Tuesday, July 2, 2013

Samsung complains about Apple claiming 'vastly greater damages' in limited November retrial

On November 12, 2013, the United States District Court for the Northern District of California is scheduled to commence a limited damages retrial in the first Apple v. Samsung case for the purpose of redetermining damages with respect to 13 of the 28 accused products. That's what Judge Lucy Koh ordered on April 29, 2013. There was a caveat: Samsung was allowed to bring another motion for a stay (the first one was denied) based on progress in its efforts to have the United States Patent and Trademark Office invalidate a couple of patents-in-suit. But with the asserted claim of the rubber-banding patent having been confirmed last month and other reexaminations being far behind, prospects for a stay are not too bright.

Samsung is now trying to get the case schedule vacated, presumably in order to have the limited retrial postponed. In the event of a postponement, there would be more time for other reexamination requests (particularly the one relating to the '915 pinch-to-zoom API patent) to yield results that could persuade Judge Koh to stay the case. Samsung argues that Apple has violated the court's orders concerning its damages claim at the retrial by presenting a "vastly greater" damages claim, and says a new case management conference must be held now. Apple told Samsung in no uncertain terms that it was going to oppose such a motion.

Before we go into more detail, here's the passage that talks about Apple claiming vastly greater damages (than the ones the first jury awarded in August 2012):

Let's do a recap of the procedural context -- especially because most of the articles that appeared on this damages issue got the most basic facts wrong (and/or quoted experts who were off base).

On August 24, 2012 a jury awarded Apple damages of $1.05 billion (in the aggregate of 28 accused products). This was roughly 40% of the amount Apple was seeking. The jury agreed with Apple on almost all infringement and validity questions, but it awarded only about 40% of the damages claim the court had allowed Apple to present at trial. Most people were so impressed with the billion-dollar figure that they thought Apple had prevailed all the way. Still, this was just 40% of what Apple, with permission from the court, had demanded.

Samsung challenged the verdict on a variety of grounds. And Apple challenged the few aspects of the verdict that weren't favorable to it. But Judge Koh upheld almost all of the jury's liability-related findings, which was great for Apple. After her rulings on the parties' motions for judgment as a matter of law (JMOL) in January, the list of intellectual property rights deemed valid and infringed was the same. Changes only related to patents with respect to which there was no liability finding either way.

Some media reports mistakenly said that her JMOL ruling upheld the billion-dollar verdict. If her JMOL decisions had changed anything about liability, then the verdict (which awarded damages on a per-product basis as opposed to a product/patent matrix) would have been vacated. But the fact that she didn't change the list of valid and infringed IPRs wasn't the end of the story. Samsung had challenged not only the basis for damages but also the amount.

On March 1, Judge Koh issued a damages ruling. The single biggest issue was that Apple had based its damages claim on notice dates with respect to certain patents that the court later found were too early, so Apple demanded damages for periods that were longer than what the court considered correct after the trial. If products weren't found to infringe on the relevant IPRs or were released after the correct notice dates (and if there was no other identifiable error), the damages awards related to them were upheld. But for 14 products (of the 28 accused ones), Judge Koh decided to "strike" the damages awards, totaling approximately $450 million. This terminology got too many reporters confused. In this context, "to strike" meant "to vacate", "to set aside" -- not "to slash" the award or whatever else people said. Apple had, in Judge Koh's opinion, presented damages claims on an incorrect basis, resulting in a jury award that she couldn't upheld -- but this doesn't mean that Samsung's identified infringement of all those Apple patents no longer entitled Apple to any money. It was clear from the start that a new trial, with a new jury, would be needed to fix the problem and to redetermine damages for those 14 products. The periods for those product-specific damages were going to be shorter than at the first trial, but since the first jury had awarded Apple only about 40% of what it was allowed to demand, I said from the day of the ruling that there was still some considerable upside in this for Apple. Most people didn't believe me until Samsung confirmed this fact.

The next thing that got some people confused is that the ratio of damages upheld and damages to-be-redetermined changed because Judge Koh recognized (with a little help from Apple) an error in her order. The Galaxy S II AT&T shipped after the notice date Apple used at the trial, so there was no need to vacate the related damages. As a result, damages were upheld for 15 (not 14) products, and now have to be redetermined for 13 (not 14) other products. The "stricken" amount went down from $450 million to $400 million (these are just ballpark figures, not too precise), and the upheld amount went up from $600 million to $650 million. Unfortunately I still saw some rather recent articles about Apple v. Samsung that still refer to $450 million of stricken damages. Regardless of popular misbelief, the total damages award after the November retrial will be $650 million plus whatever the second jury determines as a replacement for the first jury's vacated $400 million, which could be more or less than the original amount.

Judge Koh's perspective, which she expressed at the April 29 case management conference, is that the limited retrial should be "Groundhog Day" to the greatest extent possible: she wanted the parties to basically present the same claims and story to the second jury as they did to the first one in July and August 2012, except for the corrected notice dates. Samsung argued that the first jury had disagreed with Apple on one damages theory, but this was just an inference based on reverse-engineering of the numbers at which the jury arrived and doesn't preclude Apple from presenting any damages theory again.

Sadly, one very important player will be missing on the November "Groundhog Day". Apple's damages expert Terry Musika, a certified public accountant (CPA), died last year. Therefore, Apple needed to appoint a new expert (also a CPA): Julie Davis. Mrs. Davis also had to present a new report. She can't be reasonably required to testify based on someone else's report. Judge Koh made clear that her damages theories would have to be consistent with what the court allowed last year, and she warned Apple against seeking "new" damages. But this is not as simple as it sounds. Mrs. Davis must be allowed to present a damages claim she's comfortable defending. Her testimony will have to be all about her expertise, her knowledge, and especially her conscience, for which the court's instructions are important background but not a substitute.

Samsung's motion for relief is heavily-redacted. An exhibit containing correspondence between counsel actually provides more useful information on Samsung's objections to Mrs. Davis's new 393-page damages report (which Samsung labels "improper and voluminous") than the public redacted version of the motion itself:

"By way of example, and without limitation, Ms. Davis's new report: (a) improperly changes the design around periods; (b) includes new per-product damages calculations, which Ms. Davis calls 'incremental profits'; (c) includes 42 alternative damages calculations hinging on different assumptions; and (d) includes extensive commentary on new evidence and trial testimony."

Apple refused to withdraw Mrs. Davis's report and disagrees with Samsung that the case schedule can't be kept due to a dispute over the report. There's still more than four months until the retrial date. When Judge Koh set the schedule, she probably knew that there was going to be some disagreement to resolve ahead of trial.

Finally I'd like to mention a really interesting tidbit. Not only did the jury award Apple less than it asked for, but according to what Apple told the court at the April 29 hearing, "in some places, [Samsung's damages expert Michael] Wagner came up with numbers larger than the jury came up with". I didn't know that. At the hearing Morrison & Foerster's Michael Jacobs even reinforced this point: "That was precisely our argument to Your Honor. If you look at the verdict here and you look at it in its aggregate, you look at it at least as to certain products, the number the jury awarded is smaller than Wagner's number."

Like I said, there's upside in this for Apple. According to Samsung's motion, that upside is even "vast" (unless the court requires Apple, as requested by Samsung, to modify its new damages report).

I have uploaded Samsung's motion and the hearing transcript about the comparison between the jury verdict and Samsung's own damages calculation to Scribd.

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