Saturday, July 9, 2011

Apple loses out in East Texas, jury awards non-practicing entity $8 million

I recently wrote that the trolls' business model works very well and provided some examples. Here's the latest one: according to Bloomberg, which cites a lawyer who represents a non-practicing entity in East Texas (same district in which Lodsys filed all of its lawsuits), a jury yesterday handed down a verdict that finds Apple liable for infringement of two valid patents and awards the patent holder, Personal Audio LLC, damages of $8 million.

Originally the plaintiff wanted more than ten times as much. With the $8m verdict, Apple only has a limited incentive to appeal the decision. They might indicate an intent to appeal in order to get a "discount" from the patent holder in exchange for a definitive settlement. That's what Google did in the Bedrock case (after a $5 million verdict).

Personal Audio LLC's lawsuit against Apple and three others -- Sirius XM Radio, Coby Electronics and Archos, all of whom settled in May and July 2010 -- is a typical NPE (non-practicing entity) case. Any Google search results for "Personal Audio LLC" relate to patent infringement lawsuits.

Unlike Lodsys, however, this company appears to have been set up by the principal "inventor" of the two patents.

The two patents-in-suit are U.S. Patent No. 6,199,076 on an "audio program player including a dynamic program selection controller" and U.S. Patent No. 7,509,178 on an "audio program distribution and playback system". Those two patents (the second one of which is a "divisional" of the other) basically cover downloadable playlists and share a common specification, which was filed on October 2, 1996 (the date of the original patent application). The oldest of the accused products (iPod classic, iPod mini, iPod shuffle, iPod nano, iPod Touch, and iPhone) is the original iPod. According to the complaint, "Apple did not begin work on the iPod until about 2000, around four years after the filing of the common specification in the Asserted Patents."

Personal Audio LLC filed its complaint on June 25, 2009, and amended it on September 4, 2009. Apple answered and brought counterclaims on November 12, 2009, asking the court to declare the patents invalid and not infringed. The jury apparently arrived at the opposite conclusion.

According to a blog that covers disputes in the Eastern District of Texas, says that Apple made a major mistake by producing "approximately 418 documents totaling more than 6,300 pages" just three weeks before the second trial setting in this case. (Hat tip to San Francisco Bay Area patent litigator Rick Frenkel for pointing me to this on Twitter.)

On January 4, 2010, Apple and its fellow defendants moved to transfer the lawsuit from East Texas to Massachusetts. The court denied that order on February 11, 2010, essentially saying that there was no compelling reason for such a transfer. It's no coincidence that the other defendants settled only a few months later: they were probably afraid of the outcome of an East Texas jury trial. Presumably Personal Audio LLC let them off the hook for a much smaller amount than the $84 million it reportedly demanded from Apple.

In connection with Lodsys I previously warned app developers against the risk of losing in the first instance. If you're an Apple and have the time and money to appeal, then you can afford to take your chances. If you aren't, then you better settle, like the three smaller defendants in that case.

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