flash of invalidity —

Patent-holding company’s $533M verdict against Apple is dust on appeal

Massive verdict would have been largest ever for a non-practicing entity.

A representative patent image showing how Smartflash's "data storage and access system" works.
Enlarge / A representative patent image showing how Smartflash's "data storage and access system" works.
USPTO
It looked like Smartflash LLC had Apple right where it wanted it after a jury awarded the patent-holding company $533 million—one of the largest patent verdicts in history.

The dreams of patent riches have gone up in smoke after a panel of appeals judges ruled that all three of Smartflash's patents are invalid as overly abstract. At this point in history, a one-employee patent-holding company with no novel legal argument has an infinitesimal chance of getting the attention of the US Supreme Court, so Smartflash's path has ended with the opinion (PDF) published yesterday.

Smartflash is owned, at least in part, by Patrick Racz, the named inventor on US Patent Nos. 7,334,720, 8,118,221, and 8,336,772. Racz lives on the English Channel's Isle of Jersey and filed for the patents in the late 1990s when Smartflash was an operating company with a real product, a type of early digital media player. But by 2002, Smartflash was out of business. Racz kept the patent applications alive, though, and saw them through to issuance.

Racz hired lawyers, set up a one-employee company in the patent hotspot of eastern Texas, and sued Apple (PDF) in 2013. He also sued three much smaller companies—Game Circus, Robot Entertainment, and KingsIsle Entertainment—who used in-app purchases or in-app advertising. Those companies were dropped from the case, and it isn't clear if they reached settlements or not.

The only image available of the "Smartflash" digital download device.
The only image available of the "Smartflash" digital download device.
After trial, US District Judge Rodney Gilstrap threw out the massive damage award because of faulty jury instructions. But the patents were still valid at that time. However, Apple pushed ahead with a challenge at the US Patent and Trademark Office and got the patent claims tossed out. With the Federal Circuit now agreeing with that result, Smartflash's huge win is truly gone.

If the $533 million verdict had held up on appeal, it would have been the largest win ever for a "non-practicing entity," more popularly known as a "patent troll."

The Racz patents described systems "comprising data carriers, or 'terminals,' that could receive and validate payments from users and then retrieve and provide data, such as audio, video, text, and software over the Internet." He described the patents as a solution to "data piracy."

US District Judge Rodney Gilstrap ruled on the matter, noting that the patents did seem to cover a pretty basic idea—"conditioning
and controlling access to data based on payment." But he let the patents persist despite that, because, in his view, they “recite specific ways of using distinct memories, data types, and use rules that amount to significantly more than the underlying abstract idea.”

In her opinion, Chief Circuit Judge Sharon Prost disagreed, writing that the "asserted claims here invoke computers merely as tools to execute fundamental economic practices."

She continues: "Smartflash’s asserted claims recite reading, receiving, and responding to payment validation data and, based upon the amount of payment, and access rules, allowing access to multimedia content. This is precisely the type of Internet activity that we found ineligible in Ultramercial... In sum, the asserted claims are all directed to the abstract idea of conditioning and controlling access to data based on payment, and fail to recite any inventive concepts sufficient to transform the abstract idea into a patent-eligible invention."

Listing image by Bethan

Channel Ars Technica