After a jury returned a verdict against Apple, Apple filed a motion for judgment as a matter of law or a new trial. The district court subsequently notified the parties pursuant to Rule 59(d) that it was considering granting a motion for a new trial for a reason not stated in Apple's original motion.
During the trial and apparently at Apple's request, the district court instructed the jury on the entire market value rule. Smartflash had argued that it did not employ the entire market value rule at trial and instead employed an apportionment analysis.
At the post-trial hearings on the issues, the district court asked Apple: "In your view, is this an entire market value rule case, or is this an apportionment case?" Instead of responding to the district court's question, Apple stated that "[e]ither this is not an entire market value case, which is the Smartflash current position. . . . If that's true, Your Honor, then a new trial is required because the jury was instructed on entire market value and . . . there is no basis for that jury instruction."
The district court then found that Smartflash did not attempt to apply the entire market value rule, and the district court then agreed with Apple's argument that a new trial on damages was necessary in light of the instruction provided to the jury.
As explained by the district court, "Smartflash attempted to take salable, multi-component products and 'apportion the defendant's profits and the patentee's damages between the patented feature and the unpatented features' of those products. Garretson v. Clark, 111 U.S. 120, 121 (1884). For example, if the Court assumes (for this purpose) that the jury defined the entire market as only the sales of certain iPhone, iPad, and iPod Touch devices, which are all salable units that--based on the jury verdict--practice the patented software invention, then Smartflash subtracted from the royalty base a portion (77%) of the total value of these sales based on the answer to particular consumer survey questions. At its root, then, Smartflash's royalty base encompassed about 23% of the total revenue generated by the sales of the accused products, not 100% of it. Smartflash then multiplied a royalty rate (also based on a consumer survey) with this royalty base to calculate its ultimate reasonably royalty estimate."
The district court then explained that "Smartflash's damages model--with a degree of oversimplification--apportions familiar inputs to the royalty base and rate calculations by using the results of two consumer surveys (one that asks about whether the consumers were motivated to purchase the accused products because of the infringing features). In other words, through the use of survey questions, Smartflash attempted to apportion for the jury 'the incremental value that the patented invention adds to the end product.' Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014)."
The district court then concluded that "the confusion created by the instruction noted above warrants a new trial on damages in this case. The Court is persuaded, in the clarity of post-trial hindsight, that such instruction may have created a skewed damages horizon for the jury. It is the Court's duty to view any and all proposed instructions critically and with an eye toward accurate compliance with the law coupled with effective and fair guidance for the jury. Post-trial motion practice exists to provide an opportunity to correct (and when necessary retry) matters not properly tried in the first place."
Accordingly, the district court ordered a new trial on damages.
Smartflash LLC v. Apple Inc., Case No. 6:13-cv-447-JRG (E.D. Tex. July 7, 2015)