Apple Fined $533 Million over Patent Infringement by iTunes

The world’s most valuable company will be a little lighter in the pocket, after tech giant Apple was ordered to pay $533 million in damages over claims that it infringed on patents when developing the storage systems for its iTunes music service. The ruling came down on Thursday in a federal court in Tyler, Texas. The lawsuit, filed in May 2013 by Smartflash LLC, asked for $852 million in damages for infringement of six patents related to the storing and accessing of digital music and video files. Based in the British Virgin Island of Tortola, Smartflash has only one employee (founder Patrick Racz) and does not make any products or provide any services.

When Smartmouth first filed the suit, it also named three video game developers as defendants, claiming they used an Apple function that violates a Smartflash patent on in-app-purchases. The game makers were later dropped from the suit. As for Apple, the suit claims that Racz met with Apple senior director Augustin Ferrugia in 2000. Ferrugia was with another company at the time, and was interested in the technology behind the Smartflash patents. According to the suit, iTunes began infringing on Smartflash’s technology after Ferrugia was hired. In addition to a percentage of profits Apple has made through iTunes, the suit also asked for a cut of sales of iPads, iPhones and Macintosh PCs because they all use iTunes.

When it first learned of the Smartflash lawsuit, Apple initially asked the court to dismiss the case, calling the Smartmouth technology too generic to patent. During the case, attorneys for the Cupertino, California based mega-company argued that the patents should be deemed invalid because previous patents for similar technologies had only been worth $4.5 million. The argument failed to convince jurors, however, as they unanimously agreed that the company had willfully infringed on Smatflash technology.

According to a press release following the ruling, Apple will appeal Thursday’s decision. “Smartflash 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,” read the statement. “We refused to pay off this company for the ideas our employees spent years innovating, and unfortunately we have been left with no choice but to take this fight up through the court system.” Though Smartflash is based in the British Virgin Islands, it was allowed to file the suit in Texas because it does have an address in Texas. The company has also filed similar suits against Google, Amazon and Samsung, all in the same court. Now that a decision has been made in the Apple suit, the court is ready to begin hearing the complaint against Samsung.