Apple Plays Odds for Overturning $533 Million Verdict

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If Apple Inc.’s past is anything to go by, it won’t have to worry about paying the $533 million that a jury said the company owes for infringing patents related to data management in iTunes.

The iPhone maker has already gotten two big patent verdicts that it lost in the same Texas district tossed, and has pledged to fight the Feb. 24 jury decision. The company plans to appeal through a separate court in Washington where judges have sought to rein in the ability of patent holders to extract high royalty payments from companies.

“This award won’t hold up,” said Michael Carrier, a law professor at Rutgers University in Camden, New Jersey. “If there’s a large verdict in the district court, by the time it makes it through the appeals process, that verdict is slashed dramatically or overturned.”

Closely held Smartflash LLC had claimed that Apple infringed three patents and was seeking $852 million in damages. Apple said it shouldn’t have to pay more than $4.5 million. On Wednesday, the day after the verdict, Smartflash filed a second suit against Apple, claiming the iTunes Store, App Store, its iAd Network for advertising and company devices infringe all seven of Smartflash’s patents, including the three that were the subject of the trial.

In the trial, Smartflash argued it was entitled to a percentage of sales of Apple’s devices, including the iPhone, iPad and Mac computers, that were used to access iTunes. It claimed that Apple had intentionally infringed the patents, in part because one of its executives had been given a briefing on the technology more than a decade ago.

Apple’s Size

The U.S. Court of Appeals for the Federal Circuit in Washington, which specializes in patent law, has limited the ability to make such arguments when it involves features of a complex device. That was the reason it overturned a $368.2 million damage award won by VirnetX Holding Corp. in Texas over security features.

A $625.5 million verdict in 2011 over a way to display documents was thrown out by the trial judge in Texas, after finding the jury got it wrong.

The big damage award in the Smartflash case is in part because of Apple’s size. For the Cupertino, California-based company, the jury verdict is less than 1 percent of the $178 billion in cash and marketable securities it had at the end of December and less than two days’ worth of iPhone sales.

iTunes Apps

Still, “this is quite a chunk of money, even for Apple,” said Robert Stoll, a patent lawyer with Drinker Biddle in Washington. “I don’t think it will stand at this amount.”

The dispute is over digital-rights management and inventions related to data storage and managing access through payment systems. Smartflash claimed that iTunes used the inventions in applications such as Game Circus LLC’s Coin Dozer and 4 Pics 1 Movie.

“Smartflash makes no products, has no employees, creates no jobs, has no U.S. presence, and is exploiting our patent system to seek royalties for technology Apple invented,” said Kristin Huguet, an Apple spokeswoman. “We refused to pay off this company for the ideas our employees spent years innovating and unfortunately we have been left with no choice but to take this fight up through the court system.”

The federal jury in Tyler, Texas, where Smartflash is based, rejected Apple’s arguments that the iPhone maker didn’t use the inventions and that the patents were invalid.

‘Saw Through’

“Over the course of this trial, it was very apparent that the evidence supported our case,” said Bradley Caldwell of Caldwell Cassady in Dallas, one of Smartflash’s lawyers. The jury “saw through any attempt to suggest this wasn’t valuable.”

While it’s hard for large verdicts to stand, “if these are core patents in digital-rights management, that’s what makes the whole system go,” said Michael Risch, a law professor at Villanova University School of Law in Villanova, Pennsylvania. “This is how they protect content on the device.”

Apple has been, in the past few years, the most-sued company when it comes to patents. It often settles, and has a mixed record at trial. A federal jury in Delaware said in December that Apple infringed patents on cameras and call handling. A trial on damages is to be held later. A month earlier, a Texas jury said Apple should pay $23.6 million for infringing patents developed for the old SkyTel pager system, and Apple is seeking to have that verdict thrown out.

Google, Samsung

“Apple’s the largest company in the world,” said Daniel Scardino of Reed & Scardino, who represents SkyTel patent owner Mobile Telecommunications Technologies LLC. “Anyone you talk about Apple potentially doing something wrong, the dollars are going to be compounded.”

Smartflash also has sued Apple’s chief smartphone rival, Samsung Electronics Co. A trial in that case is to be scheduled now that the Apple trial is over. Google Inc., which also was sued by Smartflash, is trying to have its case transferred to a court in California. Amazon.com Inc. was sued in December, also in Texas.

The cases are Smartflash LLC v. Apple Inc., 13-447 and 15-145, both U.S. District Court for the District of Texas (Tyler).