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Hit by Smartflash, Apple [AAPL] tanks, stock market meanders

Written By | Feb 25, 2015

WASHINGTON, February 25, 2015 – Bulls hoped for another winning day on Wall Street Wednesday, hoping to build on the surprising intensity of Tuesday’s mostly late-day rally in the averages.

But a lack of much news made for mostly slow trading instead, with a nasty surprise tucked in not long after the stock market opened, as Apple (AAPL) got smacked in a Texas-based lawsuit after a federal jury found that Apple’s iTunes used, without permission, three patents held by a Texas company. Apple was ordered to cough up a check for $532.9 million to compensate the essentially non-existent company Smartflash for Apple’s alleged infractions.

According to a late afternoon report by United Press International (UPI), “Smartflash owns three patents on technology for data storage and payment management used in three apps managed by the iTunes store – ‘Coin Dozer Pro,’ ‘Grub Guardian’ and ‘WizardBlox.’”

Going for the gold, Smartflash “alleged patent co-inventer Patrick Racz shared information about the patents with Augustin Farrugia, who is now a senior director at Apple,” reported UPI adding that the “Tyler, Texas-based company [originally] sought $852 million in damages from Apple, a percentage of sales of devices like the iPhone, iPad and Mac computers that use iTunes. Lawyers for the tech giant argued the patents were worth $4.5 million at most.”

Well, why not? Texas, for all its capitalist virtues in today’s socialist wasteland, is well known as the happy hunting grounds for predatory patent and copyright trolls and their even more eager, ambulance chasing patent and copyright troll lawyers. (Even the Maven was blindsided by these crooks some time ago, but was able to blow their preposterous claims away.)

Apple’s argument that it didn’t use the technology fell on deaf ears, apparently, as such arguments often do in Texas patent and copyright troll cases involving deep pockets. Predictably, one of the plaintiff’s attorneys praised the jury’s verdict. Of course. If Apple caves, the lawyers will get a bigger payday than the plaintiff.

But Apple doesn’t plan to cave, according to the UPI report.

“Smart flash makes no products, has no employees, creates no jobs, has no U.S. presence, and is exploiting our patent system to seek royalties for technology Apple invented,” said Kristin Hogue, an Apple spokeswoman. “We refused to pay off this company for the ideas our employees spent years innovating and unfortunately we have been left with no choice but to take this fight up through the court system.”

Yep. Bleed ‘me dry. It often works. The Maven’s tentative conclusions: A. Both the states and the Federal government need to seriously enact not only patent law and copyright law reforms with regard to lawsuits and absurdly high awards; and B.

While they’re at it, Federal and state governments also need to reform tort law as well. The impossibly wealthy trial lawyers, who support and probably own the Democrats lock, stock and barrel need to be taken down several notches. They’ve been a key reason why the U.S. economy has gotten so sluggish and defensive over the last forty years or so. Their 24/7 greedy, parasitical presence assures that no successful company won’t waste a healthy chunk of money each year fighting off crap like this.

But, as is often the case, we digress.

The overriding problem in business and in the markets in 2015 is the existence of a surprisingly small but impossibly rich cadre of CEOs, lobbyists, politicians and ambulance-chasing lawyers who operate like vampires on American businesses, getting their own way almost every time they go into battle and costing the average wage earner dearly via the unnecessarily high prices for goods and services.

Such chicanery and manipulation isn’t exactly new, of course, as per our vintage F. Upper cartoon, which appeared on a cover of Punch—the 19th century’s socialists’ version of Mad Magazine, famed for its anti-capitalist and political humor. That cover, reproduced above, pictures Jay Gould, one of that century’s most successful robber barons, mowing down his enemies as a champion bowler would hit strike after strike on the bowling alley.

If you can’t read the print, Jay is using a pair of bowling balls labeled “Private Press” and “General Unscrupulousness” to mow down anyone or anything opposing him, all of whom are represented by those flying bowling pins labeled

“stock dabbler,” “operator,” “broker,” “small operator,” “banker,” “false reports,” “speculator,” “curbstone broker,” “capitalist” and “trickery.”

It’s astonishing how little has changed since then. Only the names and miscreants, really. In the 19th century, Gould was in bed with the notoriously corrupt New York Boss Tweed and his Democrats.

Today’s bevy of 1% oligarchs are in the sack with today’s even more debauched Democrats. And together, then and now, they operated ceaselessly to destroy the rubes, those small operators, stock dabblers, amateur speculators and the like.

We saw that today as we do every day in the largely rigged game of stocks being played in 2015. AAPL began its swan dive right after the opening bell this morning but before the announcement of the jury’s reward, which meant, of course, that the in-crowd had already been tipped off, probably as early as Tuesday, and had already lined up massive sell orders and short positions. So they were all queued up to profit this morning from that absurd verdict’s fiscal fallout.

It gets tiresome. We complain about it here for the record—and so that you get some idea as to how your regulatory tax dollars are being wasted. Nothing will be done about it until the States band together and do some Constitutional amending as our Constitution actually permits, overriding this cadre entirely by bypassing a corrupt Washington and Wall Street and going over their heads. The Maven hopes it happens in his lifetime.

There wasn’t much else going today in the markets. Home sales were down last month, but, frankly, they always are in the winter. Further, part of the reason home sales were down was due to lack of inventory.

Which means, of course, that there aren’t enough houses on the market. Which means, of course, that building activity is going to need to ramp up once our Canadian friends stop sending us those serial, global warming smashing Polar Vortex blasts that keep everyone inside their houses.

Meanwhile, mortgage applications rose a robust 5 percent during the same period, indicating that there’s at least a will in the housing market if not a way.

Today’s trading tips

The Maven is as confused as everyone else these days, as what goes up today is sure to go back down tomorrow, no matter what it is. Wash, rinse, repeat. We continue to use some equal weight ETFs in favored areas that we can trade commission-free with our brokerage. These position us in the right sectors, which right now are retail and tech. But, being equal weight vehicles, they don’t suffer a lot of damage when monster companies like AAPL take a hit. That said, they don’t quite soar on days when Apple stock is happy, either. But in this volatile market, we’ve come to prefer that.

The only problem with some of these equal weight ETFs is that they’re fairly thinly traded, so you have to buy them slowly, a bit at a time, and build your position. Otherwise, you might not be able to snag the best price.

The ones we’re favoring right now are RCD and RYT, the equal-weight consumer discretionary and tech ETFs; SDOG, a creatively constructed ETF that resembles the “Dogs of the Dow” high-dividend strategy on steroids because it doesn’t limit itself to just Dow stocks; and SPLV, the equal-weight S&P 500 ETF.

Aside from this sort of action, we’re biding our time. It feels iffy out there.

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17