Apple is ordered to pay more than $500 million to Smartflash, a Tyler, Texas-based company accusing Apple of willfully using its patented inventions in iTunes software without paying proper licensing fees.
A federal jury has decided to award $532.9 million to the obscure company, which claims that Apple infringed three of its seven patents involving digital rights management, data storage, and managing access to payment systems. The company asked for damages amounting to $852 million, but Apple said the technology was worth only $4.5 million at most.
Apple lawyer Eric Albritton said Smartflash cannot demand Apple to pay royalties on the price of its devices because the patents in question were related only to a single feature.
"It doesn't make a lick of sense that one person would buy an iPhone and not make calls," Albritton told the jury. "People do not buy cell phones for the sole purpose of using apps."
Smartflash's lawsuit alleges Apple of intentionally infringing on its patents and claims ownership of a percentage of Apple's sales of iPhones, iPads and Macs, which all come with iTunes. In its lawsuit, Smartflash states that founder Patrick Racz met with executives at Gemalto security firm, one of whom is Augustin Farrugia, now Apple's director of security. Farrugia, Smartflash says, had been given a glimpse of Smartflash's technology several years ago.
"Apple was aware of the patents-in-suit and knew that the others' actions, if taken, would constitute infringement of those patents," says (pdf) Smartflash in its lawsuit. "Alternatively, Apple believed there was a high probability that others would infringe the patents-in-suit but remained willfully blind to the infringing nature of others' actions."
Apple, Smartflash says, also encourages third parties to infringe upon its patents using third-party apps, such as Coin Dozer and 4 Pics 1 Movie by Game Circus and Grub Guardian and Wizard 101 by KingIsle Entertainment, which were previous defendants but opted to settle out of court.
However, Apple is adamant that Smartflash's allegations are invalid because it has never used those patents. Apple spokesperson Kristin Huguet tells Bloomberg the Cupertino, California-based company is determined to appeal the jury's decision.
"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," says Huguet.
She adds that Smartflash, which sells no products, has no employees, and creates no jobs is simply "exploiting our patent system" to earn money by accusing Apple and other companies of patent infringement, essentially accusing Smartflash of being a patent troll. Indeed, Apple is not the only major technology company Smartflash has set its sights on, as it also has similar lawsuits against Samsung, Google, and Amazon.
