Last Friday, the federal court decided a good portion of the $1 billion damages award in Apple v. Samsung—the continuing battle of two Goliaths in the smartphone industry—was based on an “impermissible legal theory.”

That is, the court confirmed its earlier ruling that holders of design patents may recover an infringer's entire profits, without the need to split damages between the patented design and the overall product. But the holders of utility patents can recover only their own lost profits (proved to a reasonable certainty) and/or a reasonable royalty. Since the jury’s award to Apple was apparently based on Samsung’s profits for the entire smartphone device, its patented design and utility functions—and the court couldn’t reduce the excess without “bending over backwards”—it slashed $450 million from the original award and sent the giants back to battle the question of damages.

Before any new trial, however, the court suggested both sides might want to appeal its decision, which also discredited Apple’s expert for using an “aggressive” notice date for all the patents, when a more “circumspect” approach might have avoided a retrial. Read the complete digest of Apple, Inc. v. Samsung Electronics Co., No.: 11-CV-01846-LHK (N.D. Cal., March 1, 2013) in the April Business Valuation Update; the court’s decision will be posted soon at BVLaw.