On October 11, 2016, the U.S. Supreme Court will hear its first design patent case in over a century, and it’s a whopper. The significance of the Supreme Court’s ultimate decision on Apple Inc. v. Samsung Electronics Co. Ltd. (Supreme Court Case No. 15-777) stems not just from the huge damage award at issue in the case but rather from the potentially devastating impact on business and innovation resulting from the lower courts’ interpretation of a statute drafted many decades before the advent of complicated devices such as today’s smartphones that encompass hundreds or even thousands of individually-patented features and components.
On October 11, 2016, the Supreme Court will hear Samsung’s appeal of the Federal Circuit’s affirmation of the jury’s damage award to Apple of Samsung’s “total profits” on sales of the infringing smartphones even though it had only infringed Apple’s design of the iPhone’s outer shell. In upholding the “total profits” award, the Federal Circuit determined that it was bound to uphold the jury’s award by the “explicit” and “clear” statutory language relating to design patent infringement damages.
In 2011, Apple sued Samsung claiming that its Galaxy smartphone infringed on Apple’s proprietary rights in the design of the outer shell of the iPhone. A jury found that Samsung infringed Apple’s patents rights and diluted Apple’s trade dress and awarded Apple approximately $1 billion in damages. Samsung appealed to the Federal Circuit. The Federal Circuit reversed the jury’s findings as to Apple’s trade dress claims but kept intact the bulk of the damage award which represented a disgorgement of Samsung’s entire profits on the infringing smartphones. The total profit award was based on the statutory remedies in 35 U.S.C. § 289 available against an infringer of design patents.
Samsung appealed to the Supreme Court, arguing that damages for design patent infringement should be limited to that portion of Samsung’s profits that was attributable to the smartphone outer shell, rather than to the entire phone itself (i.e. “apportionment”). The Federal Circuit rejected Samsung’s apportionment argument citing the clear language of § 289 authorizing an award of the infringer’s “total profit” on “any article of manufacture to which such design or colorable imitation has been applied.” In essence, the Federal Circuit said its hands were tied because of the clear statutory language and because apportionment is a “policy argument” that should be directed to Congress adding, “We are bound by what the statute says, irrespective of policy arguments that may be made against it.”
Given the current statutory language, the Supreme Court might very well agree with the Federal Circuit and find that it is bound to uphold the jury’s total profit award. However, an award of “total profits” rather than apportionment can lead to the absurd situation where a company that infringes an insignificant design element nonetheless covered by a design patent would have to disgorge all profits on the entire device to the plaintiff. What if another feature of that same device is later found to infringe a different design patent owned by a different entity?
The importance of the Supreme Court’s ultimate ruling here is underscored by the numerous amicus curiae briefs filed (27 at last count). With over 205 billion in cash reserves at last count, Apple certainly doesn’t “need” the full nine-figure damage award. And, given the far reaching implications of this case, Apple may live to regret its aggressive pursuit of “total profits” for design patent infringement by finding itself battling design patent holders seeking to recover Apple’s total device profits for infringement of even a minor design feature. Apple will also be an even richer target for the new breed of design patent trolls already surfacing based, at least in part, on Apple’s success in this case. Clearly it is time for Congress to step in and amend Section 289 to add apportionment language.
UPDATED: Tuesday, August 16, 2016 at 8:56pm