Apple Inc. was told to pay $532.9 million, as a federal jury said the company’s iTunes software used a
Texas company’s patented inventions without permission.
Smartflash LLC, which claimed that Apple infringed three patents, was seeking $852 million in damages, while Apple said it was worth $4.5 million at most. The trial is over digital rights management and inventions related to data storage and managing access through payment systems.
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.
On Tuesday a federal jury in Tyler, Texas rejected Apple’s arguments that it didn’t use the inventions and that the patents were invalid.
Apple spokeswoman Kristin Huguet commented:
“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.”
“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.”
Smartflash LLC
Texas-based Smartflash was started in the early 2000s by inventor Patrick Racz in an attempt to commercialize his ideas. According to a court filing, Racz was offered less than $200,000 for an interest in one of his patents.
According to the complaint, Racz met with executives of what is now Gemalto SA, including Augustin Farrugia, now a senior director at Apple. Farrugia, a long-time specialist in digital rights, is Apple’s director of security and designed the national banking system for Singapore in the 1990s.
Smartflash doesn’t make any products and its only business is licensing seven patents issued between 2008 and 2012, which Racz co-invented. Its address is a suite in an office building across the street from the courthouse where the trial was held.
Apple had sales of $18 billion for iTunes, software and services last fiscal year, about 10 percent of the company’s revenue.
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.
Apple's position
California-based tech giant attacked every aspect of Smartflash’s complaints. Apple said the patents were invalid and weren’t infringed. It said Smartflash didn’t have complete control of the patents and waited too long to file suit, arguing that Smartflash’s royalty demands were “excessive and unsupportable.”
“Apple doesn’t respect Smartflash’s inventions,” the company’s lawyer, John Ward of Ward & Smith in Longview, Texas, told the jury. “Not a single witness could be bothered with reviewing the patent.”
Another Apple lawyer, Eric Albritton of the Albritton Law Firm in Longview, told the jury there was no reason for Apple to pay royalties on the price of a phone when the dispute is over a single feature.
“It doesn’t make a lick of sense that one person would buy
an iPhone and not make calls,” he told the jury. “People do
not buy cell phones for the sole purpose of using apps.”
