Apple vs. Samsung: Decision Costs Apple $450 Million

On Friday March 1, 2013 Judge Lucy Koh handed down her decision regarding various motions that were filed on behalf of Apple Inc. (“Apple”) and Samsung Electronics Co. (“Samsung”) over the past few months post-trial. Specifically, Apple requested additur, supplemental damages, and prejudgment interest, while Samsung moved for a new trial on damages or remittitur.  Judge Koh determined that the “Court has identified an impermissible legal theory on which the jury based its award, and cannot reasonably calculate the amount of excess while effectuating the intent of the jury.” The total amount stricken from the jury’s award was $450,514,650 –pending a new trial on damages. The jury awards stands for the remaining 14 products for a total of $598,908,892 in favor of Apple.

1. Additur

Post-trial, Apple requested the Court to increase its damages award for five products because the jury gave an award less than what was calculated by Samsung’s damages expert. However, the Court pointed out that “Apple provide[d] no authority for the argument that the Court should not consider the jury’s specific findings.” Moreover, the Court stated that by doing so would be to violate the longstanding rule that the Seventh Amendment prohibits a judicial increase in a damages award made by a jury. See Dimick v. Scheidt, 293 U.S. 474, 486-87 (1935).  Although Apple contends that this rule does not apply in this current case because there is no dispute about the proper amount of damages, the Court quickly and swiftly disagreed. In fact, the Court points out that “[t]he amount of damages is heavily disputed here, as evidenced by extensive testimony provided by both parties concerning the proper amount of compensation.” Additionally, the jury was not bound by either side’s damages testimony and therefore free to evaluate the testimony of both sides’ experts in arriving at its award. The Court denied Apple’s motion for an increase in the jury’s damages.

2. Supplemental Damages

Subsequent to the additur, Apple requested supplemental damages for the sales not considered by the jury. The Court agreed that supplemental damages were in order because both parties do not dispute “there are sales for which the jury did not make an award, because they occurred after the trial had concluded.” The Court pointed to Section 284, which requires that the Court award compensation for every infringing sale.

The Court went on to layout the three (3) primary issues it must address in resolving Apple’s request for supplemental damages: (1) the date from which the award should begin; (2) whether the law permits supplemental damages for post-verdict sales where an award of infringer’s profits is made pursuant to 35 U.S.C. §289 and (3) the proper method for calculating post-verdict damages in a case where the jury made no determination as to royalty rate.

While weighing all the evidence at its disposal the Court decided that the date from which the supplemental damages should begin is August 25, 2012, the day after the verdict. In reaching this decision the Court stated that “nothing precluded Apple from arguing that the jury should consider sales from June 30 through August 24, or from presenting evidence on how to estimate such sales. [The evidence presented to the jury ran only through June 30, 2012.]” With respect to whether the law permits supplemental damages for post-verdict sales where an award of infringer’s profits is made pursuant to 35 U.S.C. §289 –the Court seems to indicate that the law does permit such activity. Furthermore, the Court decided that both parties can present evidence of the actual number of sales for the purposes of calculating a royalty. However, “courts have found it appropriate to delay orders for the submission of such evidence and hearings thereon pending the resolution of appeals, to ‘avoid potentially unnecessary expenditures of time and money in preparing such account.’”(internal citations omitted). As a result, the Court delayed the consideration of evidence of actual post verdict sales until after the completion of the appeals of the case.

3. Prejudgment Interest

The Court was then faced with the decision of whether Apple was permitted prejudgment interest in light of “several of the products for which the jury made a damages award involved not just patent infringement, but also Lanham Act claims and thus resulted in damages awards that…compensate Apple for both trade dress dilution and patent infringement.” The Court saw no reason to resolve the apparent conflict, instead deciding that “[b]ecause prejudgment interest is clearly appropriate for this award based on patent infringement, the Court finds that there would be no reason to forbid prejudgment interest simply because the award also compensates for a Lanham Act violation, even if the Lanham Act did not separately authorize prejudgment interest.”

Both parties proposed a different rate for calculating interest. Apple wanted the prime rate, while Samsung pushed for the 52-week Treasury bill rate. While trying to determine the appropriate rate the court looked toward precedent that determined if the plaintiff “borrowed money at a higher rate, what that rate was, or that there was a causal connection between any borrowing and the loss of the use of the money awarded as a result of [the defendants] infringement.” Laitram Corp. v. NEC Corp., 115 F.3d 947, 955 (Fed. Cir. 1997). The Court sided with Samsung in using the 52-week Treasury Bill rate, in part because Apple maintained substantial cash reserve and it does not appear that Apple borrowed any money due to deprivation of a damages award.

4. Jury’s Damages Award

The heart the Court’s opinion dealt primarily with the jury damages award –specifically how the award was calculated and what information was used to calculate the award. Typically, if a Court finds an error in the jury’s damages verdict, the court basically has two options: to order a new trial on damages, or reduce the award to a supportable amount. The Court generally cannot award an amount less than maximum amount that is supportable by evidence presented. See D & S Redi-Mix v. Sierra Redi-Mix & Contracting Co., 692 F.2d 1245, 1249 (9th Cir. 1982).

In determining whether the jury damages award was acceptable, the Court examined the notice date –as this was of great debate in both motions. Apple contented that the date of notice of possible patent infringement was August 4, 2010 in a meeting between both parties, while Samsung argued the date was April 15, 2011, which was the date the complaint was filed. The point of contention was whether Samsung was put on notice of all possibly infringing patents or just specific patents mentioned during the meeting.  The Court found that “Apple cite[d] no evidence whatsoever that any patent-in-suit other than the ‘381 Patent was specifically identified during the meeting. Instead Apple points to general comparisons drawn at the meeting between the industrial design and user interface of the iPhone 3GS and the Galaxy S.” While one perhaps can imply that the Galaxy S infringes the iPhone 3GS patent, this does not provide notice of the specific patents alleged to be infringed. “This kind of non-specific notice is insufficient because a patent may have a broad or narrow scope, and a product may be covered by a multitude of patents, and also include many unpatented features.” Therefore, the Court found that the August 4, 2010 date is not supported by the evidence in the record for any patent other than the ‘381 patent. “Thus, the jury’s awards for patent infringement, which are based on …the early notice date [August 4, 2010], may have contained some amount of excess compensation covering the period before Samsung had notice of the relevant IP.”

Apple’s damages expert, Mr. Musika went through an elaborate process for calculating Apple’s damages for the period for which they were asking for. However, Mr. Musika did not testify “as to how the jury (or the Court) could calculate Apple’s lost profits for a shorter period of time.” This left the Court with little option to calculate Apple’s lost profits or a reasonable royalty for the relevant time period before notice of the other patents.

“As the Court can neither calculate an appropriate remittitur nor leave the award intact, the only remaining possibility is to conduct a new trial on damages…[f]urthermore, it was Apple’s strategic decision to submit an expert report using an aggressive notice date for all of the patents. The need for a new trial could have been avoided had Apple chosen a more circumspect strategy or provided more evidence to allow the jury or the Court to determine the appropriate award for a shorter notice period. Accordingly, the Court…strikes $383,467,143 from the jury’s award [pending a new trial on damages.]” 

Similar exercises were conducted by the Court on the remaining patents to amount to a grand total of $450,514,650 being stricken from the jury’s award. The parties are encouraged to seek appellate review of this Order before any new trial. The jury award ($598,908,892) stands for the remaining 14 Apple products. So while Samsung currently received what some may consider a break, its liability is likely to increase after the new trial on damages in complete. Ultimately, however, the CAFC will decide the fate of both companies as it relates to infringement and damages should both parties decide not to settle.