Texas Jury Hands Patent Troll Massive $533 Million Damages Award Against Apple

A federal jury in Texas, the favorite venue of patent litigants, has awarded an IP holding company, called Smartflash LLC, $532.9 million against Apple. The jury found that iTunes infringed the company’s patents concerning  “data storage and access.”

There are a range of patents at the center of the case: 7,334,720, 7,942,317, 8,033,458, 8,061,598, 8,118,221 and 8,336,772. Below is the abstract from the 7,334,720 patent:

Data storage and access systems are described for downloading and paying for data such as audio and video data, text, software, games and other types of data. A portable data carrier has an interface for sending and receiving data, non-volatile data memory for storing received content data and non-volatile payment validation memory for providing payment validation data to an external device. The carrier may also store a record of access made to the stored content, and content use rules for controlling access to the stored content. Preferred embodiments store further access control data and supplementary data such as hot links to web sites and/or advertising data. A complementary data access terminal, data supply computer system and data access device are also described. The combination of payment data and stored content data and, in preferred embodiments, use rule data, helps reduce the risk of unauthorized access to data such as compressed music and video data, especially over the Internet.

Apple is just one of several defendants, including Samsung, Amazon and Google, that are on the receiving end of similar claims. Apple is the first to get hit with the verdict. The company says it will appeal.

The judgment is large enough that Apple may be motivated, if necessary, to take the case to the US Supreme Court. There it could become an occasion for further patent reforms that are currently languishing in Congress. The plaintiff was seeking royalties on the sales of all iPhones among other damages.

It’s unlikely that the full $533 million damages award will survive on appeal, although the parties could settle before any judgment on appeal is rendered.

Depending on your view of patent litigation, this case either appears to be vindication for a small company whose patent was willfully infringed or another example of a parasitic “patent troll” and what’s wrong with the entire system. After reading the facts, I believe the case probably falls somewhere in the middle — though the damages are excessive.

According to earlier reports, Patrick Sandor Racz, one of the credited inventors, met in roughly 2000 with a company that became Gemalto (a maker of SIM cards now at the center of international hacking/spying allegations). One of that company’s employee’s, Augustin Farrugia, reportedly learned of the software design and later was hired by Apple.

The technology that Apple, Google and others have developed for online storage and payments is alleged to have infringed the patents at issue. The damages are so high in part because Apple iTunes sales last year were roughly $18 billion and the jury used a formula tied to those revenues in calculating the award.