Apple Faces $60 Billion Plus Patent Lawsuit

Last Updated Jul 19, 2010 9:00 PM EDT

An obscure form of patent action that was little known, even by legal professionals, until earlier this year has now set target on Apple, among other high tech companies. Should Apple lose -- and it's a distinct possibility -- the cost could run as high as $30 billion, with half going into the pockets of a group calling itself Americans for Fair Patent Use.

The lawsuit is called a qui tam action. According to a Department of Justice explanation, it is part of the False Claims Act:
The statute, first passed in 1863, includes an ancient legal device called a "qui tam" provision (from a Latin phrase meaning "he who brings a case on behalf of our lord the King, as well as for himself"). This provision allows a private person, known as a "relator," to bring a lawsuit on behalf of the United States, where the private person has information that the named defendant has knowingly submitted or caused the submission of false or fraudulent claims to the United States. The relator need not have been personally harmed by the defendant's conduct.
The stakes can be fiercely high. Under the law, the maximum amount a judge could award would be $500 per incident. Every product inaccurately labeled is considered an incident. In the Pequignot v. Solo Cup case, patent attorney Matthew Pequignot sued the Solo Cup Company for selling 21 billion lids that were falsely marked. The total would be over $10 trillion.

Federal courts held that a plaintiff would need to show that the company intended to deceive the public. Formerly granted patents that simply expired wouldn't do the trick. So why might Apple have to worry? Because the patents mentioned in the suit, the patent numbers that Apple used either directly on all iPhones and a large number of iPod models, or in literature or manuals for the products, don't exactly seem to belong to Apple. Here's the list of numbers: All of the patents have a few things in common. They all expired in or before 2010, and the applications were dated from the 1980s. They all address copying video programs, whether enabling such activity or preventing it. And they are all listed as being owned by Macrovision Corporation, the former name of Rovi Corporation.

It could be that Apple had bought the patents from Rovi, though it would seem more logical that Rovi would have simply granted Apple a license. In that case, why would Apple need to indicate the patent, unless it said that it was working under license?

Even odder is that a number of the patents had expired before Apple put them on any of the products mentioned in the suit, which would suggest that this might have been no simple mistake of forgetting to remove expired patent numbers that once applied to the products in question. I've contacted both Apple and Rovi to see whether Apple had purchased or licensed any of the patents. No response yet, though if I hear back, I'll update the post.

The problem for Apple is that a loss could be expensive. Apple iPhone sales through Q2 of its FY 2010 (March 2010) were 51.3 million. That means that it's likely Apple sold 60 million at least through June. That alone, at $500 a product, could run as high as $30 billion. And that doesn't even take into account the number of iPods that might dwarf the iPhone numbers. At the very least, this could be a $50 billion, $60 billion, or more action facing Apple, and no immediately obvious defense via the Pequignot v. Solo Cup case.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.