Supreme Court Takes Small Bite of Apple, Leaves Bigger Questions Aside on Design Patent Damages
Intellectual Property News
A unanimous Supreme Court held in Samsung Electronics Co. v. Apple Inc. that Section 289 of the Patent Act does not demand that the entire, infringing end-user product be the basis for determining damages for design patent infringement. Instead, damages may be based on one or more components of the infringing product relating to the design. Beyond that, however, the Supreme Court repeatedly emphasized the cautious and limited nature of its ruling in a short, nine-page opinion on December 6 and left the details to the Federal Circuit to figure out.
New and nonfunctional designs have long been protected under U.S. patent laws. Unlike a utility patent which protects useful articles of manufacture and processes, design patents protect the ornamental, non-functional “look and feel” of a product. Since the late 19th century, a special damages provision has applied to design patents only. Under Section 289 of the Patent Act, the design patent owner may recover “up to the extent of [the owner’s] total profit” for each third party’s infringing “article of manufacture” (35 U.S.C. 289).
This case arose from the Apple-Samsung smartphone patent wars. Apple brought numerous patent infringement claims against Samsung smartphones, including both utility and design patents. The design patents in issue are directed specifically to the ornamental design of the screen and the icons displayed on it. However, other patents covered the electronics inside the phone and the computer components and software. A jury found that Samsung had infringed the design patents.
For damages, Apple asserted that Section 289 meant that it could recover all profits relating to the sale of Samsung’s infringing smartphones. The jury applied this standard and awarded Apple over $400 million in damages for the design patent infringement. Samsung appealed, arguing that the “total profit” should be based on the infringing component of the sold product, not the entire product. In short, Samsung argued that Section 289 should be limited to certain components, such as the value of the screen or the graphical display that were covered by the design patents. On appeal, the Federal Circuit agreed with Apple and held that Section 289 applied to the entire “article of manufacture.”
The Supreme Court reversed, holding in a straightforward opinion that “the text [of the statute] resolves this case.” The statute refers to an “article of manufacture,” which in dictionary terms is simply a “thing made by hand or machine.” That can refer to either the entire end product or a component of it. For that reason, the Federal Circuit had misconstrued the statute, and the Supreme Court remanded the case for further proceedings.
However, beyond this rather simple question of statutory interpretation, the Supreme Court pointedly refused to address the larger questions in this case. Should Apple’s damages have been measured by the entire phone or just the display and related components? If the statute permits limiting the “article of manufacture” to a component of a product, what is the standard for determining when to rely on just the component? How does one value that component for purposes of determining the owner’s lost “total profit?” Is it necessary that the infringing aspects of the product be the cause or market driver for the product’s sales? On all these important questions raised by the Supreme Court’s holding, the Court expressly punted. Instead, the Federal Circuit will address these issues on remand.
Considering this case on the micro level as it applies to the particular litigants, this ruling would appear to help Samsung. Apple has not yet formally lost its $400 million damages case, but it seems likely to go by the wayside. The complexity of the technology at issue, the utter irrelevance of the design patents to the inner workings of the phone, and the Supreme Court’s requirement that the Federal Circuit address the question of when a component should be the determining “article of manufacture” for Section 289 damages—all of these factors make the smartphone a quintessential situation where damages would be limited to a component or some other measure than the entire end product. Apple may have some procedural arguments that Samsung waived its right to such considerations at trial (and it tried to raise these to the Supreme Court as well), but the Federal Circuit may find ways around those obstacles. In short, Apple’s bumper award is not likely to stand.
More broadly, this case opens a new field of side litigation in design patent cases. Before the Supreme Court, the parties and the government considered whether design or marketing experts would be needed to determine if a component should be the proper measure of damages, and what value that component provides to the overall product. These issues of divisibility, valuation, and causation seem ripe for adding yet another expert to design patent litigation. At oral argument, the questioning of the justices appeared to recognize the reality of a battle of the experts, but they did not want to decide the standards for these issues. It seems the narrow holding here is designed to push the messy details that necessarily ensue back down to the Federal Circuit.
In summary, the Supreme Court’s simple and straightforward opinion on the meaning of the design patent damages statute belies a host of complex issues, which are both raised and left unresolved by its holding. The Federal Circuit will address at least some of these on remand. It would not be surprising to see the losing party appeal to the Supreme Court. Going forward, design patent litigants would be well advised to retain experts on marketing and valuation of designs. Also, any ultimate decision on damages will likely be reviewed by the Federal Circuit as it tries to define an appropriate damages test. The Supreme Court took a small, clean bite of the apple of design patent damages, but it may yet be filled with worms for the unwary.