Apple Inc. (APPL) said it plans to appeal a $532.9 million jury award against the computer giant in a patent infringement case involving iTunes technology filed by Smartflash LLC in U.S. District Court in Tyler, Texas.
The verdict is one of the biggest ever won by a patent monetization company and dwarfs a $368 million award won by VirnetX Holdings Corp. (VHC) in November 2012 also against Apple. That award was thrown out last August by the Court of Appeals for the Federal Circuit and returned to the district court for a reassessment of damages.
“We can confirm that we will appeal the verdict,” said Apple spokeswoman Rachel Wolf in an email.
“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,” Apple said in an emailed statement.
Apple said it refuses “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. We rely on the patent system to protect real innovation and this case is one more example of why we feel so strongly Congress should enact meaningful patent reform.”
Patent monetization market observers said Apple is likely to be able to reduce the verdict if not reverse it on appeal.
"I’d be surprised if the award or the verdict could stand up on appeal," said Lee Cheng, general counsel for Newegg Inc., the online computer retailer known for fighting patent monetizers to the mat.
Cheng added that defendants that don’t have Apple’s balance sheet and sophistication can and often do get forced to settle completely meritless cases by bad judgments and damages awards that have little chance of surviving appeal.
He said this happens "because the damages award itself ends up having a balance sheet effect that does not get reversed until a the trial judge issues a judgment or an appellate court ends up reversing, which can literally often take years."
Shares of Virnetx gained 8.6% after the verdict was announced. Shares of Vringo Inc. (VRNG), which had a $30 million jury verdict and royalty overturned by the Federal Circuit in Augist, gained 3.45%. Shares of Acacia Research Corp. (ACTG) fell 0.31%, and shares of Marathon Patent Group (MARA) fell 0.14%.
“Without a doubt a number of that size makes the cost of an appeal very small. I can’t imagine they wouldn’t appeal,” said Kevin Jakel, CEO of Unified Patents Group. “The Federal Circuit has had opportunities to adjust damages awards in similar circumstances including most recently VirnetX, which also was against Apple.”
Smartflash “is very pleased with the jury’s verdict in this case confirming that Apple devices designed to use the Apple iTunes Store and App Store infringe Smartflash's patents,” said Johnny Ward, a partner with Ward & Smith in Longview, Texas.
“The jury worked hard throughout the trial. They paid close attention to the facts and Judge Gilstrap’s instructions on the law. Ultimately, the jury saw through Apple’s arguments and reached the right result.
Ward said the jury’s verdict “provides well-deserved and long-overdue recognition for our client.”
“I would expect Apple to say they will appeal as part of Apple’s standard operating procedure,” Ward said. “However, Smartflash believes the facts and the law support the jury’s verdict.”
Smartflash also has other patent infringement cases filed against Samsung Electronics Co. Ltd., Amazon and Google Inc. also in federal court in Tyler, Texas.
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