Minnesota's Dynamic Air whips an energy giant in years long legal battle

Jim Steele, 78, the 50-year founder of Vadnais Heights-based Dynamic Air, a small industrial manufacturer, has just survived a six-year, international legal brawl with the world's largest oil- and gas-services conglomerate.

In the end, Schlumberger Ltd. had to, essentially, admit to a federal judge that it didn't have a case.

And Schlumberger, through a Brazilian subsidiary called M-I Drilling, paid the $1.4 million legal bill Dynamic Air owed to its Minneapolis-based intellectual-property litigation firm, Carlson Caspers.

Dynamic Air Limitada, 51% owned by Dynamic Air, beat out M-I for the $37 million, five-year deal with the Brazilian national oil company, Petrobras, for a pneumatic-conveyance system that captured waste rock from offshore drilling rigs in order to transfer the waste to a ship for proper disposal, under Brazilian law.

This spring, U.S. District Judge Joan Ericksen dismissed the case against Dynamic Air by M-I Drilling, with concurrence of both parties.

And another federal judge subsequently ordered M-I to pay the legal costs of Dynamic Air and its Brazilian sister company in defending numerous patents that Schlumberger challenged.

"I cried when we got the decisions," Steele said. "We were in the fight of our life. They could have buried us. I'm sleeping better now."

Alan Carlson, the patent litigator who has represented the likes of Medtronic, 3M and Boston Scientific, said this case meant more than money to him.

"Schlumberger is about 1,000 times bigger than our client and they sued our Minnesota client and our Brazilian client and they were pushing us around," he said. "They ended up having to dismiss both the cases and they had to pay attorneys fees. That's significant.

"Little Dynamic Air taught Schlumberger a lesson. In my business, many patent cases are about moving money from one big pocket to another. This was a case where somebody was getting picked on. And that wasn't fair. And Dynamic Air's rights were vindicated."

Dynamic Air lost the opening rounds of the convoluted case, in which M-I, the Schlumberger unit, brought suits in Brazil and Minnesota.

Dynamic Air's lawyers maintained the Twin Cities-based majority owner was not involved in the bidding by the 51% owned Dynamic Air Limitada.

It was an independent company making its own bid and using equipment covered by U.S. patents since 2000.

A federal judge refused Dynamic Air's motion to dismiss the U.S. action against it on grounds that the Brazilian affiliate had independently won the contract, was not covered by U.S. patent law involved in Brazil by ships servicing offshore Brazilian oil rigs.

The case, aspects of which were considered by three federal judges over five years, started to turn toward the Vadnais Heights company in 2016.

U.S. District Judge Ann Montgomery sided with Dynamic Air and its Brazilian affiliate in a significant jurisdictional ruling. That followed an abortive attempt at a negotiated settlement between the warring parties.

In a pivotal 2017 ruling, U.S. District Judge John Tunheim eroded the Schlumberger/M-I case that Dynamic Air and its Brazilian affiliate had collaborated to infringe on numerous M-I patents in developing its contract-winning, drilling-waste conveyance system.

"Additionally, the 'substantive strength' of M-I's litigation was exceptionally low because it pleaded facts that an objectively reasonable party would not or should not plead," Tunheim ruled.

And he found that M-I's case was so leaky that it was liable for Dynamic Air's legal tab.

M-I dropped 16 allegations from a second, amended complaint of three counts alleging patent infringement.

However, in April the parties, through their respective attorneys, agreed to stop fighting, essentially a concession by Schlumberger/M-I that its courtroom strategy had proved a dry hole after five years.

Ericksen dismissed the case.

Tunheim in June ordered M-I to pay Dynamic Air's $1.4 million in legal fees to Carlson Caspers that covered much but not all of its defense.

Steele said the contract with Brazil's Petrobras has proved that a small specialty operator can outperform a conglomerate.

This is the first opportunity Dynamic Air had had to use its technology to convey waste from an oil field. Its Brazilian affiliate decided to give it a try in a deal that apparently has worked.

Schlumberger represented by an East Coast law firm, wasn't excited about losing the business.

Steele said Dynamic Air, owned by his family, including two sons who are in the business, has revenue of about $50 million a year.

Dynamic Air has never sold one of its pneumatic-conveying systems explicitly to move drilling waste.

It has, over the years, sold them to convey calcium carbonate, cement, clay, corn flour, fly ash, salt, sand, silica and other materials.

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.