United States: Preventing Willful Infringement (i.e., Apple’s $539M Verdict) (Video Content)

Last Updated: February 27 2015
Article by Justin F. McNaughton

Bloomberg reported that Apple lost a $539M jury verdict to Smartflash LLC on Tuesday.  The suit is about Smartflash's patents for digital rights management, data storage and access through payment systems.  Smartflash alleged that Apple (and others) infringed 6 patents though its iTunes service.  The original complaint alleged (among other things):

17. The patents-in-suit generally cover a portable data carrier for storing data and managing access to the data via payment information and/or use status rules. The patents-in-suit also generally cover a computer network (i.e., a server network) that serves data and manages access to data by, for example, validating payment information.

18. In or around the year 2000, Patrick Racz, one of the co-inventors of the patents-in-suit, met with various personnel of Gemplus (now Gemalto S.A.) to discuss the technology claimed in the patents-in-suit. Mr. Augustin Farrugia was one of the people at Gemplus who learned of the technology of the patents-in-suit.

19. Mr. Farrugia subsequently joined Apple and is currently a Senior Director at Apple Inc.

20. iTunes is an Apple application that supports the purchase, download, organization and playback of digital audio and video files and is available for both Mac and Windows based computers.

24. The Mac App Store is an Apple service that allows Apple's customers to purchase, download and install Mac applications.

26. An application developer or publisher can use Apple's in-application payment functionality to collect payment for enhanced functionality or additional content usable by the application.

27. Apple provides its in-application payment functionality through its Store Kit framework.

28. Apple's Store Kit connects to the App Store on behalf of an application to securely process payments from the user.

29. Apple's Store Kit prompts the user to authorize the payment and then notifies the application that called Store Kit so that the application can provide items the user purchased.

Apple claimed the damages, if any, should be around $4.5M and Smartflash, LLC asked for $852M.   Nearly two years later, the jury awarded damages of $539M.  Of course, Apple announced that it will appeal the verdict (and many commentators believe the award is unlikely to stick).

I'm not going to get into the merits of the case or any of the events that happened in between the complaint and the verdict – there were 504 different docket entries on this one.

The part that jumped out at me was the claim for willful infringement against Apple; the claim that before joining Apple, an Apple executive discussed the technology with one of the inventors.  This created a different story line for Smartflash to spin during litigation.  The real problem is that willful infringement carries a potential penalty of treble damages.  The good news is that it is not easy to "willfully" infringe.  The patent owner has to show (clearly and convincingly) that a reasonable person would have known that its actions would infringe a valid patent.  The exact standard is "the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent."  Even then, the patent owner must also show that the infringer was reckless and actually knew or should have known of the high risk.  So you can take some comfort in knowing that it is actually pretty hard for a patent owner to show willfulness.

Back to avoiding Apples.  Even if it is difficult to show willfulness consider some basic precautions:

  1. Avoid detailed technology discussions outside your company with anyone else claiming an invention they want to share/sell.
  2. Make sure employees/contractors avoid cross pollinating company projects with intel from third parties.
  3. Make sure employees/contractors leave their old products with former employers behind without tainting your projects.
  4. Do a quick web search on potential business prospects to see if they are litigious or even potential competitors before meeting them.
  5. Review and manage infringement claims when they arise.

In case you were wondering about some of the games called out in the complaint:

~ TechAttaché

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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