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Apple Liable for $533M in Infringement Against Patent Holding Co.

By Mark Wilson, Esq. on February 25, 2015 | Last updated on March 21, 2019

Apple suffered quite a setback Tuesday, when a federal jury handed down a $532.9 million verdict against it, in favor of patent licensing company Smartflash LLC. Smartflash claimed that Apple's iTunes software infringed on patents it held relating to downloading files from the Internet.

A look at the allegedly (or, I guess, not "allegedly" anymore) infringing patents, however, reveals that the only thing Smartflash patented is more of the same business method patents that the Supreme Court struck down in Alice v. CLS Bank.

If I Do It on a Computer, It's a Totally New Invention, Right?

The three patents at issue -- Nos. 7,334,720, 7,942,317, and 8,033,458 -- all deal with "data storage and access systems."

The patents themselves sound like what you'd expect from a "patent holding company" (or, less charitably, "patent troll") that, according to Apple, "makes no products, has no employees, creates no jobs, has no U.S. presence, and is exploiting our patent system to seek royalties for technology Apple invented."

The patents, all of which are continuations of each other and virtually identical, cover using a credit card to purchase a file that you then download from the Internet using a computer.

That's it.

The patents make no claim to inventing an encryption technology, or a payment technology, or a downloading technology, or a banking technology, or any piece of software, or a device for downloading the file, or a device for playing the downloaded file. All that Smartflash claims is that it, and it alone, was the first to come up with the process of using a credit card to pay for a file online, then downloading that file to a computer.

This Appeal Is a No-Brainer

On its website, Smartflash claims that its founder Patrick Racz, "a visionary and already highly successful entrepreneur," invented "Data Storage and Access Systems technology," though as we've just learned, the "invention" is nothing more than a process for paying for a file and downloading it from the Internet.

Smartflash's headquarters, where it produces $500 million worth of innovation, is a generic office building in Tyler, Texas, that's also home to a bank, some law firms, a counseling center, and a cab company.

Believe it or not, $533 million is a step down from what Smartflash asked for: $852 million, though Apple said the patents themselves were worth only $4.5 million. Apple will appeal, of course, and the case will go to the Federal Circuit Court of Appeals, which, after the departure of former Chief Judge Randall Rader, has decided it suddenly has a distaste for bogus "on a computer" business method patents.

Smartflash is also involved in lawsuits on the same patents against Samsung, which uses "data storage and access systems" as well -- along with every other person in the world who downloads anything from the Internet.

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