On Tuesday, December 6, 2016, the U.S. Supreme Court issued a decision in Samsung Electronics Co. v. Apple which found by a unanimous 8-0 vote that a damages award for design patent infringement may be limited to revenues attributable to a component of an article of manufacture and not the entire article itself. Tuesday’s SCOTUS decision overturns a judgment reached in May 2015 at the U.S. Court of Appeals for the Federal Circuit, which would have awarded nearly $400 million in damages to Apple Inc. (NASDAQ:AAPL) for the infringement of three design patents by mobile devices marketed by Samsung Electronics (KRX:005930).
The case was appealed by Samsung after the U.S. Court of Appeals for the Federal Circuit upheld a patent infringement award to Apple Inc. (NASDAQ:AAPL), finding that Apple was entitled to receive 100% of the profits Samsung obtained through the sale of the infringing smartphones. The award was granted under U.S. Code Title 35 § 289, which gives a plaintiff the right to a defendant’s total profits on an “article of manufacture” deemed to be infringed upon design patents held by the plaintiff. The Supreme Court did not have a problem with the damages calculation, but instead had a problem with what constitutes an “article of manufacture” capable of leading to a total profits award.
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 question presented by Samsung in the petition for certiorari was: “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?” Much of the oral argument focused not he issue of apportionment of damages. The statute does not allow for apportionment of damages with respect to design patent infringement and ultimately the Supreme Court did not discuss the apportionment issue in its decision. Instead, the Supreme Court focused on the definition of an “article of manufacture.”
Thumbnail Sketch of the Dispute
This design patent dispute relates to the ongoing patent war between two technology giants. A jury found that Samsung infringed Apple design patents, Apple utility patents and also diluted Apple’s trade dresses. The infringed design patents are U.S. Design Patent Nos. D618,677 (“D’677 patent”), D593,087 (“D’087 patent”), and D604,305 (“D’305 patent”), which claim certain design elements embodied in Apple’s iPhone. The infringed utility patents are U.S. Patent Nos. 7,469,381 (“’381 patent”), 7,844,915 (“’915 patent”), and 7,864,163 (“’163 patent”), which claim certain features in the iPhone’s user interface. The diluted trade dresses are Trademark Registration No. 3,470,983 (“’983 trade dress”) and an unregistered trade dress defined in terms of certain elements in the configuration of the iPhone.
Following the first jury trial, the district court upheld the jury’s infringement, dilution, and validity findings over Samsung’s post-trial motion. The district court also upheld $639,403,248 in damages, but ordered a partial retrial on the remainder of the damages because they had been awarded for a period when Samsung lacked notice of some of the asserted patents. The jury in the partial retrial on damages awarded Apple $290,456,793, which the district court upheld over Samsung’s second post-trial motion. On March 6, 2014, the district court entered a final judgment in favor of Apple, and Samsung filed a notice of appeal. All totaled, the amount won by Apple as a result of the infringement (i.e., damages as well as pre-judgment and post-judgment interest) reached to $399 million.
On appeal, the Federal Circuit ultimately affirmed the jury’s verdict on the design patent infringements, the validity of two utility patent claims, and the damages awarded for the design and utility patent infringements appealed by Samsung. The Federal Circuit also reversed the jury’s findings that the asserted trade dresses are protectable. See Apple v. Samsung (Fed. Cir. May 18, 2015).
The Federal Circuit’s decision from May 2015 upheld the traditional interpretation of §289, finding that the whole of the infringing Samsung smartphone products was the only permissible article of manufacture because consumers could not buy the smartphone in individual components. In oral arguments presented to the Supreme Court on October 12th, Samsung’s counsel made the case that the damages award should not be derived from the entire profits on the sale of design patent-infringing smartphones when those design patents only covered a portion of the device’s appearance.
Article of Manufacture
As explained by the Supreme Court, determining the proper damages award under §289 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.” Therefore, it was essential to determine the proper scope and meaning of the term “article of manufacture.”
Before diving into the critical question, the Supreme Court explained that it was making only a limited ruling today. :
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.
In searching for the meaning of the critical term “article of manufacture,” the Supreme Court consulted the American Heritage Dictionary. According to that dictionary, the word “article” means “a particular thing.” The word “manufacture” means “the conversion of raw materials by the hand, or by machinery, into articles suitable for the use of man” and “the articles so made.” Thus the Supreme Court defined the critical term thusly: “An article of manufacture, then, is simply a thing made by hand or machine.”
Given that a component of a product is a thing that is made by hand or machine, the Supreme Court to conclude that the term “article of manufacture is broad enough to encompass both a product sold to a consumer as well as a component of that product.” Having reached that conclusion the Supreme Court had little difficulty concluding that the narrow interpretation of §289 by the Federal Circuit, which found that the article of manufacture could only cover an end product sold to consumers, was inappropriate.
Both Samsung and Apple had asked the Supreme Court to determine whether the appropriate article of manufacture in this case was the entire smartphone or whether it was a particular component of the smartphone. After deciding that it is possible that an article of manufacture could be a component of the product sold to consumer the Supreme Court punted on this key question, instead deciding to remand it to the Federal Circuit for further consideration. According to the Supreme Court the briefing was insufficient for them to reach that question.
The Court explained:
The parties ask us to go further and resolve whether, for each of the design patents at issue here, the relevant article of manufacture is the smartphone, or a particular smartphone component. Doing so would require us to set out a test for identifying the relevant article of manufacture at the first step of the §289 damages inquiry and to parse the record to apply that test in this case. The United States as amicus curiae suggested a test, see Brief for United States as Amicus Curiae 27–29, but Samsung and Apple did not brief the issue. We decline to lay out a test for the first step of the §289 damages inquiry in the absence of adequate briefing by the parties. Doing so is not necessary to resolve the question presented in this case, and the Federal Circuit may address any remaining issues on remand.
The fact that the Supreme Court did not reach the critical question in this case feels like a copout. Those familiar with the Supreme Court will understand that this type of decision is typical for a Court that does not like to answer the key question before them, instead preferring to vaguely shed light on the matter and then kick it back down for further proceedings by lower tribunals. This type of SCOTUS dance is extremely typical when it comes to constitutional law cases, but has been absent with respect to the Court’s patent jurisprudence for some time. Indeed, if anything this Supreme Court has gone well beyond the questions presented, frequently talking about patent trolls who are not in the room, and relying on facts (sometimes dubious facts) submitted in amicus briefs to support their fundamental reconfiguration of U.S. patent law.
Perhaps the decision to say very little is a signal that the Court will revert back its traditional preference to decide as little as possible. There is also the small outside chance that with only 8 Justices the Court decided it would be better to say less rather than risk the decision being anything other than unanimous. Given that the Court was so preoccupied with apportionment of damages during oral arguments and the fact that the decision does not raise the issue of apportionment at all, perhaps that signals there was a divide on that particular issue that prevented the Court from going further than saying it is possible that an article of manufacture could be less than the whole unit sold to consumers, which is a pretty low energy way to have disposed of this case.
The Future of Design Cases
This decision in Samsung Electronics Co. v. Apple will have lasting effects on future cases involving design patents to the detriment of those who own design patents, according to a statement released by Case Collard, partner at Dorsey & Whitney LLP. “The Supreme Court has given Samsung a slight reprieve,” Collard’s statement reads. “This decision was only about damages, so Samsung’s liability for infringing Apple’s patent still stands. But now, the $399 million damages award will likely be much less after a trip back down to the trial court. The Supreme Court’s decision brings damages law for design patents in to accord with the damages law for utility patents. No longer can a patent holder get all of the profits from the sale of a product infringing a design patent. Instead, they may recover the profits attributable to the infringing feature. Design patents are an often overlooked tool to protect IP. While they are still very valuable, this decision reduces slightly the advantages of a design patent by limiting the amount of damages that can be recovered.”
“The biggest takeaway from this decision is that there’s a lot more work to be done,” said Enoch Liang, partner at LTL Attorneys LLP. “The Supreme Court only answered a very narrow question, whether the term ‘article of manufacture’ constitutes the entire product or only a component.” Liang notes that it will be up to Federal Circuit to not only design a test which would allow a jury to determine whether a design patent covers the entire product or a component, and then that test would need to be implemented in a retrial. “This is only chapter one, there’s still chapters two, three, four and five to be written,” Liang said. Although the Supreme Court declined to issue any opinion on the test which could be applied to determine the scope of what is covered by a design patent, a four-part test for such a determination can be found on pages 27 to 29 of an amicus curiae brief filed by the U.S. Solicitor General’s office on behalf of the U.S. government in favor of neither party in this case. Because Apple and Samsung did not file briefs on this issue, the Supreme Court declined to lay out a test despite noting that such a test existed in the U.S. amicus brief.
Liang believes that this Supreme Court decision will have both a broad implication and a narrower implication as to how design patent infringement awards will be determined in the future. The broad implication involves the new evolving definition of what constitutes an “article of manufacture,” but the narrower implication on how much of the device is covered by the design patents remains to be determined. “That’s the real $399 million question here,” Liang said. “Ultimately, I think it gives defendants an additional arrow in their quiver to limit the damages that design patentees can claim.” Whereas design patent litigation had existed as an all-or-nothing proposition for the parties involved, defendants now have a mechanism to argue that damages awarded should be limited to a certain component. “I think that it takes the wind out of the sails for plaintiffs when it comes to negotiating leverage” during design patent litigation, Liang said.
Although it could take a few years for the implications of the Supreme Court’s decision in this case to play out, the design patent sector is a fairly small part of the U.S. patent landscape. As Liang notes, this was the Supreme Court’s first decision on design patents since Gorham v. Company v. Wright, a design patent case decided in 1871 involving the design of spoon and fork handles. “That tells you two things,” Liang said. “First, design patents aren’t nearly as litigated as utility patents. If they were, there would be more Supreme Court cases. Two, it tells you that this is a real sea change in how design patent infringement awards are going to be calculated.” However, given the fact that design patents are a niche area of the U.S. patent landscape, “a sea change in the design patent world is probably only a ripple in the overall ocean of patent litigation.”
What this All Means?
The Supreme Court decision could have been much worse for design patent holders. Because the Court did not venture down the apportionment rabbit hole and instead decided the case based on what constitutes an “article of manufacture” there will be many design patents that should be unaffected. For example, when automobile manufacturers obtain a design patent on a particular part there should be little serious question as to what will be the “article of manufacture.” The Supreme Court acknowledged as much at the beginning of the decision saying:
In the case of a design for a single-component product, such as a dinner plate, the product is the “article of manufacture” to which the design has been applied. In the case of a design for a multicomponent product, such as a kitchen oven, identifying the “article of manufacture” to which the design has been applied is a more difficult task.
In this case Apple obtained a patent on the casing for the smartphone, which meant that a great many things inside the case were not covered by the design patents in question, making the case more difficult than those where the design patent is on a single-component product.
So the good news is that the Supreme Court did not decide the case on apportionment grounds. Those with design patents on single-component products will also be unaffected. But this decision is not a good one for design patent holders like Apple who have design patents covering multicomponent products. Of course, the game now returns to the Federal Circuit, who must come up with a test to satisfy the Supreme Court. Good luck with that Federal Circuit!