Did Apple Pay $533 Million to a Patent Troll or a Good Guy Standing Up for the Common Man?

Non-practicing entities are sometimes called “trolls” and are typically painted as bad guys in the IP world; however in this case it looks like Apple was seen as the bad guy and the “troll” was viewed as standing up for the little man. We think this case shows the importance of the “story” behind the patent, and how good lawyers recognize that story and use it to their client’s advantage, (either in front of a jury or an examiner at the USPTO).

How Apple lost $533 million to an 8th-grade dropout patent troll, by Philip Elmer-DeWitt at Fortune.com.

One of its mistakes was to make a fuss about Patrick Racz’ education in front of a Texas jury. Apple rarely comments on legal matters, and when it does it chooses its words carefully. So I read with interest the statement it issued after it was ordered to pay $532.9 million to Smartflash LLC for willful infringement of three U.S. patents. It’s a classic of the genre:

“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. We rely on the patent system to protect real innovation and this case is one more example of why we feel so strongly Congress should enact meaningful patent reform.”

You don’t have to love the U.S. patent system or non-practicing entities (A.K.A. patent trolls) to wonder: How the hell did Apple lose this case? It’s a question that took on new urgency when Smartflash turned around two days later and sued Apple a second time, this time for infringement of four new patents. I wasn’t able to reach Apple’s attorneys, but I did have a chat with Brad Caldwell, the Dallas-based patent infringement specialist who represented Smartflash. He tells a curious story.

“I think the reason we won,” he says, “is because we focused on the questions that were going to be presented to the jury: Were the patents valid? Did Apple infringe? Was the infringement willful?” Apple, according to Caldwell, focused on everything but the issue at hand: Three digital rights management patents granted Patrick Racz and others between 2008 and 2012. Apple, he says, “paraded witness after witness through courtroom who couldn’t be bothered to read the patents.”

I haven’t seen the full transcript of the six-day trial, but I’ve read enough to get a feel for what Caldwell is talking about.
When Apple’s lawyers got Racz on the stand they brought up his education (he left school at 8th grade), his horticultural training, the fact that he was from a farming family on the Isle of Jersey. They asked him, according to Caldwell: “Did you invent the Internet?” “Did you invent touch screen technology?” Racz, of course, had not.

By contrast, Augustin Farrugia, Apple’s director of security and its key witness, had previously designed the national banking system for Singapore. On the stand he said he too hadn’t gotten around to reading Racz’ patents. “They thumbed their nose at other people,” says Caldwell. “They acted like we’re Apple and have no need to respect other people’s intellectual property.”

The jury, I’m told, was paying close attention. They took notes. They deliberated for three hours. They found for the plaintiff.
I don’t know whether Apple copied Racz intellectual property or even knew of its existence. I don’t know that it’s worth half a billion dollar. I don’t know where Racz got the technical chops to file these patents, and I’m certainly not qualified to say whether U.S. Patent Office should have granted them. But I think I know now how Apple lost the case.

So, did Apple pay $533 million to a patent troll or a good guy standing up for the common man? The moral of this tale may be as simple as this—it’s important to frame yourself as the good guy, both to a jury and to a patent examiner. Especially, if you’re seen as just a wee little troll. For more on the subject of Non-practicing Entities, click here.

Whether you’re looking to add to your own arsenal or are looking to acquire your first patent; give Cook Alex a call for a free consultation to discuss intelligent strategies that our firm can implement to protect your company’s assets.