On December 4, 2014, Samsung and Apple clashed at the U.S. Court of Appeals for the Federal Circuit in a case with nearly a billion dollars at stake. Roughly $400 million dollars relates to three design patents owned by Apple. These three designs are shown below. [ii]
In my first article on the case, I examined the errors in the District Court’s infringement analysis—failing to properly construe the claims and take into account the prior art. In this second article, I examine how the District Court erred in allowing Apple to extract roughly $400 million dollars—Samsung’s entire profits on the infringing phones—based on design patents covering isolated aspects of the accused phones: a shiny black screen, a rectangle with rounded corners and a screen with a grid of square icons.
Design Patent Damages and the District Court’s Decision
Design patents protect new, original and ornamental designs for an article of manufacture. 35 U.S.C. § 171. Unlike utility patents, owners of design patents also are provided with an additional remedy for infringement under § 289. Section 289 states:
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.
Nothing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement.
Section 289 was not written on a blank slate.[iii] In a series of cases from the mid-1880s involving design patents on carpets with particular patterns (“the Dobson cases”), the Supreme Court held that the design patent owners were only entitled to nominal damages of six cents because they could not show what portion of their losses or the infringers profits were due to the patented design as opposed to other reasons.[iv] Congress, apparently displeased, responded in 1887 with legislation providing a minimum damages amount of $250 and allowing the recovery of the infringer’s profit from the infringement:
§ 1. Hereafter, during the term of letters patent for a design, it shall be unlawful for any person other than the owner of said letters patent, without the license of such owner, to apply the design secured by such letters patent, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or to sell or expose for sale any article of manufacture to which such design or colorable imitation shall, without the license of the owner, have been applied, knowing that the same has been so applied. ? Any person violating the provisions, or either of them, of this section, shall be liable in the amount of two hundred and fifty dollars, he shall be further liable for the excess of such profit over and above by action at law or upon a bill in equity for an injunction to restrain such infringement.
§ 2. That nothing in this Act contained shall prevent, lessen, impeach, or avoid any remedy at law or in equity which any owner of letters patent for a design, aggrieved by the infringement of the same might have had if this act had not been passed; ?but such owner shall not twice recover the profit made from the infringement.[v]
The Federal Circuit, in dicta, has characterized the 1887 design patent statute as removing the need to apportion an infringer’s profits between the patented design and the article bearing the design.[vi] Section § 289 consolidated the two sections of the 1887 statute.[vii]
In the Apple v. Samsung case, the District Court, relying on this legislative history, instructed the jury that it could award Apple the entire profit on the sale of the accused phones, and not just the profit related to the designs or ornamental aspects actually covered by the patents and found to be infringing. In doing so, the District Court, and consequently the jury, equated “article of manufacture” under § 289 with the entire product as sold. The end result was an approximately $400 million judgment against Samsung.
The Proper Application of § 289
The District Court erred in awarding Apple profits for the entire accused phones and not limiting the recovery to Samsung’s profits on the components of the phones that the jury actually found to be infringing. While § 289 initially refers to a party being “liable to the owner to the extent of his total profit,” it later clarifies that the profit is the “profit made from the infringement.” Thus, as the statute makes clear, it is the profit from infringement that may be recovered. But as Apple’s design patents demonstrate, a design patent may cover less than the entirety of an article of manufacture.[viii] Infringement of such a design patent is therefore based on something less than a complete article of manufacture. Consequently, normally the profits attributable to such infringement will be less than the profits for a complete article.[ix] This follows the bedrock causation requirement found in tort law. But that is not how the District Court instructed the jury.
The District Court refused to give a proper instruction and indeed excluded Samsung’s evidence based on its understanding of the legislative history of § 289 and Federal Circuit dicta discussing the same. But contrary to the District Court’s conclusion, the legislative history in the wake of the Dobson cases does not require a different result than proposed above. It is important to realize that in the Dobson cases, the design patents were directed to carpets with particular designs—i.e., complete articles. The cases did not involve design patents covering only component parts. And the Congressional response was simply to remove the need to apportion profits where the design patent covers the actual product. Thus, to the extent it is even relevant, the legislative history has no bearing on the scenario where the design patent covers a component of the vended article. Nor should it be construed as disturbing well-settled case law circumscribing recovery where the patent encompasses less than the complete product—case law that is premised on the causation requirement.
At oral argument, the panel appeared to struggle with the distinction between apportionment and causation that Samsung was advocating, despite having previously relied upon the tort principle of causation in denying Apple’s request for an injunction.[x] As the earlier panel opinion suggests, causation is a distinct, albeit related concept to apportionment.[xi] Whereas apportionment limits damages to those attributed to the patented features, causation limits damages to those caused by the infringement. In many cases, the two concepts will be coterminous, but that will not always be the case. For example where a patent covers only part of a product or where a patented part drives the demand for the entire product, the two concepts may diverge. [xii] In the Apple v. Samsung case, we have such a divergence.
The Apple v. Samsung case is very similar to Young v. Grand Rapids Refrigerator Co.[xiii] In that case, a patent owner was asserting design patents related to the latch casings for refrigerator doors. The Sixth Circuit noted that:
The ornamental design of the shell added something to the attractiveness of the unitary article sold; but it is not seriously contended that all the profits from the refrigerator belonged to Young. It would be less fanciful to treat the latch and casing together as a unit; but defendant did not sell them in this form . . . .[xiv]
The Sixth Circuit ultimately awarded the statutory minimum of $250 as opposed to any portion (much less all) of the defendant’s profits from the refrigerators. In its briefing, Apple seeks to distinguish this case noting it “involved the design of a de minimis portion of a refrigerator, where the patentee did not ‘seriously contend that all the profits from the refrigerator belonged to’ him.”[xv] But Apple’s argument misses the mark. In Young, the patentee refused to take the extreme position that it was entitled to profits on the entire refrigerator, which the Sixth Circuit found could not be “seriously contended.” Apple on the other hand has taken exactly such a position: that it is entitled to all of Samsung’s profits because it has patents on a shiny black screen, a rectangle with rounded corners and a screen with a grid of square icons. That position cannot be “seriously contended” and certainly should not be affirmed.
In sum, the Federal Circuit has a unique opportunity to clarify the law concerning damages under § 289 in the Apple v. Samsung case. Focusing on the scope of infringement and causation can give meaning to the language of § 289 and its legislative history, while also alleviating concerns about absurd results such as the award of total profits from a $100,000 piece of construction equipment when a lug nut with a patented design is applied to the piece of equipment. Infringement of the lug nut’s design should not result in lost profits on the $100,000 piece of equipment, but to affirm the holding in the instant case could indeed lead to such an absurdity.
[ii] The first, U.S. Patent No. D618,677, covers the black, polished front face of the phone. The second, U.S. Patent No. D593,087, covers the rectangular front face of a phone, enclosed by a bezel. The third, U.S. Patent No. D604,305, covers a graphical user interface for a display screen.
[iii] See Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437 (Fed. Cir. 1998) for a summary of the legislative history of § 289.
[v] Act of 1887, 24 Stat. 387. ? –
[ix] In rare cases, the patent holder may be able to invoke the entire market value rule assuming it can make the requisite showing.
[xii] See, e.g., Whitney v. Mowry, 29 F. Cas. 1102 (C.C.S.D. Ohio 1868) (“[W]hatever it may be, the invention of another, no matter how slight that invention may be, which gives it its entire market value, it would seem at first view that the amount to be recovered should be the entire amount of profit, because there is a proximate, inseparable connection between the old, or useless article sold by means of the new invention, which could not have been sold otherwise.”); cf. Minco Inc. v. Combustion Eng’g, 95 F.3d 1109, 1118 (Fed. Cir. 1996).
[xiii] 268 F. 966, 973-74 (6th Cir. 1920).
[xiv] Id. at 974.
[xv] Brief for Plaintiff-Cross Apellant Apple Inc. at p. 51 n. 15.