Apple’s Next Move: Settle or Fight?

Next week Apple will have more on its mind than Palm Pre sales figures and managing the media frenzy over any pending announcements at the developer conference.

The company must also decide whether to defend itself in court over a suit filed by Elan Mircroelectronics alleging that Apple (NASDAQ: AAPL) infringed on two patents used in iPhones, iPod touch and MacBooks.

Since the suit was filed April 8, Apple sought and was granted an extension to respond, and the new deadline is next Friday.

In the suit, Elan does not specify an amount of money, but does ask the court to triple the actual damages for what the company deems to be Apple’s illegal use of its multi-touch technology since 2007.

At issue are two multi-touch patents held by the Taiwan-based chip maker, which claims that Apple has been illegally using the technology. According to court documents, these are Patent No. 5,825,352 entitled “Multiple Finger Contact Sensing Method for Emulating Mouse Buttons and Mouse Operations on a Touch Sensor Pad,” and Patent No. 7,274,353, called “Capacitative Touchpad Integrated with Key and Handwriting Functions.”

According to the case filed in San Francisco’s U.S. District Court, the suit alleges that “Apple has been on notice of its infringement of the ‘352 patent since early 2007 and has continued to utilize the patent invention without authorization. In addition, the Apple iPhone and iPod Touch also permit users to switch the capacitative touchscreen between keyboard and handwriting modes, and thus fall within the scope of the ‘353 patent.”
It goes on to claim that Apple is infringing the patents by the sale of “at least its iBook, MacBook, iPhone and iPod Touch products.”

“The present lawsuit is filed after repeated licensing negotiations over a significant period of time that failed to result in any agreement between Elan and Apple,” according to a statement issued by Elan issued when it filed the suit.

Apple’s policy is to decline commenting on pending litigation. However, Dennis Liu, Elan spokesman, told in an e-mail that, “We’ve heard nothing from Apple, except about the extension.”

Two aspects of the case warrant consideration. First, Elan’s victory over U.S. rival Synaptics last year could mean that the case has merit, as opposed to the many others filed suits against Apple. Last year, Elan won a preliminary court injunction against Synaptics, which had counter-sued it. The two companies later agreed to a cross-licensing deal allowing them to drop the suits.

Given that, it could be likely that Apple will strike a cross-licensing deal with Elan rather than pursue a fight in court, Barry Negrin, a patent attorney and partner at Pryor Cashman LLP, told

“If they were in licensing talks for two years, and that’s really true, as opposed to, say, Elan writing them a letter every month and getting no response and calling it talks, I would be willing to bet that this will end up in a licensing deal unless Apple is 100 percent convinced it doesn’t infringe,” said Negrin. “And if that’s the case, why were they talking so long? And it’s likely Elan would have said ‘made them aware’ as opposed to ‘in talks’ if they were getting blown off and not really negotiating.”

Negrin said if Apple were to fight the suit, the company would likely take issue with specific language involved in Elan’s patents, making a case that the way the technology is used in Apple devices differs in some way from what is stipulated in the patent text.

As to what compensation Elan is seeking in the suit if there’s no settlement out of court, it appears to be up to the court to decide. “It’s up to the courts to assess, the patent law provides for a measure of damages that are not less than a reasonable royalty,” says Elan’s lead lawyer, Sean DeBruine. “The amount remains to be seen after the facts are evaluated, it would be premature to estimate.”

The case specifically cites that damages awarded are pursuant to patent damage law 35 U.S.C. 284 that calls for adequate compensation that’s not “less than a reasonable royalty.”

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