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Apr 13

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Huge Patent Damage Award Reversed

In an April 2011 ruling, a federal judge in Tyler, Texas, threw out a $625 million jury award against Apple.  In the October 2010 trial, a jury decided that Apple infringed three patents owned by Mirror Worlds.  The patents involve certain document display technologies used in Apple’s Time Machine, Spotlight and Cover Flow.  These features are contained in Apple’s latest operating systems: Tiger, Leopard and Snow Leopard.

The Court concluded that infringement did not occur.  But, in its 44-page Order, the Court spent about half of its writing about the failings of the damage analysis.  The plaintiff requested damages using a reasonable royalty based a hypothetical negotiation as set forth in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp.1116 (S.D.N.Y. 1970).  Much of the Court’s analysis in the Mirrors World ruling is specific to the facts of this case, but the following lessons should be noted:

  1. The plaintiff used the entire market value rule in determining the royalty base.  The Court was convinced that the proper factual predicate for use of the total market value rule did not exist in this circumstance.  Several courts have been skeptical of the application of the total market rule, so plaintiffs need to pay serious attention to the selection of their royalty base.
  2. The case started out with claimed infringement covering a broader collection of devices.  During trial, the Court threw out the infringement claims involving Apple’s mobile devices.  The plaintiff further claimed infringement of three patents, and calculated damages only on the collection of the three patents together.   The plaintiff was not prepared for these various alternate possibilities, which caused considerable confusion and inconsistency in the plaintiff’s case.  The lesson is that one needs to spend the additional effort necessary to consider alternate trial possibilities, so as to not be caught flat-footed when mid-trial evidence and rulings do not go your way.
  3. In a novel ruling, the Court concluded that sales can never be the proper royalty base on damages for a method patent because of the method is not sold.  To quote the Court (citations omitted):

…sale of the apparatus is not the sale of the method—and thereby irrelevant in calculating liability for direct infringement.  Accordingly, because Apple’s sales or offers for sale do not infringe the asserted method patents, they cannot be the basis for damages.

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2011/04/huge-patent-damage-award-reversed/

2 comments

  1. Sol

    Very good post, I absolutely anticipate updates of your stuff.

  2. PDF Torrent Download

    I saw something about this topic on TV last night. Nice article.

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