wellbore (“open-hole ball drop fracturing”). All of the claims at issue require running a tubing string into a
`wellbore where at least of portion of the horizontal (i.e., non-vertical) section of the wellbore is exposed
`to the rock-face (open-hole). This tubing string must contain at least three solid body packers and two ball
`activated sliding sleeves. When the packers are set, they seal against the wellbore wall and secure the
`tubing string in place. These packers also divide the horizontal section into multiple “open-hole segments.”
`Once the tubing string is in place, the operator may commence the fracturing operation.
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`Hydraulic fracturing of a horizontal well is a process whereby fluid is pumped into a particular section (or
`segment) of a horizontal borehole to increase the hydraulic pressure of the fluid adjacent to that section.
`Fluid is continually pumped until the pressure exceeds the breakdown pressure of the rock formation in
`that segment. At that point, the formation will fracture, and fluid is injected under pressure into the
`fracture just initiated, thus extending the fracture. The operator continues pumping the fluid until the
`treatment designed for the segment being fractured has been pumped away, or the treatment screens out,
`whichever comes first.
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`In the claimed system, the fracturing operation begins by pumping a ball or plug onto the ball seat of a
`sliding sleeve. This ball is sized to pass through the ball seats closer to the surface and only seat on the seat
`of the sleeve it is designed to open. As the pumping increases the fluid pressure within the tubing string,
`the sleeve slides open to allow fluid communication between the inside of the tubing string and the
`segment to be fractured. Pumping is continued until this segment is fractured. This process may be
`repeated for additional zones by dropping larger diameter balls to open sliding sleeves closer to the surface.
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`Having examined the StackFRAC system offered by Packer Plus and the 774 Patent/Invention, it is my
`opinion that the commercial system offered by Packers Plus called StackFRAC employs the technology
`described in the 774 Patent. StackFRAC utilizes the technology claimed in at least Claim 1 of the 774
`Patent/Invention. I have attached a claim chart Exhibit “A” to further explain this analysis.
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`7 BACKGROUND INFORMATION
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`The space between the tube (i.e. tubing or
`liner) and the borehole wall is an annulus.
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`AnnulusAnnulus
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`7.1 ANNULUS
`The space between two tubes, or
`between a tube and an open hole,
`is called an annulus (Figure 1). A
`casing string
`is an assembled
`length of steel pipe, consisting of
`separate casing
`joints screwed
`together, configured to suit a
`specific wellbore. Tubing is usually
`the pipe through which well fluids
`Figure 1 – Definition of Annulus
`are produced. Tubing strings consisting of separate tubing joints screwed together. The term annulus may
`refer to the space between a casing string and a concentric tubing string, between two concentric casing
`strings, or between a casing/tubing string and an open-hole where the surface of the rock is exposed.
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`Borehole
`Outer Tube
`Wall
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`Inner TubeTube
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`7.2 PACKERS AND HYDRAULIC FRACTURING
`A Packer is a mechanically expandable or inflatable device used to seal, temporary or permanently, a well
`annulus to prevent fluid flow (Hyne 2014). Figure 2 depicts a Solid Body Packer set in a vertical cased hole
`with an elastomer that has been extruded to “pack” the annulus between the casing and the packer
`mandrel with solid rubber. Packers hold pressure and prevent flow across the packing element. Packers
`may have mechanical anchors that dig into either the metal of the casing, or the wall of an open-hole
`borehole, to resist forces that might cause the packer to move up or down the hole.
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`Packers used in Hydraulic Fracturing operations are subject to dynamic pressures, forces, and stresses. For
`example, cool hydraulic fracturing fluids injected from the surface can cause the attached tubing/casing
`string to shrink, resulting in an increased tensile load on the packer during the treatment, which could
`cause the packer to move up the hole.
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`In Figure 2 - Side View of Packer1, the
`pressure differential across
`the
`packing element is calculated by the
`equation ∆Pa = Po – Pi where Po is the
`pressure above and Pi is the pressure
`below. This differential pressure can
`be very high during a hydraulic
`fracturing treatment. Changes in
`pressure during a hydraulic fracturing
`treatment, designated in the figure as
`∆Po from above the packer and ∆Pi below the packer, may create unbalanced dynamic forces that the
`packer must resist in order to maintain its position and seal with the borehole wall.
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`Figure 2 - Side View of Packer Installation
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`The force above the packer pushing the packer down the hole may be calculated as:
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`Fo = Po * Ao where Ao is the cross-sectional area of the top surface of the packer exposed to Po.
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`The force below the packer pushing the packer up the hole may be calculated as:
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`Fi = Pi * Ai where Ai is the underside cross-sectional area of the packer exposed to Pi.
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`Open-hole packers operate in more challenging conditions than cased-hole packers. The better the
`elastomer/borehole seal, the higher the pressure differential the packer can withstand. While casing
`provides a hard, smooth, round surface to seal against, open-hole boreholes typically exhibit softer, more
`irregular, rougher surfaces. A high-pressure, high-volume leak as might be experienced during fracturing
`could cause the elastomer to erode. In an open hole, the surface of the borehole at the interface between
`the elastomer and the borehole could erode or fracture. Moreover, anchors in an open-hole are more
`likely to slip, allowing the packer to move during a hydraulic fracturing treatment.
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`1 http://www.ingenieriadepetroleo.com/temperature-and-pressure-effects-on-oil.html - Captions and tubing to surface element added by
`McGowen
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`7.3 SOLID BODY PACKER VERSUS INFLATABLE PACKER
`A Solid Body Packer, as shown in Figure 2, utilizes a mandrel (typically steel) surrounded by a solid packing
`element that fills the annulus. A POSITA would understand this term even absent the 774 patent.
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`In contrast, Inflatable Packers fill the annulus with a liquid, slurry, or gas inside an expandable bag or
`bladder where the fluid is injected through a port (hole) in the packer mandrel (Figure 3).
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`Figure 3 - Inflatable Packer Design (Source of Illustrations – Online Images from Baker)
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`7.4 HORIZONTAL BOREHOLE
`Hydrocarbons are typically found trapped in the pore space (voids) within sedimentary rock formations,
`like sandstone, limestone, and shales (better classified as siltstones or argillaceous limestones (marls)). An
`example of a typical formation targeted for horizontal drilling and stage fracturing is the Eagle Ford Shale
`of Texas. See Figure 4 - Example of Rock Formations Containing Oil and Gas below.
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`is produced from these
`Oil and gas
`reservoirs through a borehole that
`is
`drilled
`from surface
`into
`the
`rock
`formation. Horizontal boreholes have the
`ability to contact a much greater surface
`area within the rock formation than a
`vertical borehole and therefore have the
`ability to boost production rates and
`ultimate recovery of hydrocarbons relative
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`Figure 4 - Example of Rock Formations Containing Oil and Gas
`(Sou