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July 2012

Apple v. Motorola: Posner Elevates Patent Damages to the Forefront of the Smartphone Wars

Apple Inc. v. Motorola Inc. (Case No. 1:11-cv-08540)

The global patent wars over smartphones and their underlying technologies have been widely publicized in the last several years, so widely that the term “patent troll” is now etched into the public’s lexicon. The exorbitant cost of smartphone patent litigation cases, compounded by the sheer number of cases filed each year, has also been highlighted as an abuse of the legal system by technology companies.

On June 22nd, the esteemed Judge Richard Posner rocked the landscape of smartphone patent litigation by dismissing a lawsuit in which Apple and Motorola Mobility (owned by Google, Inc.) had accused each other of patent infringement.  Judge Posner’s rationale centered on the finding that neither litigant had sufficiently shown that it was entitled to patent damages or an injunction, despite extensive testimony from both sides’ damages experts. The decision, if affirmed by the Federal Circuit, is expected to significantly change the approach to proving damages in patent litigation cases, both in federal courts as well as at the U.S. International Trade Commission (ITC).

As mentioned above, the decision in Apple Inc. v. Motorola Inc. carries with it serious implications that will likely alter the way patent litigation is conducted in the United States going forward. Judge Posner’s order dismissing the case with prejudice, because neither party in his opinion had provided sufficient evidence proving damages or justifying an injunction, sends a clear message to future litigants that damages should be established “with tolerable certainty.”

Courts have traditionally allowed a majority of damages theories, including patent damage testimony from both sides’ experts. The low bar for the admissibility of damages theories generally has been accepted in view of the statutory language provided in §284 of the Patent Act, which states that damages should be “adequate to compensate for the infringement but in no event no less than a reasonable royalty for the use made,” and in particular, that “[t]he court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.” 35 U.S.C. §284.

Judge Posner’s reasoning for justifying the exclusion of both sides’ expert damages centers upon the disabling nature of the testimony offered by Apple’s and Motorola’s experts, which Judge Posner described as “going for broke.” Specifically, neither party sought relief in the form of a nominal royalty “predicated on no showing of harm,” but instead both sought the upper reaches of potential damages. As an example, even though Motorola had accused Apple of infringing only one patent of a standards-essential portfolio comprised of one hundred patents, Motorola sought damages of up to 50 percent of the licensing fee for the entire portfolio, which Judge Posner termed a “nonlinear royalty” and “mathematically disproportionate.”

Furthermore, Judge Posner denied both parties’ requests for injunctions, holding that Apple and Motorola were not entitled to injunctive relief when neither party had presented sufficient evidence that damages would not be an adequate remedy. As such, the crux of the problem highlighted in this case is the finding that Apple and Motorola both failed to present sufficient evidence to create a triable issue, not because damages were incalculable, but because the damages theories submitted by both parties were overreaching, unsubstantiated and left no room for a reasonable fallback position.

While the decision will likely be appealed to the Federal Circuit, the mark that Judge Posner’s rationale leaves will be indelible in that it is certain to affect how damages theories are developed and argued in future patent litigation cases. In particular, the use of more objective economic standards for measuring patent damages will likely be employed in order to avoid a failure to provide sufficient evidence of damages. Moreover, adjustments to the submittal of expert testimony will also be made to provide a more rational basis for computing royalties. Lastly, what is also certain is that the high stakes smartphone patent wars between industry giants such as Apple and Google will continue to churn and proliferate even further into the public arena.

Intellectual Property

Intellectual Property