New trial on damages ordered in Apple, Smartflash patent dispute

A federal court in Texas has ordered a new trial on damages in a patent infringement dispute between Apple and Smartflash that could modify an earlier US$533 million damages award to the patent-licensing company.

District Judge Rodney Gilstrap of the U.S. District Court for the Eastern District of Texas, Tyler division, ruled Tuesday that the earlier damages were set aside and vacated as the jury at trial may have not been properly instructed.

Smartflash sued Apple in May 2013, alleging that iTunes software infringed on its patents related to serving data and managing access to data. A jury found in February that Apple infringed three Smartflash patents in order to produce and sell its iTunes software. It also found the three Smartflash patents to be valid. Smartflash had asked for $852 million in damages.

Fresh from its victory, Smartflash sued Apple again soon after to focus on newer Apple products.

The Tyler-based technology development and licensing company has claimed in both suits that its founder Patrick Racz, one of the co-inventors of the patents-in-suit, met with various people at Gemplus, now Gemalto, to discuss the technology claimed in the patents cited in the suit. Augustin Farrugia, who later joined Apple, was one of the people at Gemplus who learned of the technology of the patents, according to the complaint.

The judge had briefed the jury on the “entire market value rule,” at the request of Apple, which sets the market value of the product as the basis for calculation of royalty and hence damages from a patent infringement, according to the filing Tuesday.

Judge Gilstrap wrote last month that he intended to hear oral arguments on a possible new trial on damages as the evidence presented at trial shows that Smartflash’s damages model did not incorporate the entire market value rule.

Apple had asked for a new trial on damages in the light of the instruction the court provided to the jury.

Judge Gilstrap wrote Tuesday that he expects a new damages model from Smartflash in view of concerns about the model it used at the last trial. The judge ruled earlier this month that Apple’s infringement was not willful. A decision to the contrary would have exposed Apple potentially to higher damages.

Smartflash’s royalty base had encompassed about 23 percent of the total revenue generated by the sales of the accused products, and not 100 percent of it, based on a consumer survey that asked whether the consumers were motivated to purchase the accused products because of the infringing features, according to Judge Gilstrap. The company then multiplied a royalty, also based on a consumer survey, with this royalty base to calculate its ultimate reasonable royalty estimate.

Apple and Smartflash could not be immediately reached for comment.

The jury selection for a new trial is set for Sept. 14.