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Apple must pay patent troll $532M, Texas jury rules

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Apple must pay a shell company $532.9 million because iTunes infringes upon three patents related to online patents, a jury in East Texas ruled on Tuesday.

The company in question, named Smartflash LLC, is also based in Texas and doesn’t make or do anything besides file patent lawsuits, as an Apple spokesperson pointed out.

“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 Apple’s Kristin Huguet to Bloomberg, which reported the verdict, shown here in a screenshot:

Screen Shot 2015-02-25 at 7.38.37 AM

Court records show that Smartflash is also suing [company]Google[/company], Samsung and [company]Amazon[/company] with the same patents.

The patents themselves have a priority date of 1999, and describe a method for “downloading and paying for data such as audio and video data, text, software, games and other types of data.”

The broad-based nature of the patents, which appear to cover basic internet-based payment transactions, could expose a variety of companies, including app makers, to royalty demands. Bloomberg noted that the complaint cited apps like Game Circus LLC’s “Coin Dozer” and “4 Pics 1 Movie” as the basis of infringement.

The huge damage figure against Apple may draw renewed attention to the role played by the District of East Texas in America’s troubled patent system, which Congress is attempting to reform for the third time in five years.

For years, patent trolls like Smartflash have chosen East Texas towns like Tyler, the site of this week’s jury verdict, where local judges and lawyers have built a cottage industry on patent litigation, drawing a stream of visiting lawyers to the town’s hotels and restaurants.

In the Apple case, Smartflash was represented before the jury by John Ward, a former East Texas judge who left the federal bench to join his son T. John “Johnny” Ward Jr., a prominent patent lawyer at a local law firm.

Apple said it will appeal the ruling.

“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 Apple spokesperson also told Bloomberg.

Here’s the verdict, which shows the jury found Apple’s conduct to be willful — meaning Smartflash can ask the judge to triple the damages:

Smartflash Verdict

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21 Responses to “Apple must pay patent troll $532M, Texas jury rules”

  1. I would like to see you guys go out and start a company and build something that WORKS and that sells. Exercise your capitalism arm, try and get it to work for you. When you are successful, then you will finally understand why the patent troll being allowed by law to collect that absurd amount of damages is totally ludicrous. Apple has been successful because some of the smartest people in the world got together and used their brainpower to build something great, and this is how most other companies do it too. if you have never started a company and had measurable success, you shouldn’t comment on the fairness of this issue because you will have no idea or understanding about it’s implications to entrepreneurs. you guys are all misplaced. now go rant about Hilary wanting to control the internet- something that really sucks for you and me.

    • Disagree wholeheartedly. I own a small business and work my ass off, and we have earned our success. If we did not have patent protection over our IP, then we would not be able to bring our inventions to the market without fear that large corporations would steal our inventions and trample all over our business.

      I encourage you to watch Steve Jobs’ keynote when he introduced the iPhone and note his strong emphasis on how many patents Apple filed for and/or obtained that were in use in the iPhone. Then, pray tell me, if you think Apple doesn’t think patents are an important part of their product strategy right along with their “smart people” to which you referred. You think Jobs was stupid to introduce his flagship product without it being protected?

      If Apple infringed on Smartflash’s patents, as the court found based on a preponderance of evidence, then Apple needs to do unto others what they would have people do unto them, and respect the patents. Their admission of infringement by saying damages should be $4.5M doesn’t really help their case either.

      So look at the history and the facts.

  2. Gotta love how a non-practicing entity with no employees can get a judgement for over a half-billion dollars. Even the travesties are bigger in Texas. Gotta love the corruption in state government. The same government that made it illegal to sell a car to your customers (Tesla). Best government money can buy.

    • I don’t see the parallel you are drawing with this verdict and the Texas government. Patents are handed out by the U.S. Patent Office and are a federal ordeal, and this verdict was handed down in a U.S. federal court. Moreover, if you don’t like Texas, you are welcome to live in any of the other 49 states. If you don’t like the U.S., you are welcome to live in another country (if you are allowed by said country).

      Regarding your comment about corruption, this was not corruption. This was protection for Smartflash because Apple was stealing and using their patented invention.

      Regarding your comment about Smartflash being a “non-practicing entity”, this is moot. A patent does not grant anyone the right to produce anything. Rather, a patent grants the patent holder the right to prevent others from using his/her invention for a limited term, while also makes the invention known to the public so that anyone can use it with no harm done after the term expires. So Apple has no right to steal this invention without first licensing its use from Smartflash. Which they did not do, although, according to the court, they knew about it and willfully infringed anyway.

        • Nope. Small inventor supporting the patent system here. It keeps the big guys from stealing inventions from small guys like me, who are trying to create products and need protection against those entities with big pockets who steal, and without the patent system, there would be no recourse.

          So there’s that.

          • No one that I see is arguing to completely remove the patent system. Folks are saying that companies are gaming the system and it needs to be reformed.

            We have overwhelmed and under-educated patent officers, which, not surprisingly grant absurd and overly broad patents. Nothing so dysfunctional that involves so many moneyed interests can last.

            • Can you provide an example of such an overly broad patent, including evidence showing prior art to the claims of the patent, including a statement and arguments using an expert in the skilled art who finds the patent claims to be obvious at the time the patent application was filed (or one year prior to that time, if the patent was filed pre-AIA)?

              Because this very thing is exactly what our current patent system already allows to occur in a patent re-examination, and therefore an “overly broad” patent, as you say, could be found to be invalid a result of the foregoing re-examination, and it will be deemed thus.

              So there is always this course of action for any company to challenge any patent in this manner, so anyone who blames under-educated patent officers as a problem with the patent system does so wrongly, because they haven’t taken into consideration re-examinations after the fact. Now, if a patent then holds true to such a challenge (and it can be challenged as many times as one wants to, as long as they bring their prior art evidence), then that patent remains valid.

              As such, I don’t see how a system with this type of checks-and-balances that allow patents to be deemed invalid after they have been previously granted would provide a way for the system to be “gamed”. Patents can be examined multiple times, even after being granted, and then thrown out if deemed invalid.

              If you want to get to the real problem with patents, then I encourage you to look no further than the infringers. Some of them might make billions of dollars from theft and some of them might be trying to hide behind expensive lawyers and trying to make patent infringement legal with their lobbying efforts. So do your research.

              According to this particular case, Apple was deemed to be an infringer who made “some” money while using Smartflash’s IP, and although Apple was aware of Smartflash’s IP, Smartflash didn’t have a dime to show for it. So Smartflash asserting its rights is not gaming. This is justice served from a federal court.

    • I agree. Especially if Apple knew about these patents and did not even attempt to license them. That would be considered not just stealing a baby from a stroller, but stealing a baby from a stroller while holding up the mother at gunpoint. Willful.

      Apple even confirmed the validity of the patents by agreeing that the patent infringement damages should be $4.5M. Even if they said that the damages should be $0.01, that’s enough proof to show that Apple agrees there was infringed.

      Here’s to hoping the patent system will continue to protect small inventors and continue to punish big corporate infringing thieves who think they can hide behind expensive litigation! Go Smartflash!

  3. Michael W. Perry

    I have no sympathy for Apple in this lawsuit, nor will I have any when these sleazy SnapFish trolls go after Amazon and Google. Those companies are only getting what they deserve.

    For years, pro-business Republican administrations have been trying to clean out this crooked lawyer hell-hole in Tyler, Texas. Democratic administrations, heavily beholden to the political contributions of tort lawyers, have been doing the exact opposite. The judge is this case is James Rodney Gilstrap, a 2011 Obama-appointee confirmed by a then-heavily Democratic Congress.

    Check around. In 2008 and 2012, the political contributions of Apple, Amazon, and Google tilted heavily toward Obama. If Walter Isaacson’s biography of Steve Jobs is right, Jobs even offered to put Apple resources behind Obama’s campaign. It’s an excellent illustration that nerdy types are often clueless about people.

    Note the facts we all knew or should have know in 2008. Obama spent 20 years in Chicago’s corrupt machine politics. He never inconvenienced even a single crooked meter maid. He certainly wasn’t going to reform the federal government. That’s what I mean by clueless. I could use stronger language.

    Apple, Amazon and Google may have even hoped that jumping on the Obama bandwagon meant they’d get on that federal gravy train known as crony capitalism. They lacked enough sense to know that no group comes remotely close to shaping what Democratic administrations do as those tort lawyers. They own the party. Others can, at best, rent it from time to time.

    Keep in mind what else has been going on. Our federal deficit has doubled under Obama. Press puffery aside, our economy is in the worse shape since the Great Depression. Obamacare is a much-hated disaster. Under Bush, the Middle East and Eastern Europe had begun to stabilize and move toward democracy. Now they’re in a terrible mess. Around the world, there’s perhaps no country whose relationship with us has improved under Obama/HIllary/Kerry. I’m not sure if in living memory we’ve seen so much bad happen in so little time.

    In that context, with millions of people suffering terribly, here and abroad, I’m not only content to see Apple and perhaps Amazon and Google screwed by a crooked court, I’m absolutely delighted. Apple has now begun to reap what it sowed in 2008. May many more such miseries follow.

    Like it or not, Silicon Valley, the source of some much political stupidity (or worse) in recent years, has begun to feel a bit of the pain it has imposed on the rest of the country and the rest of the world. That is good. That’s justice in a rough and ready sense.

    We can only hope that the troubles in the executives offices of these high-tech giants increase and multiply. Then perhaps they might acquire enough political sense to know that, if you elect a crook, you not only get crooked government, you get a government that’s crooked in ways you may not like. That’s what is happening here.

    • I don’t know. I think you got greedy and really gave it away with the whole stability in the middle east under Bush thing. Of course, GigaOM regulars don’t expect this sort of over-the-top trolling that would be called out in an instant on, say, Fark. Maybe you’ll get some bites.

    • WONDER if the writer of this article thinks it matters about job creation from a group like apple that has more cash then any other company and most of its main honcho’s are select white men? (just a truth teller for any haters of the truth) who benefit from the insane capitalism attribute that allows for the unfair advantage (while legitimate) over everyone else??…the smae system that benefits a select group of people (generally the same gender and race) also allows for corporations to “protect and seek redress” through a court system that was set up by “them” and for “them” …dont hear any outcry for the folks that the system continues to NOT protect with regard to technology and the inherent monopoly of the status quo…but i am just a truth teller