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Apple Heads to Trial With Inventor Over Smartphone Patent

Apple Inc. (AAPL), the world’s most valuable technology company, doesn’t want to pay a 70-year-old California inventor whose patent covers key features of the iPhone, his lawyer said at the start of a trial.

NetAirus Technologies LLC, a company owned by inventor Richard L. Ditzik, an electrical engineer who has worked for defense contractors as well as for Panasonic Corp. (6752), filed the patent application in 1997 for a handheld device that combines computer and wireless-communications functions over both a local-area network and a wide-area network.

“This case is about invention and success,” Ray Niro, a lawyer for NetAirus, said today in his opening statement in federal court in Los Angeles. “It is about a company that decided to take something and not pay for it.”

Niro told jurors that Apple was asking them to second guess the U.S. Patent and Trademark Office, which twice granted Ditzik a patent for his invention, the second time in 2012 after Apple had requested a reexamination.

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Apple maintains the NetAirus patent is invalid because the technology was known long before the company filed its patent. Cupertino, California-based Apple has won pretrial rulings that cap any recovery NetAirus may win in this trial to iPhone4 models sold in the last 13 months.

Cellular Network

The patent covers features of the iPhone4 such as switching between a Wi-Fi and cellular network, having different power usage for Wi-Fi and cellular connections, sending e-mail messages using Wi-Fi, calendar and contact functions and making FaceTime video calls, Niro said.

Mark Scarsi, Apple’s lawyer, said in his opening statement that Ditzik’s original patent application was for a low-power handset connected to a laptop computer to connect to a cellular network. He said it was prompted by health concerns over having a high-power mobile phone close to one’s head.

Ditzik subsequently changed his application to include features such as e-mail and a wireless personal digital assistant based on articles he read about phones that started to have these functions, including Palm Inc.’s PalmPilot, Scarsi said. The inventor didn’t disclose these existing products to the patent office, according to Apple’s lawyer.

Other phones, such as International Business Machines Inc.’s Simon phone and Nokia Oyj (NOK1V)’s Nokia 9000, also had PDA features before Ditzik received his patent, the lawyer said.

“He changed his claims to include technology he read about after filing his application,” Scarsi told the jurors. “That is not fair.”

No smartphone maker has licensed the NetAirus patent, the lawyer said.

Digital Assistant

U.S. District Judge John A. Kronstadt last year allowed NetAirus to proceed on its claim that the iPhone infringes its patent for a mobile phone configured as a personal digital assistant that switches between a Wi-Fi and a cellular network connection. The judge denied NetAirus’s request to amend its complaint to include newer Apple products, including the iPad and later models of the iPhone.

In May, Apple won a ruling that NetAirus can’t seek damages for alleged infringement that occurred before Oct. 8, 2012, when the U.S. Patent and Trademark Office issued a reexamination certificate that the judge agreed “substantially” changed the patent’s claims. The ruling narrows the potential damages to sales of iPhone 4 models after that date.

NetAirus filed a new complaint against Apple in May for patent infringement by the iPad, iPhone 4S and iPhone 5.

In a pretrial ruling on Nov. 8, the judge excluded testimony from NetAirus’s damages expert, Joseph Gemini. His opinion that the royalty rates for NetAirus’s technology should be $3 a unit for one patent claim and $3.50 a unit for five other claims lacks quantitative analysis and isn’t reliable, according to the judge’s order.

Ditzik’s Testimony

The judge also barred testimony from Ditzik that a royalty rate of 3 to 5 percent of U.S. sales would be reasonable.

“An opinion setting forth a 3-5 percent royalty rule of thumb based on ‘patent articles on the web’ is improper expert opinion offered by a lay person,” the judge said.

Niro, of Chicago-based Niro Haller & Niro, previously represented SP Technologies LLC, a closely held Florida company, in a patent-infringement lawsuit against Apple over the iPhone’s touch-screen display. The case settled in 2008 in federal court in Tyler, Texas, for undisclosed terms, according to court records.

The case is NetAirus Technologies LLC v. Apple Inc., 10-03257, U.S. District Court, Central District of California (Los Angeles).

To contact the reporter on this story: Edvard Pettersson in federal court in Los Angeles at epettersson@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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