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Apple’s Success Reversing Patent Cases May Dim CalTech’s Win

Susan Decker, Ian Lopez and Matthew Bultman

(Bloomberg) -- If any company knows how to get rid of a billion-dollar patent-infringement verdict, it’s Apple Inc.

Apple pledged to appeal Wednesday’s $1.1 billion verdict won by California Institute of Technology, in which it was told to pay $838 million and its chip supplier Broadcom Inc. was hit with $270 million in royalties by a federal jury in Los Angeles. Apple is counting on its past history challenging such verdicts to mean good odds for the future.

In the past decade, the iPhone maker has evaded a $533 million verdict over controlling digital content, a $506 million judgment over microprocessor technology and a $625.5 million verdict for a way to display documents. In cases Apple hasn’t won, the company keeps fighting -- it’s been embroiled in a decade-long fight to avoid paying as much as $1 billion over secure communications to VirnetX Holding Corp.

“They are certainly one of the most targeted entities out there, so it makes sense for them to aggressively defend themselves when they don’t see a path to settlement,” said Jonathan Stroud, chief intellectual property counsel for Unified Patents LLC, which challenges patents used in litigation against its members, including Apple. “Otherwise they’ll be seen as an ATM and continue to be targeted regardless.”

Led by Chief Litigation Counsel Noreen Krall, Apple’s strategy has been geared to maintaining the company’s high-profit margin. That means waging a years-long battle with Samsung Electronics Co. when Apple thought the Korean electronics maker had copied iPhone designs and a no-holds-barred fight with chipmaker Qualcomm Inc. to lower royalties it pays on critical telecommunications technology.

The cases don’t always end in complete victories. Apple continued to lose market share to Samsung, and its battle with Qualcomm ended in a settlement where it paid the chipmaker billions of dollars and agreed to start using its chips again.

“This is just the starting point,” said Bridget Smith, a lawyer with Lowenstein & Weatherwax in Los Angeles, of Wednesday’s verdict. “They’re still going to have to win on appeal.”

Apple also has been accused of being a bully when it comes to using other companies’ inventions. Medical device maker Masimo Corp. claims Apple stole health monitoring technology, and a Florida company that makes “virtual iPhones” to test for flaws has accused Apple of trying to control security research.

The big-dollar verdicts against Apple are in part because of its size. The $838 million won by CalTech is less than two days’ worth of sales for Apple and is equal to less than 2% of the company’s $55.3 billion net income in fiscal 2019.

Broadcom’s share of the verdict could mean a bigger rap to its bottom line. The San Jose-based chipmaker reported $22.6 billion in sales in the fiscal year ended Nov. 3, and net income of $2.7 billion. Broadcom fell as much as 2.8% Thursday on the news.

CalTech said it was “committed to protecting its intellectual property in furtherance of its mission to expand human knowledge and benefit society through research integrated with education.”

District Court Judge George Wu, who presided over the trial, has ordered a telephone conference Feb. 6 to determine the next steps in the case. The verdict is the sixth-largest for a patent-infringement case in U.S. history, according to data compiled by Bloomberg. No $1 billion-plus patent verdict has ever stood -- they are tossed on appeal or settle for a lower amount.

“Less than a hundred million, there’s not a lot of attention,” said Bernard Chao, a professor at the University of Denver Sturm College of Law. “But when you get in excess of nine figures, I think you start raising eyebrows and drawing attention.”

The biggest decision won by a university was a $1.17 billion verdict won by Carnegie Mellon University against Marvell Technology Group Ltd. in 2013. An appeals court later ordered that damages be recalculated and the case settled for $750 million.

“When you have a number that big, the courts scrutinize the verdict and say ‘Is this legit?’” said Patrick McElhinny of K&L Gates in Pittsburgh, who represented Carnegie Mellon. “They typically are. As long as they are grounded in the record, they are perfectly appropriate.”

Apple and other Silicon Valley companies have been trying to lower how much patent owners can collect in damages for years. They have argued too often juries are awarding big awards when the invention is for a tiny component in a complex device.

The concern, said Timothy Holbrook, a professor at Emory Law in Atlanta, is “giving too much weight to the value of this technology as it relates to a broader product.”

Working to limit damages is at the heart of a Supreme Court petition Apple has filed seeking to overturn a $439 million judgment won by VirnetX. In a second case involving the same patents but newer products, a federal appeals court ordered a recalculation of a $503 million verdict.

“There is no doubt that they’ll spend a large amount of money to fight to the bitter end even long after it’s become crystal clear they should take responsibility via a license,” said Brad Caldwell of Caldwell Cassady Curry in Dallas, who has represented VirnetX for the past decade.

Even as tech companies want to avoid paying high royalties, universities are trying to collect more money from their research, with recent lawsuits filed by the University of California against Abbott Laboratories over an infant formula and lighting companies and retailers over LED bulbs, along with a cross-country battle among research institutes over who will get royalties on ground-breaking gene-editing technology.

Universities are seen as the incubators for new ideas and have to rely on a sometimes fickle federal government for funding, said Peter Corless, a patent lawyer with Mintz Levin in Boston who often represents universities.

“Everyone is so under pressure to come up with funds to be more competitive and put together better packages for incoming professors,” Corless said. The universities nonetheless have been asking themselves “If we start asserting some of our patents against blue chip corporate America is that appropriate for us and who we are?”

While many legal experts predict the damages award will be cut, if Apple doesn’t get an outright victory, Corless said CalTech won’t give up without a fight.

“It’s a big deal,” he said. “It would change an institution if they get the money.”

(Adds comment from VirnetX lawyer in 19th paragraph. An earlier version corrected the verdict amount in first deck headline.)

--With assistance from Malathi Nayak and Edvard Pettersson.

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net;Ian Lopez in Arlington at ilopez32@bloomberg.net;Matthew Bultman in Arlington at mbultman@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, ;Keith Perine at kperine2@bloomberg.net, Elizabeth Wasserman, Rebecca Baker

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