Tuesday, March 26, 2013

Apple alleges $85 million error in court's damages order regarding two Samsung phones

On March 1, Judge Lucy Koh vacated approximately $450 million of Apple's $1.05 billion damages award in its first Samsung lawsuit in the Northern District of California. This doesn't mean that the $450 million amount is gone forever: any vacated parts of the award would have to be redetermined by a new jury, which could theoretically even arrive at a higher number given that the first jury granted Apple only about 40% of what the court allowed it to present as a damages claim, and Samsung argues that the new jury would also have to re-evaluate the underlying liability issues (Apple disagrees).

I just saw a couple of filings by Apple, in the context of what the next procedural steps should be (Apple wants the vacated damages to be redetermined ASAP while Samsung wants a stay pending an appeal of the merits that Apple believes would be premature). Interestingly, Apple claims to have found an error on Judge Koh's part to the tune of $85 million (approximately 19% of the total vacated amount): she thought the jury had granted, on the basis of an impermissible legal theory presented by Apple at its own peril, $40,494,356 for the Galaxy S II AT&T and $44,792,974 for the Infuse 4G, but Apple points out that Samsung's own admissions concerning the dates of first sale of these products as well as certain exhibits consistent with those admissions prove that the relevant theory -- disgorgement of profits for design patent infringement -- was permissible. Therefore, the number of products for which the damages award can stand would go up from 14 to 16, while the number of products for which a new determination is needed would go down from 14 to 12. The affirmed damages award would increase from $600 million to $685 million, almost two thirds of the $1.05 billion verdict.

Apple is right that a joint pretrial conference statement the parties stipulated to in July 2012 contradicts Judge Koh's belief that Apple had based its damages claims with respect to those products on an "aggressive notice date for all of the patents". Having checked on the facts (based on the publicly-filed documents Apple's motion references) I believe Apple's theory is correct with respect to both products, but it's slightly more complicated for the Infuse 4G than for the the Galaxy S II AT&T. Here's my summary of the facts and issues:

  • The court agreed with Samsung's lawyers that the underlying logic of most of the jury's product-related damages awards was identifiable by means of reverse engineering. For many products the numbers the juries arrived at clearly showed that a disgorgement of infringer's profits had been awarded. The verdict form didn't say so explicitly, but mathematically it was clear.

  • Such a disgorgement is only permissible if at least one design patent was infringed (it's impermissible for infringement of utility patents) and (which is not specific to design patents but to all patent damages under 35 U.S.C. § 287(a)) if the infringer had "actual or constructive notice of the patent" (as Judge Koh described the requirement in her damages order).

  • Design patent infringements were identified with respect to the Infuse 4G and Galaxy S II AT&T. But Judge Koh held that Apple's damages expert, Terry Musika, gave the jury incorrect information regarding the notice dates for various patents. Only for the rubber-banding '381 patent Judge Koh agreed that Apple had put Samsung on notice in August 2010 (more than eight months before filing suit) in a presentation that specifically mentioned it. For all other patents, Judge Koh determined that the notice date was only when Apple actually sued over them. For some of the patents the jury found infringed that would be the date on which the original complaint was filed (April 15, 2011); for some others, which Apple asserted only when it amended its complaint, it would be the date of the amendment (June 16, 2011).

  • This means that the jury, if it relied upon Apple's claimed notice dates that preceded Judge Koh's most conservative assumptions, may have awarded infringer's profits with respect to an impermissibly long period (too long in terms of starting too early). Since the jury awarded just one amount per product, Judge Koh felt that she couldn't make the necessary adjustments to subtract any disgorgement relating to the impermissible part of the total damages period, and therefore ordered a new trial on damages for products where this plays a role.

  • The problem I just outlined can, of course, affect only products released before the relevant notice dates. If Apple's claimed notice dates were overly aggressive but even the most conservative notice date -- when a patent was asserted in court -- predates the release date, it doesn't matter. In connection with certain products, Judge Koh's damages order also recognized this fact.

  • Apple argues that this also applies to the Galaxy S II AT&T and the Infuse 4G. Apple points to a July 6, 2012 joint pretrial conference statement, paragraph 24 of which states the dates on which Samsung (one or more of three legal entities) "first sold the [relevant] products in the United States", and the stipulation says that sales of the Infuse 4G began on May 15, 2011, and sales of the Galaxy S II began on October 2, 2011. There are some documents in the evidentiary record that show the first sales of the Galaxy S II AT&T in the third quarter of 2011, which is earlier than October 2, 2011 but still after Judge Koh's most conservative notice dates, so for the purposes of Apple's motion it doesn't matter whether the stipulation or the evidentiary record are right because Apple's theory of an error on Judge Koh's part works either way for the Galaxy S II AT&T. For the Infuse 4G the same record states that the first sale occurred "in the second quarter of 2011", which doesn't contradict the stipulation that sales began on May 16, 2011, which was in the second quarter of 2011.

  • For the S II it's really simple because its sales began after the relevant notice date. This really looks like an oversight on Judge Koh's part.

  • For the Infuse 4G, however, the stipulated date of first shipment is between the date of the original complaint and the date of the amendment. In a footnote one of Apple's latest filings argues that the later date (the one of the amendment) "is not relevant" because the S II was found to infringe the D'677 design patent, which Apple asserted in the original complaint, and it doesn't matter that the D'305 patent was additionally asserted in the amended complaint (and also found infringed by this product according to the jury): "Once Apple could recover Samsung's profits for infringement of the D'677 patent, notice and infringement of the D'305 patent by the same two products does not change the amount of the award under 35 U.S.C. § 289."

    Apple correctly points to the fact that a disgorgement of infringer's profits is not apportioned: it's an all-or-nothing deal. Also, which Apple's motion does not say, Samsung's own reverse-engineering of the jury award does not identify any correlation between the disgorgement award and the number of design patents deemed infringed. So I would agree with Apple that what Judge Koh considered to be an aggressive notice date doesn't matter with respect to the Galaxy S II AT&T. It's a fact that the jury, if it relied on Apple's representations as it apparently did, assumed a notice date for one of the infringed design patents that predated the shipment of the product as well as what Judge Koh thought was the accurate notice date, but irrelevant both under the law and based on how the jury actually calculated damages -- and let's not forget that the jury award gets some deference anyway.

Apple now seeks the court's permission to bring a motion for reconsideration, but the request to bring such a motion is, for the time being, conditional: only if Samsung's request for a partial final judgment was granted, Apple would want the Galaxy S II AT&T and the Infuse 4G to be removed from the list of products for which the court ordered a new trial on damages. I believe Apple would want Judge Koh to correct this error in any event, but it raises this issue now to pre-empt the partial final judgment requested by Samsung.

Apple's conditional motion cites Civil Local Rule 7-9(b)(3). The related rule of the Northern District of California allows a motion for reconsideration in the event of "[a] manifest failure by the Court to consider material facts or dispositive legal arguments which were presented to the Court before such interlocutory order".

Presumably no one will be unhappier to find out about this apparent error in the March 1 damages order than Judge Koh herself. But just like the jury and everyone else involved with this dispute, she's only human. In such a complex case judges and juries -- and also the parties and their lawyers -- can err on some minor detail that proves outcome-determinative in some way.

Fortunately for Judge Koh, she erred only in a way that prejudiced Apple. If she had erroneously vacated $85 million to Samsung's detriment, there would be a lot more noise -- and conspiracy theories -- about it.

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