Samsung May Help Apple Get Rid of a $533 Million Verdict

Samsung Electronics Co.
Attendees sit and rest under Samsung Electronics Co. signage in Las Vegas, Nevada, U.S. Photographer: Michael Nagle/Bloomberg

Samsung Electronics Co. may end up saving arch nemesis Apple Inc. about $533 million.

That’s how much Apple was told to pay after a jury in February said its iTunes service infringed patents owned by Texas licensing firm Smartflash LLC.

This week, Samsung, which is being sued over the same technology, convinced U.S. regulators to review whether two of Smartflash’s patents should have been issued in the first place.

If a review board at the U.S. Patent and Trademark Office tosses those patents, it will not only benefit Samsung but also Apple -- the company it spent four years battling over smartphone technology on four continents.

“Can Apple put off paying any damages until there’s resolution of the Samsung case?” said Justin Oliver, who heads Fitzpatrick, Cella, Harper & Scinto’s office for contested patent office proceedings. “If it’s forced to pay damages, it’s very difficult to get that back.”

Smartflash’s patents cover ways of controlling access to digital data through payment systems. The inventor, Patrick Racz, originally sought to commercialize the invention in 2002 with pop singer Britney Spears, according to the complaint.

A patent agency review board issued preliminary findings this week that the patents aren’t eligible for legal protection because they cover abstract ideas, not actual inventions. A panel of judges will consider arguments from both Samsung and Smartflash before reaching a final decision in about a year.

Poor Odds

The odds of Smartflash winning the case aren’t good, based on the agency’s prior reviews. In the small number of cases based on claims that the invention was an abstract idea, 100 percent were found ineligible for patents, according to a study by the Fitzpatrick law firm.

Smartflash’s lawyer said the company has been through this fight before. The district judge that presided over the trial already considered the same issue and sided with Smartflash, said Jason Cassady of Caldwell, Cassady & Curry in Dallas.

“This is just the institution” of the review, Cassady said. “It’s a little different than most cases and we feel confident.”

Working against Smartflash is a U.S. Supreme Court decision last year that scaled back the type of software inventions that are eligible for patent protection. The high court said that merely having a generic computer do an established business method isn’t really an invention. The agency’s preliminary decision put Smartflash’s patents squarely within the Supreme Court’s ruling.

‘High Burden’

“Once that determination is made, it’s a very high burden to reverse that in trial,” Oliver said. Smartflash’s patents “puts them in a category of patents that are more susceptible to challenge.”

The patent office’s reviews, created as part of a sweeping change to U.S. patent law that took effect in late 2012, allow challenges for data processing patents related to financial products or services. They allow a more expansive investigation than the popular type that is allowed for any type of patent.

Samsung didn’t file the petitions to save Apple -- its own fight with Smartflash is scheduled for an August trial in Tyler, Texas, though Samsung may ask that it be put off until the patent office completes the reviews. In the suit, Tyler-based Smartflash claims Samsung’s Media Hub uses the technology without paying royalties.

Six Patents

In all, six Smartflash patents were asserted against both Apple and Samsung. The patent office has already agreed to review five of them. Some were based on Apple petitions, and the most recent on Samsung petitions. A Samsung petition to invalidate the third patent involved in the Apple case is still pending.

Officials with Suwon, South Korea-based Samsung didn’t immediately return messages seeking comment.

The patent office review sets up a sort of race against time for both Apple and Smartflash. Apple needs to either win on its own or stretch out the civil case until the patent office rules on the Smartflash patents. The appeals court that specializes in patent law will hear both Apple’s appeal and consider the patent office review.

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