Litigator’s Perspective: Appellate Judge Stoops to Try a Smartphone Case and Turns Patent Litigation on Its Ear

Kerry L. Timbers

By Kerry Timbers. Co-Chair of our Litigation Practice Group

August 2012 IP Update

Apple is smack in the middle of a complicated litigation war against companies it believes have copied its iPhone, with multiple proceedings pending in the U.S. and abroad against makers of Android phones.  Indeed, Apple’s case against Samsung, the largest maker of smartphones in the world (having recently taken that title from Apple), is now being heard by a jury in San Francisco, with both parties claiming patent infringement.  In that case, Apple seeks more than $2.5 billion in damages.

But let’s have a look at Apple’s big loss in a recent similar case against Motorola, in which the judge threw the case out before trial.  Apple had alleged patent infringement, and Motorola countersued on its own patents.  Both parties sought injunctions and multimillion-dollar damages awards.

The judge in the case was Richard Posner, a judge on the Seventh Circuit Court of Appeals.  A prolific writer with more than thirty books to his credit,a leader in the field of law and economics, and a professor at the University of Chicago, Judge Posner is seen by some as the most influential judge outside the Supreme Court.

Judge Posner, a vocal critic of the patent system, arranged to sit on the Apple v. Motorola case at the trial level.  Although his decision has been appealed and has no binding effect on any other court, it is likely, due to the judge’s stature, to affect how courts think about patent cases.

Judge Posner began, in May, by dismantling each party’s damages case.  He threw out most of the expert testimony supporting Apple’s and Motorola’s claims for damages and injunctive relief.

His principal reason for this dramatic action had to do with the experts’ reliance on party employees — something that damages experts in nearly every case do as a matter of course.  Instead, said Judge Posner, the experts must “shop around” for a “disinterested” source, and may rely on “an agent of the party” only if they first establish that that is the only reasonable source for that information.

A second assault on the experts focused on the value of the specific features enabled by each side’s patented technology, and on alternatives available to the parties to either provide the features or their equivalent without infringing.  Judge Posner faulted the experts for conducting consumer surveys that were not tailored to thevery specific requirements of the patent claims.

The experts were wrong as well for analyzing the cost to design around the patents before considering every alternative to infringement, including licensing the patents, choosing a different technical solution, and even breaking contracts with cellphone service providers.

In June, having disposed of the bulk of the parties’ damages evidence — indeed, Apple admitted that the judge’s rejection of the expert testimony meant it had no damages case — Judge Posner was set to end the entire case.  He first cut what was left of Motorola’s damages case by rejecting its expert’s damages theories as failing to “establish a prima facie case.”  Specifically, the expert failed to show that the proposed design-around was “commercially reasonable.”

Having eviscerated both parties’ damages cases, Judge Posner turned to Motorola’s bid for  an injunction.  Motorola had declared, in the context of its participation in a standards-setting organization, that its patents were “standards essential.”

As required in the standards-setting context, Motorola had agreed to license its patents on “fair, reasonable and non-discriminatory” (FRAND) terms.  By doing this, said Judge Posner, Motorola “implicitly acknowledged that a royalty is adequate compensation for a license.” An injunction is therefore not available for infringement of the patent, said the judge.

He noted that the FTC had recently taken exactly this same position, saying that injunctions should not be available for infringement of patents that the owner has agreed, as part of the standards-setting process, to license on FRAND terms. Judge Posner is the first federal judge to agree with the FTC on this novel position, which is widely debated both in the United States and in Europe.

Judge Posner held that neither party had proven damages, a failure that doomed any attempt to get an injunction.  An injunction “would not avert” the infringement losses alleged by the parties, “because of the ease of designing around the patent claims at issue,” and in the case of Apple’s patents, the small improvements allowed by the patents “may not take significant sales from Apple.”  “For a variety of reasons patents in the field of information technology often have little if any value except defensively.”

Judge Posner asserted that, without damages evidence, he could not perform the balancing test required to issue an injunction.  “It would not be proper for me even to consider ordering an injunction without evidence that would enable me to compare the costs and benefits of an injunction with the costs and benefits of the substitute equitable remedy of compulsory license with a reasonable royalty…. I could not responsibly order injunctive relief … without knowing whether the lower cost of a compulsory license at a reasonable royalty would produce a better balance of hardships.”

Even with such evidence, he said, no injunction was justified because a reasonably royalty going forward is a “superior remedy in a case like this because of the frequent disproportion between harm to the patentee from infringement and harm to the infringer and the public from the injunction.”

With the parties’ claims for relief in tatters — before  a trial on the issues of infringement and validity even occurred —  the final blow was inevitable:  If there is “no basis for an award of relief, the defendant is entitled to a judgment dismissing the case with prejudice.”

Judge Posner’s actions were doubtless a huge shock to Apple and Motorola alike.  His summary dismissal of expert testimony — testimony that judges routinely allow to be presented to jurors for their determination of whether it is sound — and his caution that an expert may not rely on a party representative or even another expert will have trial attorneys and judges rethinking how to present cases in court.

Judge Posner’s strong pronouncements regarding injunctions, suggesting that most of the time an injunction should not be available, will give patent owners something new to worry about.  Attorneys in patent infringement cases must heed Judge Posner’s warnings and tailor their evidence to address these issues. Both parties have appealed the decision, and the legal community will closely watch how the appeals court handles Judge Posner’s decision.

An encompassing question is how much Judge Posner was influenced by his personal views of the patent system.  In early June, between his opinion disparaging the parties’ experts and his decision to throw out the case, Judge Posner wrote on his blog that the patent system was “dysfunctional.”

Shortly after killing the case, in an interview with Reuters, he mused:  “It’s not clear that we really need patents in most industries.” In the area of smartphones bearing a multitude of features, “you just have this proliferation of patents.  It’s a problem.”

Judge Posner’s opinion, if widely accepted, would have two broad implications.  The first is that any patent infringement case might be dismissed with prejudice unless it is supported by expert reports meeting exacting standards never before articulated by a court.  The second is that injunctive relief will never be available for patents that are subject to FRAND licensing terms.