Apple Loses Patent Infringement Suit, Ordered to Pay $533 Million - Rolling Stone
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Apple Must Pay $533 Million for Patent Infringement, Judge Says

Smartflash LLC had claimed iTunes’ in-app purchase functionality and data storage systems violated several of its holdings


Apple store in San Francisco, California.

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A federal jury has ruled that Apple willfully infringed on patents when developing iTunes’ data storage systems, following eight hours of deliberation. The Tyler, Texas–based judge presiding over the case has ordered the company to pay $532.9 million in damages, according to Reuters.

The plaintiff, Smartflash LLC — which is based on the British Virgin Island of Tortola but also has a Texas address — filed the suit (viewable as a PDF) in May 2013, seeking $852 million in damages and citing six patents that related to the storing and accessing of songs, videos and games. The company does not make any products, nor does it have any employees other than founder Patrick Racz, who is a co-investor in the patents.

At the time, the suit named three game manufacturers as defendants in addition to Apple, claiming that another one of iTunes’ functions violated Smartflash’s in-app-purchase patents, but they were later dismissed from the suit. Regarding Apple’s role, it claimed that Racz had met with one of Apple’s current senior directors, Augustin Ferrugia, in 2000 when he was at another company to discuss the technology related to the patents. Bloomberg reports that Smartflash also claimed it deserved a percentage of sales of iPhones, iPads and Macs, which use iTunes.

Apple had attempted to get the case thrown out, claiming that Smartflash’s technology was too generic for patenting, Reuters reported, but the judge who presided over the case ruled against them. Apple’s subsequent argument in trial was that the jury should deem Smartflash’s patents invalid because other, previously patented technologies had similar functions, and were worth only $4.5 million.

Bloomberg reports that Apple made $18 billion off iTunes in the last fiscal year, about 10 percent of the company’s total revenue.

“Apple doesn’t respect Smartflash’s inventions,” attorney John Ward told the jury, according to the news service. “Not a single witness could be bothered with reviewing the patent.”

The jury arrived at the half-a-billion-dollar figure, the BBC reported, because it decided Apple “willfully” infringed on the patents. The damages were scaled accordingly.

Following the verdict, which applied to three of Smartflash’s patents, Apple said it planned to appeal the ruling. “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,” the company said in a statement. “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.”

Apple said the ruling was “one more example” of why Congress should reform its patent laws in a “meaningful” way, according to CNN Money. In February of last year, President Obama said he wanted Washington to “combat patent trolls.” A White House press release (via the BBC) said the President wants reform that “encourages innovation and invention and provides the right incentives to drive investment, inspire and reward creativity, and spur job creation.”

“I would expect Apple to say they will appeal as part of Apple’s standard operating procedure,” Smartflash’s lead counsel, Brad Caldwell, said, according to The Wall Street Journal. “However, Smartflash believes the facts and the law support the jury’s verdict.”

Smartflash, whose lawyer told Reuters it was “very happy” with the ruling, has also filed similar suits against Samsung, Google and Amazon. The court will schedule the Samsung case now that the proceedings with Apple are done.

The court in Tyler, Texas has a history of ruling against Apple in suits like these. In 2012, a judge ordered the company to pay $368 million to VirnetX Inc. in a patent suit, Reuters reported, though a federal appeals court later ruled that the court had calculated the damages wrong and threw out that amount.

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