Issues
Should the award resulting from the infringement of a design patent be calculated as the profits from the entire product or be limited to only the profits attributable to the particular infringed component?
The Supreme Court will decide whether the damages awarded in the case of design patent infringement should be calculated as the entire profits of the whole product or be limited to the profits attributable to the patent-protected component. The parties’ arguments center on divergent purposes of the controlling statute, 35 U.S.C. § 289, as well as the meaning of “article of manufacture” as it is used within § 289. Apple, pointing to the plain language, congressional intent, and policy implications, argues that the purpose of § 289 was to overturn judicial precedent and allow a design patent owner to recover damages when only a component of a device infringes the design patent. Samsung, however, argues that Apple’s reading is too broad and cuts against congressional intent because it will result in illogical outcomes and remove centuries-old judicial precedent. Depending on how the Supreme Court rules, this case will impact research and development funding and potentially create a new avenue of patent trolling.
Questions as Framed for the Court by the Parties
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?
Facts
In April 2011, Apple sued Samsung for infringement of design and utility patents, trademarks, and trade dressApple alleged that certain Samsung products copied Apple’s protected product designs and infringe their intellectual property. Namely, Apple thought that Samsung’s products mimicked Apple’s iPhone’s black rectangular front face, round corners, bezel (the black rim surrounding the screen), and sixteen-icon grid.
The jury found that Samsung’s products infringed Apple’s patents and diluted Apple’s trade dress. Upon the findings of infringement and dilution, the jury was then asked to calculate the monetary damages that Apple suffered. In instructing the jury on how to determine damages, the judge interpreted the relevant design patent statute, 35 U.S.C. § 289, to mean compensation for the entire profit for all relevant products. The judge then instructed the jury that damages should be the entire profit for all relevant products and the jury awarded Apple the total profits of Samsung’s devices that infringed Apple’s patents. Samsung objected and argued that the jury instructions were too broad and would result in an overcompensation to Apple. The jury ultimately awarded Apple over $1 billion in damages.
Owing Apple $1.05 billion, Samsung appealed to the Court of Appeals for the Federal Circuit. At the Federal Circuit, Samsung argued that it did not infringe either Apple’s patents or Apple’s trade dress and, alternatively, that even if it did infringe, the damages were inappropriate. The Federal Circuit agreed in part and disagreed in part with the district court’s findings. While it upheld the jury’s finding of design patent infringement, the Federal Circuit reversed the finding of trade dress dilution. Recommending that policy arguments about damage calculations be directed to Congress, the Federal Circuit adopted the district court’s damage calculus. The Federal Circuit found that Samsung owed Apple $399 million—an amount equal to the entire profits made on smart phones that infringed Apple’s design patents.
Following the Federal Circuit’s ruling, Samsung petitioned to the Supreme Court.
In its appeal, Samsung argued that damages were improperly calculated. Samsung’s petition to the Supreme Court consisted of two arguments: (1) the scope of protection of a design patent should be limited to protected design elements and not unprotected “concepts” such as a rectangular screen or grid icons on a screen, and (2) because the design patents applied only to a small component of a product, the award should be limited to only the profits attributable to the component rather than the whole product they sold. The Supreme Court granted certiorari on March 21, 2016. In deciding to hear the case, the Supreme Court elected to only review the proper method for calculating damages.
Analysis
PURPOSE OF 35 U.S.C. § 289
Samsung argues that Congress did not intend for an entire-profit recovery in all circumstances because of the illogical consequences. Samsung claims that, instead, Congress only intended for an entire-profit recovery where a design and product were essentially the same—which is not the case for Samsung’s smartphones and Apple’s design patents. To show that this was Congress’s intent, Samsung uses various examples regarding carpeting and wallpaper. For example, Samsung notes that because the design of carpet and what a consumer thinks of when they think of carpet are coextensive, the design of carpet in itself drives its sale; thus, it is logical that a carpet-design infringer should be liable for full damages. Samsung contrasts this argument with that of a phone, where the product and design are different. Samsung argues that where the product’s design itself is not the driver of sale, Congress did not intend for the entire-profits rule to apply. For example, Samsung posits that it would be illogical for a car manufacturer to pay damages for the profits of a car sale when the only infringed component in the car is the cup holder.Thus, Samsung argues that Congress’s intent could not have been for an entire-profit recovery. Samsung thus posits that Congress’s intent behind § 289 was to allow for damages from a design patent to be limited to the profits that resulted from the infringed component being part of the overall device.
Apple maintains that Congress enacted 35 U.S.C. § 289 to undo the Supreme Court’s decision in Dobson v. Hartford Carpet Co.,114 U.S. 439 (1885). The Court’s Dobson rule limited damages from infringed design patents to “the proportionate amounts [of profit] that were proven to be attributable to the patented feature.” Apple alleges § 289 was enacted with the sole purpose of undoing this rule. To illustrate this, Apple points to the plain meaning of § 289, which states that an infringer should be “liable to the owner to the extent of his total profit.” Along these lines, Apple argues that § 289 was enacted to allow a patentee to recover damages equal to the total profit from a device that used an infringed component as opposed to only the profits attributable to the use of the infringed component. In addition, Apple argues that congressional intent and legislative history weigh in favor of the total profit remedy. Apple supports this claim by pointing to Congress’s statement that a product’s design makes it possible to realize any profit at all. Apple posits that because the judicial interpretation of § 289 has remained unchanged for over sixty years and Congress has not altered the statute’s text, the entire-profit rule accurately reflects Congress’s intent and thus the purpose of the statute.
WHAT DOES AN “ARTICLE OF MANUFACTURE” MEAN WITHIN THE STATUTE?
Samsung maintains that under § 289, an “article of manufacture” can be less than the entire product. Samsung contends that that the Federal Circuit’s application of § 289 to components only when they are sold separately from the entire product is erroneous. Samsung argues that remedies must be backed by a plaintiff’s showing of some connection between the damages and infringement, which Samsung argues is a “centuries-old” requirement that Congress is presumed to have intended for § 289 to include. To clarify, Samsung suggests that Apple’s interpretation of “article of manufacture” would require a jury to find that a car manufacturer that infringes on a cup-holder design must pay the owner of the cup-holder design patent the entire profit of the car without the cup-holder’s designer having to prove that the value of the car comes from the cup-holder. Samsung posits that not requiring a causation element will lead to illogical results.
Apple argues that the “article of manufacture” portion of § 289 is a question that the jury must decide. Apple asserts that the jury should be free to conclude that an article of manufacture may include the complete, final product but that it does not have to. To support this argument, Apple looks to the text of the statute and the design and utility practice prior to the passing of the Patent Act of 1952 to argue that Congress was well aware of design patents and intended § 289 to include both utility and design patents. Apple points to the practice of design patents covering parts of devices that a utility patent covered, such as telephones, light bulbs, and coffins. Apple further notes that the general language of the statute, “liable to the owner to the extent of his total profit,” also favors Apple’s definition of an article of manufacture.
EFFECTS OF THE ENTIRE-PROFITS RULE
Samsung argues that the Federal Circuit’s entire-profits rule would lead to disproportionate awards, while stifling innovation and reducing competitive markets. Samsung contends that the Federal Circuit’s Rule would not only open the floodgates to litigation but also make inexperienced entrepreneurs and small companies vulnerable because wealthier and more established companies would use the threat of distressing design-patent infringement actions and awards as a tool to stifle marketplace competition. Samsung disagrees with Apple’s assertion that if this threat were probably, it would have already manifested today. Samsung asserts that the uniqueness of this case brings about new nuances to the effects of the Federal Circuit’s rule. Samsung defends its claim that the entire-profits rule would lead to disproportionate award by asserting that patent infringement is a strict liability offense, thus limiting protections for innocent infringers. Samsung argues that under Apple’s take on the entire-profits rule, unintentional copiers would therefore potentially face massive.
Apple argues that the effect of the Federal Circuit’s entire-profits rule would lead to fair outcomes for entrepreneurs. Apple claims that Samsung’s hypothesized outcomes are flawed. . Most notably, Apple maintains that a patentee’s recovering total profits for a car based on an infringing cup-holder is an illogical outcome that will not happen under its reading of the statute. Apple cites Gorham Co. v. White’s “ordinary observer” and “peculiar or distinctive appearance” tests as prohibiting such outcomes. Under the “ordinary observer” test, Apple maintains that the average consumer would not conflate the value of a car as that of its cup-holder to claim damages for the entire car if its corresponding cup-holder’s patent were infringed. Similarly, applying the “distinctive appearance” test, Apple denies that the average consumer would posit that a cup-holder gave a car its “peculiar” look.
Discussion
POTENTIAL EFFECT ON INNOVATION
The Internet Association, in support of Samsung, argues that by protecting the whole product when a design patent covers only a component of that product, the court may inhibit innovation of complex products by companies that fear excessive fee-charging by patent-holders. IA claims that, in reality, consumers look for products that are not only aesthetically pleasing but work well. IA posits that technology companies invest hundreds of billions of dollars in research and development to create components that go into products to meet consumer demand for modern products. With the cost of research and development and the looming potential for a company to have to pay its entire profits for infringement of a small component of a device, IA argues that research would decrease out of fear of being sued. A group of fifty intellectual property professors note that the fear is that patent-holders would have “undue leverage” over unpatented components of a product.
Crocs, Inc., supporting affirmance of the Federal Court’s decision, counters that design patents allow industries to distinguish their products on a global scale and give immense value to consumers. Product designs, Crocs, Inc. notes, contribute positively to a product by increasing aesthetic pleasure, which in turn enhances public welfare. Furthermore, Crocs, Inc. notes that “knockoffs” that imitate the designs of other products really harm designers and businesses and undercut sales. Only with design protection can such businesses protect themselves; thus, stronger protection would benefit innovators and consumers. Additionally, Roger Cleveland Golf Company, Inc. (“Cleveland Golf”), supporting Apple, contends that calculating the patent damages to only “components” of a product would require too many hypothetical assumptions and be too difficult. Cleveland Golf uses a golf club as an example: it would be impossible to prove damages if a competitor infringed only one aspect of the product’s design, such as “the unique groove and score line.” According to Cleveland Golf, the difficulty and expense of proving such damages would render many design patents “virtually worthless” and thus stifle innovation.
PROMOTION OF COMPETITION AND EFFICIENCY
The Computer & Communications Industry Association (“CCIA”), supporting Samsung, argues that awarding entire profits would allow design patent infringement to become a new tool for certain entities that monetize on patents to gain unfair leverage, which would ultimately decrease market competition. According to Engine Advocacy and Shapeways, Inc., this phenomenon, called trolling, already exists; as the number of design patents and patent applications increase, and as courts increase the damages awarded for infringement of such patents, patent trolls will be more incentivized to assert their patents and profit. CCIA notes that modern electronic devices are made up of numerous functioning parts of which many are protected by separate design patents. By allowing the remedy of total profits, profit-seeking entities may threaten to sue alleged infringers for the profits made from the whole product, even though the infringement would be of only a small component within the whole product. Such suits are extremely expensive to defend against many companies opt to quickly settle instead. In fact, Engine Advocacy posits that such protection and fear of trolling may not only stifle competition from existing companies but would impose barriers to market entry on startups because these companies will not be able to afford a strong legal defense.
Nike, Inc. contends that the development of innovative product designs requires substantial resources, and effective policing and enforcement of such property rights is vitally important to a company’s competitive position and growth. Nike urges that such policing and protection enforcement incentivizes product development by assuring that the company’s investment in design and development will not be utilized by others for profit. In opposition to the Computer & Communications Industry Association, Nike argues that the entire-profits rule would favor innovation while also resulting in higher quality products being produced. Supporting Apple, Bison Designs, LLC and others also suggest that the concern by Samsung’s amici regarding patent trolling is unfounded.
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Additional Resources
- Evan Engstrom, Startups Should be Watching as the Supreme Court Decides Samsung v. Apple, Recode (July 1, 2016)
- Joe Mullin, Supreme Court Takes Up Apple v. Samsung, First Design Patent Case in a Century, Ars Technica (May 21, 2016)
- Adam Liptak, Supreme Court to Hear Samsung Appeal on Apple Patent Award, N.Y. Times (March 21, 2016)