Smartflash v. Apple: District Court Excludes Damage Theory Based on Survey Responses That Were Insufficient to Show That the Patented Feature Alone Motivated Survey Respondents to Purchase the Accused Devices

January 5, 2015

Plaintiffs Smartflash LLC and Smartflash Technologies Limited (collectively "Smartflash") filed patent infringement actions against Apple, Inc. ("Apple"), Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., Samsung Telecommunications America, LLC (collectively "Samsung"), HTC Corporation, HTC America, Inc., and Exedea, Inc. (collectively "HTC") (all collectively "Defendants") alleging infringement of several patents.

Smartflash's expert on damages, Mr. Mills, based portions of his damage calculations on surveys conducted by Dr. William Wecker. As explained by the district court, Smartflash hired Dr. Wecker, a statistician, to conduct four surveys related to consumer purchasing decisions of the accused products: (1) an "App Store" survey; (2) a "Movies and TV Shows" survey; (3) a "Music" survey; and (4) a "Books and Parental Controls" survey. Each of the surveys asked consumers if certain features "motivated" them to purchase accused products.

The defendants raised two grounds for excluding Mr. Mills's testimony: (1) he improperly used the entire market value rule; and (2) he improperly referenced information related to Apple. On the entire market value rule, Defendants asserted that Mr. Mills improperly included the entire market value of the accused devices where the patented feature was clearly not the sole motivator of purchase. The Defendants argued that the claimed invention related to only one of hundreds of features of the accused smartphones and tablets and was not even marketed. As Defendants explained, Dr. Wecker's surveys asked if the feature "motivated" respondents to purchase, but it did not ask if the feature was the "only" or even a "significant" motivation for purchase. Defendants then characterize Mr. Mills as calculating the royalty base by multiplying (1) the share of survey respondents who said the infringing feature "motivated" them to buy the accused device, and (2) the revenues of those devices. Defendants argued that Mr. Mills did not apportion between the contributions of patented features and other features.

In response, Smartflash argued that Mr. Mills properly calculated damages by (1) apportioning the total number of accused units by the percentage of users who purchased the device because of the accused features; (2) multiplying that number of units by average revenue per accused device in order to get the royalty base; and (3) multiplying the apportioned base times the royalty rate. Smartflash also pointed out that Mr. Mills included only a small subpopulation of accused product sales, seeking zero dollars for 80-90% of accused devices. Smartflash further argued that if multiple features motivated a survey respondent to buy an accused device, the truthful answer to the "motivate" question would be "no."

The district court disagreed with Smartflash. "Smartflash's argument that survey respondents understood 'motivate' to mean that the accused features were the sole motivator of their purchase fails and cannot support Mr. Mills's damages calculations. 'Where small elements of multi-component products are accused of infringement, calculating a royalty on the entire product carries a considerable risk that the patentee will be improperly compensated for non-infringing components of that product.' LaserDynamics, 694 F.3d at 67. '[T]he requirement to prove that the patented feature drives demand for the entire product may not be avoided by the use of a very small royalty rate.' Id. Even though Smartflash seeks damages for only a subpopulation of the accused products, for that subpopulation, Mr. Mills assumed the patented features alone motivated the purchasers. Mr. Mills based this assumption on affirmative survey responses to questions asking if the patented capabilities 'motivate[d] [consumers] to buy the device.'"

The district court concluded that "[a]ffirmative responses are insufficient evidence to show that the patented feature alone motivated survey respondents to purchase the accused devices because the questions did nothing to distinguish those features as the sole motivating factor. See LaserDynamics, 694 F.3d at 69. Mr. Mills admitted that he did not apportion between the contribution of the patents and other complementary assets in the accused devices. Mills Dep. 170:16-171:4, Sept. 25, 2014. Therefore, Mr. Mills's damages calculations based on the accused features as the sole motivating purchase factor are flawed and must be excluded."

Defendants also objected to Mr. Mills's references to cases that do not involve all Defendants, such as referencing the Samsung case and applying Mr. Mills's related opinions to Samsung and HTC. As explained by the district court, according to Defendants, Mr. Mills referenced Apple's state of mind, its marketing efforts, and the importance of various features of its devices to its customers. Defendants also disagreed with Mr. Mills' use of a Licensing Executive Survey, asserting the licenses surveyed do not sufficiently compare to the hypothetically negotiated license.

Here, the district court sided with Smartflash. "The remaining portions of Mr. Mills's testimony are admissible. The court previously allowed references to Apple in the Samsung case when it denied Defendants' Motion to Strike. Defendants' arguments regarding Mills's Apple references go to the weight of the evidence, not the admissibility. Further, Mr. Mills's use of the Licensing Executive Society Survey when discussing the form of the royalty is also an issue of evidentiary weight."

Smartflash LLC, et al. v. Apple, Inc., Case No. 6:13-CV-447-JRG-KNM (E.D. Tex. Dec. 23, 2014)

The authors of are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. We represent inventors, patent owners and technology companies in patent licensing and litigation. Whether pursuing patent violations or defending infringement claims, we are aggressive and effective advocates for our clients. For more information contact Stan Gibson at 310.201.3548 or