Federal Circuit Reverses Apple’s $500 Million Patent Infringement Liability

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Not all decisions from the Court of Appeals for the Federal Circuit make national news, but last week the appellate court threw out a half a billion dollar win for the patent licensing wing of the University of Wisconsin called WARF – Wisconsin Alumni Research Foundation.  WARF’s patent covered how computer processors execute program instructions, in a way to speed up processing.  While a Wisconsin jury found the patent to be valid and infringed by Apple, the Federal Circuit agreed on validity, but found the jury had no reasonable basis for its verdict that Apple infringed.

Over the course of four years of litigation, WARF seemed to be winning at every stage.  WARF defeated Apple’s efforts to institute Inter Partes Review (IPR), thus depriving Apple of perhaps its best prior art defense and a stay of litigation had the IPR been initiated.  Next, WARF obtained the claim construction it sought and won on summary judgment to defeat other prior art defenses and a challenge based on indefiniteness.  WARF had even won a motion to exclude a defense of inequitable conduct.   After two weeks of trial, WARF won a verdict of infringement, validity, and damages just north of $500 million.  Following trial, WARF also won on all Motions for Judgment as a Matter of Law (JMOL), whereby the trial judge upheld the jury verdict on the merits and its assessment of damage.

A year after the JMOL motions were decided in favor of WARF, the Federal Circuit issued its decision reversing the jury’s infringement verdict, causing half a billion dollars to disappear.  While no doubt heartbreaking to the University, the Federal Circuit’s decision is unusual on a couple of different levels.  First, the amount of money at stake is staggering.  Half a billion dollars to any University would have validated its tech transfer efforts, contributed to future R&D, funded faculty staffing, student scholarships, and frankly, any number of “public good” projects upon which large state Universities embark.  To Apple, which recently surpassed the trillion dollar mark in stock holder equity, half a billion dollars is hardly a blip on their bottom line.  Aside from the pecuniary aspects, the case is also unusual in that reversal did not turn on a reversal of the lower court’s claim construction.  Instead, the Federal Circuit focused on the word “particular” and whether under its ordinary meaning, a “particular instruction” referred to a single instruction.  The Federal Circuit opined that “particular” meant “singular,” and proceeded to review expert testimony from both sides on whether Apple’s load instructions corresponded to the claimed “particular” load instruction.  Finding that both side’s expert testimony failed to support infringement, the Federal Circuit reversed.

All is not lost for WARF, as it previously achieved a $100 million settlement from Intel on the same patent a few years before bringing suit against Apple.   Intel settled just before its WARF case was about to go to trial by paying a hefty license fee, to avoid what would likely have been an even larger jury verdict than the Apple trial verdict (based on a likely higher volume of chip sales).  From a licensing and patent monetization point of view, one could argue that Intel should not have settled, in light of the Apple result.  However, that argument would have to assume Apple and Intel chips performed the same way, among other things.  For the tech transfer executive, these divergent results – $100 million for settling, and “0” for not settling – highlight the “know when to hold them, know when to fold them” aspects of patent litigation and monetization strategy.  Strategically, and in hindsight, a settlement before trial with Apple would have yielded a similar pay-out.  Even after trial, the Federal Circuit’s negation of a solid win could have turned out differently had a settlement been arranged after the verdict.  Often in patent litigation, a losing defendant will offer some fraction of the damage verdict to avoid appeal.  There is no way of knowing if Apple made such an offer, but a bird in hand would have been much better than the two in the bush, which in this case, flew away with the Federal Court’s recent reversal.

Also figuring into the settle/don’t settle calculus is what must have been a substantial amount of costs and fees to bring the Apple case all the way to the Federal Circuit.  Glancing at the docket sheet from the Western District of Wisconsin, we count as of today, 786 separate docket entries.  Given the sophistication and complexity of the patented subject matter, multiple technical experts were used by both sides, and damages are always hard, and expensive to prove.  Inevitably, the cost of litigation factors into important litigation decisions, particularly those related to settlement.

In the past, a Federal Circuit decision meant the end of the road for litigants, but lately, the U.S. Supreme Court has taken much more interest in patent cases than in the past.  Could the Supreme Court take a look at this case?  Whether a direct appeal to the Supreme Court, or at first a Petition for En Banc review at the Federal Circuit, WARF could keep their hopes alive for a reversal.  The amount of damage alone makes the case attractive for further review – it’s not every day that half a billion dollars is lost on appeal.  What may also make an appeal attractive is the “particular” way the Federal Circuit interpreted the word “particular.”  Normally, the Federal Circuit reviews “de novo” a lower court’s claim construction, but factual findings underpinning construction are reviewed for “clear error,” which is much more deferential to the lower court.   Since “particular” was not the subject of claim construction at the lower court, the Federal Circuit did so on the fly, and whether doing so was proper may give WARF some hope for further appeals.