Apple iPhone (copy)

Apple has been found guilty of infringing a UW-Madison patent, utilizing technology invented at the university in its iPhones and iPads without paying for a license. 

PHOTO BY KIICHIRO SATO — Associated Press

There’s a lot yet to be determined in the lawsuit between the Wisconsin Alumni Research Foundation (WARF) and Apple.

WARF, which oversees and protects patents on University of Wisconsin inventions, sued the tech giant in February 2014, claiming Apple used a piece of microprocessing technology invented at the UW-Madison without paying for rights. On Tuesday, a jury in the U.S. District Court for the Western District of Wisconsin ruled that Apple did violate WARF’s patent.

Now the court is descending into the complicated work of determining just how much Apple owes WARF, and speculation is swirling about whether the case will be appealed or settled out of court.

“Both parties are playing a very strategic game right now,” said Kali Murray, associate professor of law at Marquette University. “A lot of places would be intimidated bringing a case against Apple — and WARF is not one of them.”

Is this case a big deal outside of Wisconsin?

Yes. The amount of money involved is well above the average for a patent lawsuit. According to a study released earlier this year by financial services giant PricewaterhouseCoopers, the average patent case is about $4.3 million. For non-practicing entities, a category that includes the UW-Madison, the average is $22 million. 

The damages have yet to be determined for the WARF vs. Apple case, but Reuters has reported that "people familiar with the case" say the figure is around $400 million. (Judge William Conley has called previous media reports of $862 million "inaccurate.")

Insiders say the case is also particularly interesting because it touches on a hot button issue in the world of patent law: the impact of patent claims by non-practicing entities (organizations or people that invent something, but don’t sell it themselves).

Some say that patent claims by non-practicing entities have a chilling effect on innovation, impeding inventors by prohibiting use of leading edge technologies created by others.

“That’s really why everyone is interested in this case,” Murray said. “WARF is a very substantial non-practicing entity.”

Some non-practicing entities are considered “patent trolls.”

Is WARF a ‘patent troll’?

It depends on who you ask. In 2012, WARF was including in a Business Insider list of “Tech's 8 Most Fearsome 'Patent Trolls.’” The article conflated “patent trolls” with non-practicing entities, defining both as “companies that make most of their money from licensing patents.”

Others argue that patent trolls and non-practicing entities are separate things.

According to the Electronic Frontier Foundation, a national nonprofit that focuses on civil liberties in the digital world, a patent troll is an individual or entity who wrongly claims patent infringement, often by wielding “overbroad and vague” patents that cover “everyday or commonsense types of computing – things that should never have been patented in the first place.”

WARF argues the patent involved in the Apple lawsuit is very specific and not “everyday or commonsense” at all.

Michael Falk, WARF's general counsel, told the Milwaukee Journal Sentinel last year that the technology “significantly enhances the performance of a microprocessor, among other benefits” and has been recognized in the field as a major milestone in computer microprocessing. WARF's filing against Apple in 2014 also claimed that Apple has filed "one or more patent applications that cite the 752 patent as relevant prior art.”

Is this a ‘David vs. Goliath’ situation?

Not really. Though Apple is a multi-billion dollar company, WARF isn’t in over its head, insiders say.

“WARF is a big entity, as far as universities are concerned,” said Shubha Ghosh, professor at the University of Wisconsin Law School. “It’s got the prestige and the resources.”

“I think they might be more aggressive than Harvard,” Murray said of WARF. “They’ve been a leader in lobbying efforts, they are innovators in how to manage patents and they have derived substantial income from it.”

And WARF has a history of winning battles like this. In 2008, WARF received a $110 million settlement from Intel. That lawsuit was about the same technology involved in the current Apple lawsuit.

On top of that, Murray said the Western District Court in Wisconsin is “a very pro patent district.”

“And you add in that it’s a Wisconsin institution and you can see the relatively sizable advantage WARF had in this trial,” she said. “Apple was likely at a disadvantage from the beginning. This isn’t San Jose, California.”

What happens now that Apple has been found guilty?

They jury has to figure out how much Apple will pay WARF in damages. Numbers as high as $862 million have been thrown around.

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According to Reuters, WARF dropped their claim to $400 million yesterday.

The amount will be determined by calculating “reasonable royalties” — what WARF should have been paid for the license to the technology.

Coming up with that number involves taking Apple sales into account. Then things get dicey, because the jury has to decide if sales outside the United States are fair game, and how much of the profit from each device should be factored into the final payment amount.

“There are over 300,000 patents in the smartphone industry, so any damages calculation in smartphones needs to take into account all the other things that contribute to the value of a phone,” said Mark Lemley, professor at Stanford Law School, via email.

“From what I can tell it’s going to be a pretty complex calculation,” Murray added.

Once the financial calculation is made, then the jury will decide if Apple’s infringement was “willful.” If they determine it was, the determined damages fine will be tripled.

Is Apple going to try to appeal or settle the case out of court?

There are arguments on both sides.

Some think, like Intel, Apple will attempt to settle the case with WARF outside of court. A settlement would save time and could save Apple some money.

Last month, WARF issued a new lawsuit against Apple, claiming it used the technology without a license again, this time in their iPhone 6s and iPad Pro.

Murray said that additional lawsuit may be an attempt by WARF to pressure Apple into a settlement. She said that would be like WARF pointing out, “We’ve already won one case — you want another one?”

However, Murray said Apple does have some incentives not to settle and instead appeal the jury’s decision. Those incentives include avoiding setting a precedent for future patent cases.

“Apple might decide, ‘We really want to clear this area of law up,’” she said. “They might have an incentive not to settle, to make sure this type of precedent does not stand. You don’t want this on the books, that this particular patent is valid, enforceable and worthy of damages.”