Unfortunately, frivolous patent infringement cases are becoming increasingly more frequent these days. While the laws regarding patents can be confusing, businesses have rights when it comes to protecting their inventions.
For example, a small company known as Smartflash LLC recently succeeded in winning a $533 million payout from Apple Inc. for patent infringement. The technology giant was found guilty of violating three different patents in its iTunes and app sharing business.
To dive into this growing issue, InsideCounsel decided to sit down with Michael K. Kelly, an attorney at Jennings, Strouss & Salmon, P.L.C., to understand what these rights include and what to do in the case of patent infringement. In addition to over 27 years of experience in dealing with intellectual property matters, Kelly also has extensive transactional and litigation experience representing plaintiffs and defendants in patent, trademark, copyright, trade secret, contract, licensing, and technology transfer disputes, including first chair jury trial experience in federal district court.
Why are patent infringement cases like this becoming increasingly more frequent? According to Kelly, it’s because of the rise in patent infringement jury awards to the increasing prevalence of patent assertion companies, also referred to as non-practicing entities (NPEs), or more bluntly, patent trolls.
He added, “While NPEs no doubt pose a special threat to established companies because NPEs are not vulnerable to infringement counterclaims, the NPEs would not be scoring victories if they didn’t have valid patents infringed upon by large companies.”
So, how exactly did such a small company like Smartflash succeed in winning a large payout from tech giant apple? According to Kelly, the short answer is that a jury determined the Smartflash patents to be both valid and infringed by Apple’s products.
“The fact that Smartflash is a small company without actual products is of no consequence; rather, the outcome should be determined on the merits, namely, the validity of the patents and whether the accused products infringed those patents,” he explained. “It’s doubtful that Apple shareholders would feel any different had the $533 million been awarded to a large competitor, such as Samsung, instead. It’s the size of the damages, not the company that matters.”
In addition, it helped that the stars were aligned in terms of damages. “Rarely does a single company experience the tremendous volume of consumer product sales enjoyed by Apple, which contributed to the $533 million award,” he said.
And, Smartflash filed a follow-up lawsuit against Apple the very next day following the verdict. The suit alleges infringement of the same patents, and seeks damages for devices not included in the previous case, like the iPhone 6, iPhone 6 Plus, and the iPad Air 2.
Today, patent laws have become more and more confusing for businesses. These laws are complex because they must strike a balance between competing interests and policies.
“On the one hand, the Jeffersonian social contract provides that inventors shall be rewarded for their contributions to society through the patent system, providing an economic incentive to develop new technologies. On the other hand, the U.S. Patent Office and the federal courts are charged with protecting the public from invalid patents. Consequently, the process of obtaining and enforcing valid patents can be expensive and cumbersome,” said Kelly.
Businesses can and should invoke the protection mechanisms available under the law, including patent, trademark, copyright, trade secret, and contractual schemes. The most powerful protection comes from patents because the patent owner can seek an injunction preventing an infringer from future infringement, as well as stipulate past damages and future licensing royalties.
According to Kelly, for software, e-commerce, and business method inventions, it has been said that the U.S. Supreme Court’s recent decision in Alice Corp v. CLS Bank casts a shadow over the patentability of these technology sectors.
“I disagree. Rather, a careful reading of Alice and recent cases applying Alice appropriately place a premium on the skill of the drafting attorney, thereby reducing the specter of marginal patents in these areas. Companies that have invested in these technologies should, therefore, not hesitate to seek patents to protect their investment,” he explained.
Kelly shared some advice for companies in the case that their patent is infringed upon. First, if a company’s patented technology is misappropriated by a competitor, the owner should assess the effect on the company’s bottom line. Then, if the infringement does not materially affect market share or margins, a patent infringement suit may not be warranted. On the other hand, if the infringement impacts the company’s profits, a valid patent can provide a swift and effective remedy.
Kelly explained, “While maintaining a program for obtaining and enforcing patents can be expensive, experience shows that investing in new technologies without protecting that investment through patents, and thereby making the technology freely available to competitors, is a far more expensive proposition.”