America, Texas – IT company, Apple Inc. was told to pay US$532.9 million (SGD$721.3 million) after a federal jury said the company’s iTunes software used a Texas company’s patented inventions without permission.

In the district case, Smartflash LLC v. Apple Inc, a federal jury in Tyler, Texas, where Smartflash is based, on Tuesday rejected Apple’s arguments that it didn’t use the inventions and that the patents were invalid.

After eight hours of deliberation, the jury determined Apple had not only used Smartflash’s patents without permission, but did so wilfully.

“Smartflash is very happy with the jury’s verdict, which recognises Apple’s longstanding wilful infringement,” Mr Brad Caldwell, a lawyer for Smartflash, said in an email.

Smartflash LLC had claimed that Apple infringed three patents and sought US$852 million in damages, while Apple Inc. said the infringement was worth US$4.5 million at most.

Apple Inc. has since pledged to appeal against the ruling.

The dispute is over digital rights management and inventions related to data storage and managing access through payment systems. Smartflash claimed that iTunes used the inventions in applications.

“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.” said Kristin Huguet, an Apple spokeswoman.

Entitlement to percentage of sales

Bloomberg reports that Smartflash had 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.

“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.”

Cupertino, California-based Apple attacked every aspect of Smartflash’s case. It 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. It also argued that Smartflash’s royalty demands were “excessive and unsupportable.”

“They are not just invalid, they are invalid many times over,” James Batchelder a lawyer at Ropes & Gray in East Palo Alto, California, who is representing Apple, told the jury.

Smartflash was started in the early 2000s by inventor Patrick Racz in an effort to commercialize his ideas. At one point, Racz was offered less than US$200,000 for an interest in one of his patents, according to a court filing.

Racz met with executives of what is now Gemalto SA, including Augustin Farrugia, now a senior director at Apple, according to the complaint. Farrugia, a long-time specialist in digital rights management, 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.

“The jury was very attentive, took good notes and worked very hard,” Ward said after the verdict was announced. “We think they got it right.”

Apple had sales of US$18 billion for iTunes, software and services last fiscal year, about 10 percent of its revenue.

Apple: No reason to pay royalties

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.”

Apple tried to avoid a trial by having the lawsuit thrown out. But this month, Judge Rodney Gilstrap, who presided over the case, ruled that Smartflash’s technology was not too basic to deserve the patents.

Bloomberg also reported that Smartflash has sued Apple’s chief smartphone rival, Samsung Electronics Co and a trial is to be scheduled now that the Apple trial is over. Google Inc., which also was sued by Smartflash, is trying to have its case transferred to a court in California. Amazon.com Inc. was sued in December, also in Texas.

 

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