On February 24, 2015, a Texas jury issued a verdict finding that the Apple, Inc. iTunes product infringed three of the plaintiffs', SmartFlash, LLC and SmartFlash Technologies, Limited patents and awarded over half a billion dollars in damages. In May of 2013, SmartFlash instigated this litigation in Texas contending that Apple's iTunes software infringed its patents related to accessing and storing downloaded songs, videos and games.

Other than the large amount of the jury award, this case is interesting for several reasons. First, Apple has largely been successful against patent infringement litigation, especially against "non-practicing entities" or as some call these companies, "patent trolls." SmartFlash is a British Virgin Islands company that maintains an office in Texas. It does not make any products, but rather uses its patent portfolio to recover damages or royalties for revenues. This case illustrates that renewed focus is needed to mitigate risks by identifying potential patent infringement issues for new and existing goods and services and monitoring the industry as "patent trolls" tend to cluster within industry sectors.

Second, this SmartFlash litigation was instigated prior to the United States Supreme Court published the now famous opinion in CLS Bank v. Alice in June of 2014. After Alice was decided, SmartFlash and Apple were allowed to present arguments to the Court concerning the ramifications of the Alice decision (a decision significantly undermining the ability of patent of software). A magistrate judge determined that even in light of the Alice decision, that the SmartFlash patents are valid. Apple will certainly appeal. In its appeal, Apple will also claim that its damages should not exceed $4.5 million. This is not Apple's first appeal of a large damage award. In late 2014, Apple convinced the United States Court of Appeals for the Federal Circuit to overturn a $368 million jury verdict against Apple and to send the case back to the trial court for a new determination on damages.

When Alice was issued, many commentators, mostly in the anti-software patent group, rejoiced the Alice ruling claiming that "software patents are dead"; however, this belief is simply not accurate. While Alice did invalidate many existing software patents, it most definitely acknowledged that software patents are alive and well. In fact, the United States Patent Office recently issued Examples: Abstract Ideas providing multiple examples of patentable software-based inventions. In this changing landscape of software patentability, it is difficult to predict the ultimate disposition of the SmartFlash patents. For now, we do know that the Magistrate and the District Court upheld the SmartFlash software patents. As time passes and more court opinions are decided, and Patent Office examinations are completed, we can better predict what it takes to obtain a software patent.

For now, one patent strategy is to use provisional patent applications to delay patent prosecution to allow more time to pass in the post-Alice patent world. Further, when considering the patentability of software inventions, we need to continue to ask ourselves how the invention will fare when analyzed under the 2014 Interim Guidance on Patent Subject Matter Eligibility from the Patent Office, particularly whether the invention, as claimed in the patent application, has additional elements that amount to significantly more than an abstract idea. It will be interesting to see if, and how well, the SmartFlash patents fare upon a post-Alice analysis.

References:

To view the Virnetx Appeal, click here.
To view the patents, click here.