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Intellectual Property Patent Litigation Technology Media and Telecom

Supreme Court Rules on Design Patent Damages
Samsung Electronics Co. Ltd. et al. v. Apple Inc.

On Dec. 6, 2016, the U.S. Supreme Court threw out a damages award of $399 million that Apple won against Samsung in an ongoing design patent dispute.

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On Dec. 6, 2016, the U.S. Supreme Court threw out a damages award of $399 million that Apple won against Samsung in an ongoing design patent dispute. Justice Sotomayor authored the opinion for the unanimous Court, holding that damages for design patent infringement may be based on an “article of manufacture” that is a component part of a commercial product and need not be tied to the entire commercial product as it is sold to the consumer. Samsung Electronics Co. Ltd. et al. v. Apple Inc., No. 15-777 (Dec. 6, 2016). The ruling promises to carry the Apple v. Samsung saga forward, because significant aspects of the damages calculation are left to the Federal Circuit and further briefing by the parties, including the crucial “test for identifying the relevant article of manufacture” on which damages for a design patent are based. Slip op. at 8.

Samsung v. Apple History

The Supreme Court is only the latest stop for Apple and Samsung in a dispute concerning design patent damages that stems from a Complaint filed in April 2011, resulting in an original jury verdict of $1.049 billion rendered in August 2012. In the present opinion, the Supreme Court decided only so much of the case as necessary to reverse the Federal Circuit on the damages question. Although Samsung presented two questions in its certiorari petition, the Supreme Court accepted only Question 2, concerning the relevant “article of manufacture” for a damages calculation. The Supreme Court did not take up Question 1, concerning whether the jury should have been instructed to exclude functional elements of the design in reaching its verdict.

The U.S. Design Patents at issue relate to Apple’s iPhone: D618,677, covering its black rectangular front face with rounded corners; D593,087, covering the rectangular front face with rounded corners and a raised rim, and D604,305, covering a grid of 16 colorful icons on a black screen. The Court avoided any discussion about the scope of the patent claims in this case.

Damages for design patents are governed separately from utility patents, under 35 U.S.C. §289, which provides, in relevant part:

Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250, recoverable in any United States district court having jurisdiction of the parties.

The trial court in the case interpreted the statute to mean that Samsung must pay all of its profits from the commercial product, i.e., the smartphone. The Federal Circuit affirmed, reasoning that the “innards” of the smartphone and its case are not distinct commercial products from the consumer’s perspective. Apple Inc. v. Samsung Elecs. Co., 786 F.3d 983 (Fed. Cir. 2015). Moreover, the Federal Circuit stated that calculating damages other than based on the entire commercial product amounted to “apportionment” — tying damages to the value of the specific feature infringed — an approach the Federal Circuit understood had been rejected by Congress. (For more, see, “App-portionment in the Supreme Court in Apple v. Samsung,” in our June 2016 issue.)

The Supreme Court does not consider “article of manufacture” to be so limited. Justice Sotomayor traced the roots of the “total profit” provision of the current statute to an 1887 Act of Congress implemented after the last time the Court took up design patent damages in Dobson v. Dornan, 118 U.S. 10 (1886). In Dobson, the Court held that “[t]he plaintiff must show what profits or damages are attributable to the use of the infringing design” 188 U.S. at 17. In response, in 1887, Congress introduced the total profit rule, which was then codified in its present form in the 1952 Act. Interpreting the current statute, the Court ultimately reached the conclusion that determining damages for design patent infringement involves two steps: “First, identify the ‘article of manufacture’ to which the infringed design has been applied. Second, calculate the infringer’s total profit made on that article of manufacture.” Slip Op. at 5. The Court evidently did not consider an infringer’s total profit on a component part to be equivalent to “apportionment” of damages.

Determining Damages

To reach the two-step damages determination, the Court first had to determine the scope of the term “article of manufacture”. In fact, the Court held, “the only question we resolve today is whether, in the case of a multi-component product, the relevant ‘article of manufacture’ must always be the end product sold to the consumer or whether it can also be a component of that product.” Id.

It need not be, and the statutory construction was not complex. Justice Sotomayor noted that the dictionary definitions of “article” and “manufacture” lead to a broad construction of the phrase, which may apply to a “component of a product no less than the product itself”. Further, 35 U.S.C. §171, which establishes patent eligibility for ornamental designs, has been interpreted by the U.S. Patent and Trademark Office (USPTO) and the courts as extending to component parts of a product, which is also consistent with 35 U.S.C. §101. In all, “article of manufacture” is broad enough to encompass both a product sold to a consumer as well as a component of that product. Slip op. at 6. The case was remanded to the Federal Circuit for further proceedings on that basis.

What It Means

The opinion leaves a great deal undecided. The Court declined to articulate “a test for identifying the relevant article of manufacture at the first step of the §289 damages inquiry.” The Court noted that the question had not been briefed by the parties. Justice Sotomayor noted also that an amicus brief filed by the Department of Justice set forth a test, which may amount to tentative approval by the Court. The United States brief, written in part by attorneys from the USPTO’s Solicitor’s Office, suggested a factfinder should consider the following four factors to determine the article of manufacture to which the patented design has been applied:

  1. The scope of the design claimed (a broader scope tending to support the entire product, rather than a component, as the relevant “article of manufacture”);
  2. The relative prominence of the design within the product as a whole (a lesser prominence increasing the likelihood that the relevant “article of manufacture” is a component part);
  3. Whether the design is conceptually distinct from the product as a whole (conceptual distinctness leading to a conclusion that the appropriate “article of manufacture” is a component part); and
  4. The physical relationship between the patented design and the rest of the product (i.e., if the user or seller can physically separate the design from the product as a whole, then it is more likely that the relevant “article of manufacture” is a component part).

Whether the Federal Circuit adopts this test on remand, or one like it, remains to be seen. However, the questioning by the Justices at oral argument also showed just how difficult in practice it would be to apply that test, or any other. More problematic still may be determining the infringer’s “total profit” from infringing, say, the graphical user interface of Apple’s home screen, as that seems the likely design “component” at issue for Apple’s D604,305 patent.

This is only the latest round is a series of courtroom battles between Samsung and Apple since the original jury verdict of $1.049 billion rendered in August 2012. The ongoing dispute has involved accusations of infringement of both design and utility patents. At this point, it is basically settled that Samsung infringed at least some of Apple’s intellectual property. The main question yet to be determined is, how much does Samsung owe for that infringement? In this regard, the question taken up by the Court is an important one: Where a design patent is applied to only a component of a product, should an award of infringer’s profits be limited to those profits attributable to the component?

Regardless of the exact disposition of this case on remand, the decision will have a substantial impact on damages awards for design patents going forward. For example, in another case decided by the Federal Circuit prior to the present appeal to the Supreme Court, the panel in Nordock Inc. v. Systems Inc. et al., case number 2014-1762 (Fed. Cir. 2016) followed Federal Circuit precedent to order a new trial to substantially increase a damages award for design patent infringement. The case centered around infringement of a design patent for a dock leveler. The design patent in dispute (D579,754) does not cover the entire “article” sold but rather a portion of it. In Nordock, the panel affirmed a jury verdict that Systems Inc. infringed Nordock Inc.’s design patent, but disagreed with the damages awarded by the jury, and thus remanded on the award issue. The panel noted that in light of its recent decision, the jury’s damages award of $46,825 was insufficient as it did not account for the total profit to Systems Inc. from sales of the infringing product, which would have amounted to more than $600,000. Systems Inc. appealed to the Supreme Court, which, in light of its Dec. 6, 2016 decision, has remanded the case back to the Federal Circuit to reassess its decision regarding damages.

In all, the latest installment in the Samsung and Apple story amounts to a limited win for Samsung on damages and hardly a decisive victory. By contrast, the stunning 8-3 en banc reversal of a Federal Circuit panel regarding three Apple utility patents (Apple Inc. v. Samsung Elecs. Co., Ltd., No. 2015-1171 (Federal Circuit Oct. 7, 2016)) appears likely to ensure that the settled damages figure arrived at between the parties will stay intact. Going forward, the Court’s modest recalibration of the damages inquiry may be expected to modulate at least some design patent damages awards in a downward direction.

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Brendan Mee is a Partner at Pearl Cohen Zedek Latzer Baratz, LLP in their New York office, in the Patent Group, specializing in patent prosecution, including design and utility patents. He can be reached at BMee@PearlCohen.com. Nathan D. Renov is an Associate in Pearl Cohen’s New York office in the Patent Group. He concentrates his practice on patent portfolio development and on post-grant proceedings before the USPTO, including inter partes review. He can be reached at NRenov@PearlCohen.com. The opinions expressed in this article are those of the authors and do not necessarily reflect the views of the firm or its clients.

The views expressed in the article are those of the authors and not necessarily the views of their clients or other attorneys in their firm.

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