Dr. Evil Returns!

Almost immediately after the jury in the Apple v. Samsung patent/trade-dress case returned its verdict, the twitterverse was buzzing with Dr. Evil jokes. Try as you might, but you couldn’t say, “$1 billion” without either cracking up, or doing Dr. Evil’s little pinky thing.* Try it. You just can’t.**

* Huh, it looks like he actually says, “$100 billion.”

** As a means of counteracting the Dr. Evil thing, I tried doing it with a Carl Sagan impersonation—bill-yuns and bill-yuns of years ago—but it didn’t feel right.

I did my best to ignore the case while the trial was going on—there’s only so much a guy can take—but when I heard last Friday that the jury was about to return its verdict, I couldn’t resist the siren call of The Verge’s liveblogging. At first, I didn’t think it was a big deal, until I realized my brain was reducing every monetary figure by a magnitude—a defense mechanism against insanity, I think. And when you totaled it all up, yup, it was Dr. Evil time.

I’ve been asked about the verdict a lot at CoderFaire over the weekend, and Monday I was interviewed about it by the Nashville Business Journal. The main questions were: (1) now what? (2) what does it mean? (3) A billion dollars, seriously? (4) Shoot, I own [one of the accused devices]; now what? and (5) a jury decided all this? Here are my thoughts, in order:

First, it’s not over. Samsung will ask the judge to overturn all or part of the jury’s verdict and to reduce the amount of damages (a process known as “remittitur”). At the same time, the judge will need to decide how much to increase the patent award where the jury found willful infringement, and she’ll need to decide whether to issue an injunction against all or some of the affected Samsung products. Then, Samsung will appeal the heck out of the verdict.

Thus, all or some of the verdict could be reversed, or enhanced, or both. I prefer to let the dust settle. After all, many shocking awards are later quietly reduced.

On appeal, the deck will be stacked against Samsung. Jury verdicts are entitled to tremendous deference. The fact that the jury returned such a complex verdict in a matter of days won’t matter. We have been relying on juries to make complex legal determinations for centuries, and we aren’t going to stop now just because “complex” has gotten really, really complex. Besides, do you know what the remedy would be? A new trial! Does anyone want that?

Samsung might have better luck with reducing the damages–more on that later—but recall how remittitur works. The judge would turn to Apple and say, “Accept these reduced damages, or we’re having a new trial.” If Apple says, “No, thanks,” then it’s a new trial. Again, does anyone want that?

Attacking the judge is a better avenue than attacking the jury. One obvious avenue of attack is to challenge the judge’s evidentiary rulings. Most notoriously, Judge Koh excluded evidence that Apple’s design patents were obvious in light of an old Sony device. The judge had excluded the evidence not because it was irrelevant, but because Samsung has produced it in discovery very late in the process.

That seems a bit unfair to Samsung, but then, Samsung had nearly a year to find and produce the prior art. Given the complexity of the case, that’s not actually a lot of time, but Samsung is a huge company, with huge resources and a very well-known law firm. At some point, you have to set a deadline—a point at which everyone lays down their cards, so they can make their arguments at trial. Appellate courts generally give trial judges a lot of leeway in setting and enforcing these deadlines—known as “managing the docket.” Even if Samsung wins on this issue, guess what the remedy is? That’s right, a new trial.

The most obvious path to reversal would be to attack the judge’s “claim construction” order. In a nutshell, the judge must provide the jury with definitions in everyday language for the key terms in the patents. You can imagine that, with highly technical patents, this is a great service to the jury. But claim construction orders are notoriously vulnerable on appeal because they get no deference, and it’s easy for the judge to make a mistake. More technical the patent (and thus the more the jury must lean on the order), the more likely a mistake will be made.

The patents in this case, however, aren’t very technical. Many of them relate to Apple’s user interface, which are pretty comprehensible to anyone who’s ever used a smartphone. That might explain why I haven’t heard anything untoward about Judge Koh’s claim construction order, or any real complaints from Samsung about it.

Second, even if this decision stands (in substantially the same form), I doubt this decision will have any lasting effects. Yes, certain user-interface features and design features will no longer be used in smart phones and tablets, but then, a lot of those features have been on the way out anyway. But none of those features is mission critical. No one is making a purchasing decision based on double-tap zoom.*

* I’m less sanguine about the design patents, but even those designs will pass out of fashion. No one knows that better than Apple.

The best thing that could happen is that manufacturers will be spurred to innovate. Stop copying Apple, and innovate. That’s one, rather unappreciated, way the patent system helps innovation.* The worst thing would be if Apple’s competitors became so intimidated by that $1 billion figure that they steer far clearer of the iPhone and iPad’s features, for fear that they are patented, than they need to. Samsung can sustain $1 billion. Most companies could not survive a proportional hit. Double checking whether a nice-looking feature is patented is almost always a mug’s game—there’s just no easy way to do it.**

* Another way (more conventional) is to encourage the patented invention in the first place. But hands up everybody who thinks Apple wouldn’t have invented the patented inventions used in the user interface if it couldn’t have patented them. But even there, Apple may have been somehow more willing to innovate knowing that it could protect the really important ones down the line. The value of the patent system depends on such unmeasurable assumptions about the nature of innovation.

** It’s also inadvisable from a legal point of view.

Warning: Small Rant Ahead

Third, about that $1 billion. The figure is honestly mind-blowing.

The Patent Act is remarkably vague about damages, requiring only that they be “adequate to compensate for the infringement, but in no event less than a reasonable royalty.” Traditionally, this has meant a focus on determining the “reasonable royalty,” which is the amount the infringer would have paid, and the patent owner would have accepted, had they engaged in royalty negotiations on the front end. It is one of the great fictions of law. But other methods are allowable. Apple apparently introduced three separate damages theories at trial: a reasonable-royalty theory; a lost profits theory; and a theory based on Samsung’s profits, I suppose on the theory that higher profits margins for Samsung would inevitably resulted in a higher royalty.*

* Honestly, would Steve Jobs have let Apple’s royalty rate have any bearing on what Apple was wiling to spend on something? No way.

It’s impossible to know what, if any, methodology the jury used. It’s a bit of a black box, really. Apple’s damages theories, though, are cutting-edge and very aggressive, which means they may be vulnerable on appeal or even at remittitur.

They also defy common sense.* For example, Apple contended the “rubber-banding” scroll feature was worth about $2 a unit. At first, that doesn’t seem like so much. If Samsung sold a phone with “rubber-banding” at $199 and one without at $197, maybe you’d say, “Heck, it’s only a couple of bucks, and I kind of like the feature.” But now assume that Samsung unbundled every single feature, and sold them each for $2. How much would the phone cost with all the features? A lot, lot, lot more than $199! The fact is: no one buys goods like that. And the price-feature-creep method only goes so far–at some point, the customer pushes back and questions the value of all of those features.**

* There is some consensus that the $1 billion award is vulnerable to remittitur because it’s based on a fairly new damages theory, one to replace the old 25% rule that the Federal Circuit recently rejected (because it made no sense and directly contradicted the language of the statute). The judge did let the expert use that new theory at trial, though, so the Federal Circuit may have a chance to address the issue now.

** Edit: Here’s someone has done a better job of making this point. His argument is that if you broke a typical smartphone down according to its patented features and paid the same royalty on each such patent as Samsung just paid on Apple’s patents, the phone would cost $2 million.

I am firmly of the mind that patents are very important for innovation. Even patents reflecting just minor improvements in the art deserve respect—provided that the resulting royalties or damages actually reflect the value of the innovation. This, of course, is a problem across American law, not just with patents.*

* To the extent that the infringer was a bad actor, patent law already provides for “enhanced damages,” up to triple the compensatory damages (with a possibility of recovering attorney’s fees), so the compensatory damages don’t need to be huge to “send a message.” Such message sending is built into the system.

Gigantic patent verdicts can act like a tax. If patent holders know that gigantic judgments are likely, they will have a bargaining advantage in licensing negotiations. That advantage will result in a higher royalty, which will result in a higher price that you pay for the product.

Fourth, do you own one of the accused devices? Don’t worry. It’s true that even using a patented device infringes the patent on the device*. But the good news is that Apple isn’t going to bother suing you. If you’re lucky, the device become a collector’s item!

* Query: Let’s say you stop at a rest-stop and buy a drink at a vending machine. Let’s say the vending machine infringes a patent. Did you just infringe the patent? You didn’t know about the patent? Actually, if the patent-owner’s vending machines are properly marked with the patent number, the law presumes you did. Did I freak you out? Sorry. But with millions of extant patents, you’re probably infringing one right now. Fortunately, the damages would be so tiny, no one would bother an individual consumer…

Fifth, yeah, juries decide patent cases.

A lot of chatter has centered around the location of the trial, which is about 10 miles down I-280 from One Infinite Loop. Although Samsung has a pretty large presence in Silicon Valley, wasn’t that a home-court advantage for Apple?

One assumes so, but statistics don’t bear that out too much. A few years ago, now Federal Circuit* Judge Kimberly Ann Moore, while she was a law professor, conducted an empirical review of patent cases (almost unheard of in the study of law). It turned out that patent-owners usually won if they were the one suing—but they usually lost if the accused infringer beat them to the courthouse with a declaratory judgment action.** If there’s a jury bias, it’s toward the one who initiated the lawsuit, not to the patent owner. Why should this be?

* Which hears patent appeals.

** Kimberly A. Moore, Judges, Juries & Patent Cases–An Empirical Peek Inside the Black Box, 99 Mich. L. Rev. 365, 373-74 (2000).

That might suggest an inherent “home court advantage” because plaintiffs usually try to sue in their home districts. But when you look at districts that seem to prefer the “home team,” they are often districts that have nothing to do with the locations of either the plaintiff or the defendant: districts like the Eastern District of Texas and the District of Delaware (where many companies are incorporated but are rarely actually headquartered).

Thanks for reading!