Saturday, August 31, 2013

Samsung says Apple's damages claim has increased by 'hundreds of millions of dollars'

Last week Judge Koh (United States District Court for the Northern District of California) denied a couple of Samsung motions that would, if granted, have delayed the limited Apple v. Samsung damages retrial scheduled to start on November 12, 2013 and relating to 13 Samsung devices with respect to which the judge vacated the jury determination (in her March 1 damages order, she originally vacated damages relating to 14 products, but after Apple pointed her to an error, she backtracked on the Galaxy S II AT&T). Late on Friday (August 30, 2013), Apple and Samsung brought their motions to strike certain portions of each other's damages report (Apple is the party claiming damages and needed a new damages expert after the one from the first trial passed away; Samsung presented a rebuttal report by its own expert).

The public redacted version of Samsung's filing doesn't state the most interesting numbers, such as Apple's total damages claim for the limited retrial, but I'm grateful that it gives us at least a better idea of the amount by which Apple appears to have increased its damages claim with respect to the 13 products at issue in the upcoming retrial:

"While the changes [as compared to last year's report] may look small on paper, they result in the addition of hundreds of millions of dollars in additional claimed damages, severely prejudice Samsung, and should be stricken."

(emphasis mine)

This sheds some light on Samsung's recent allegation that Apple is claiming "vastly greater damages".

The first thing to stress here before I even show you the document (which I will) is this:

Samsung is comparing the damages claim Apple wishes to present to the retrial jury in 2013 to the part of the damages claim Apple presented in 2012 that related to the 13 retrial devices. I gave the word "claim" maximum emphasis in the previous sentence because the increase of the total damages award that Apple would obtain if (i) the court denied Samsung's motion to strike and (ii) the retrial jury awarded Apple 100% of what it asked for, while last year's jury (a fact too many people forgot) gave Apple only about 40% of what the court allowed it to demand, could make the new total award substantially greater than what was actually awarded last year, and the difference could even be closer to (if not above) a billion dollars, not just the "hundreds of millions of dollars" from Samsung's comparison of the damages claims.

Some of you won't need this explanation: the damages claim is the demand with which a patentee goes into the trial (the limited damages retrial in November, for example), while the award is what the jury gives him. You walk in with a claim; you walk out with an award. The jury won't award anything if there's no liability (for example, no infringement found, and/or patent found invalid), but that's not going to be an issue in November. If there is a finding of liability (such as here), it's unlikely that the jury awards zero damages. It's also unlikely that it awards more than what the patentee asked for. So most of the time the award will be between a low percentage of the claim and 100% of the claim. The courts play an important gatekeeper role and can prevent a patentee from presenting unreasonable damages claims to the jury in the first place. But a court can't just rule that a number seems unfair -- it has to rule on the methodologies used and calculations performed, and on the way the damages claim is going to be presented. Obviously, if methodologies are stricken or calculations corrected, it affects the numbers that are presented; and if the presentation is modified, it affects the degree to which the jury will likely agree with the right holder.

The vacated amount -- to be replaced by the November verdict -- is approximately $400 million. It was closer to $450 million based on the March order, but after the April correction concerning the S II AT&T we're now talking about $400 million from last year's $1.05 billion award that must be redetermined. Apple will ultimately get (not taking into consideration the potential effect of an appeal from a final district court judgment) the total of the $650 million portion that was not vacated and whatever the new jury will determine in November as a replacement for the vacated $400 million portion. But the vacated portion was only about 40% of what Apple presented to last year's jury as its claim, which amounted to (in a rough estimate) a billion dollars with respect to the retrial products. Now, under Judge Koh's March damages order, the damages periods will be shorter for the retrial products, because damages periods that began too early were (not the only but) the primary reason for which the court vacated certain parts of the damages verdict. That factor adversely affects Apple's ability to claim damages.

From the beginning I said that even if the related adjustments for the damages periods (which would have come down to deleting a few cells from a spreadsheet if the same damages expert were still available) were made, Apple could present a damages claim to the retrial jury that would exceed the portion to be replaced of the original damages award, because the fact that last year's jury gave Apple only about $1 billion of its $2.5+ billion damages claim outweighs the impact of deleting a few months from the damages base. And what Samsung is complaining about now is that Apple on top of this potential upside has come up with allegedly new "damages methodologies and damages periods" -- and that it is "proffering opinions and calculations that the Court previously excluded" as well as "relying on exhibits and testimony that Mr. Musika [last year's expert] did not cite in his report or discuss at trial", and that this makes a difference to the tune of hundreds of millions of dollars.

But it's not perfectly clear, due to far-reaching redactions, whether the difference Samsung complains about gives full consideration to the adjusted damages periods. It's possible that the delta falls within the wide range that is "hundreds of millions of dollars" regardless of which point of comparison one uses. Anyway, "hundreds of millions of dollars" relates only to the claim, not to the much wider discrepancy between what may be the claim presented in November 2013 and the corresponding parts of the actual award from August 2012. For now, I'm operating under the assumption that the damages award could increase by up to roughly a billion dollars in November if (i) one interpreted Samsung's heavily-redacted portrayal of Apple's damages claim in the light most favorable to the theory of a massive increase and (ii) all went very well for Apple with the court and the jury (theoretically, the jury could even award more than Apple demands, but that's unlikely), and while there could also be a net reduction, I'd be surprised if the retrial jury, which is going to be told that Samsung's identified infringements are law of the case and just has to come up with a new number, gave Apple only a very small percentage of whatever demand Judge Koh ultimately (after ruling on Samsung's motion to strike) allows it to present.

From a probabilistic point of view, anyone who still says that the amount has been "reduced", let alone "slashed", misleads people (willingly or not) by implying something that could happen but is not the most likely outcome based on what is known today; a reasonable probabilistic assumption would be that a jury which is told that infringements must be considered to have been established (as opposed to a jury that may find infringements but still have doubts when it rules on damages) will, on average, award a patentee 50%, and likely more, of the damages claim approved by the court.

I would be more sympathetic to the characterization of the March damages ruling as a "reduction" if Judge Koh had modified the framework for the new damages determination in a way that clearly prejudices Apple on the bottom line. For example, if she had ruled that the jury was all wrong by giving Apple (as part of its award) a percentage of the infringer's (i.e., Samsung's) profits, then that would really up the ante for Apple in a retrial and would make a reduction the most likely outcome. But the adjusted damages periods -- just a few months for the most relevant products -- have limited impact compared to the discrepancy between Apple's claim and the jury's award. Judge Koh had to vacate those parts of the damages award because the jury award was an aggregate per-product figure, not granular enough to just subtract the portion of damages relating to the months before Samsung had notice of is alleged infringement. In other words, the decision to vacate had more to do with a formal problem and deference to a jury (whose awards can't easily be second-guessed) than with a fundamental problem with Apple's entitlement to substantial damages. That's what I saw right away on March 1, but I was alone in doing so.

Again, we need to see now how the court rules on the motion to strike, but at least Apple will, realistically speaking, get to present the corresponding portion of last year's claim minus the adjustments of the damages periods. There will be an upside for it, and it won't be easy (though it will be possible) for Samsung to prevent the total award from going up.

After Samsung itself stated for the first time that the total damages award could be greater after the retrial than it was before the March damages order vacating parts of the verdict, contrary to incorrect reporting by the media containing quotes from partly incompetent people (at least one of those who spoke out on this is easily among the top three experts on U.S. patent law, but had unfortunately not followed this case in sufficient detail before commenting on the March ruling), Fortune/'s Apple 2.0 blogger Philip Elmer-Dewitt asked: "How could the press get the effect of a judge's high-profile ruling so wrong?" After almost five months, I've made an attempt to answer that question in a post on this week's New Zealand patent reform bill, which contrary to mischaracterizations does not abolish all software patents. You're going to see that the longer these smartphone patent disputes take, the more frequently the general media and certain experts they quote will miss the point. For example, there are still journalists (including some people I truly like) who believe Google prevailed on its fair use defense at last year's Oracle Android/Java trial, when in reality the jury was just hung and a reversal of the district court's finding of non-copyrightability would put fair use back on the agenda. Retrials and remands create a degree of procedural complexity and a risk of confusion that most people don't have the time to cope with, which doesn't prevent everyone from writing about and speaking out on these cases regardless (and some just have to write about this whether they like it or not). I try my best to help the press get things right, and I'm glad that there are journalists who make use of this assistance for the benefit of their readers.

If you're interested in Samsung's motion to strike, here it is:

13-08-30 Samsung Motion to Strike Portions of Apple Damages Report by Florian Mueller

I've also uploaded Apple's motion to Scribd, but I chose not to publish or discuss it in this post because it doesn't shed much light on the economic dimension of the retrial.

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