Samsung v. Apple and Design Patent Damages

Now What?

Kilpatrick Townsend & Stockton LLP Theodore Brown, Senior Counsel

tbrown@kilpatricktownsend.com

January 10, 2017

Review

Apple Inc. v. Samsung Electronics Co., Ltd., 920 F. Supp. 2d 1100 (N.D. Cal. 2013): • After trial and partial damages retrial, Apple was awarded ~$930 million:

– Design patent infringement - $399 million •  Samsung’s total profit on the smartphones found to

infringe one or more of Apple’s design patents – Trade dress infringement - $382 million – Utility patent infringement - $149 million

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Review

Apple Inc. v. Samsung Electronics Co., Ltd., 786 F.3d 983 (Fed. Cir. 2015): • Federal Circuit vacated trade dress jury verdicts, but otherwise affirmed the awards for utility and design patent infringement. For the design patents:

“In reciting that an infringer “shall be liable to the owner to the extent of [the infringer's] total profit,” Section 289 explicitly authorizes the award of total profit from the article of manufacture bearing the patented design. Several other courts also concluded that Section 289 authorizes such award of total profit.”

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Apple D593,087

D593,087

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Apple D604,305

D604,305

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Apple D618,677

D618,677

Review

Apple Inc. v. Samsung Electronics Co., Ltd., 786 F.3d 983 (Fed. Cir. 2015): • The Federal Circuit recited the correct measure of damages available under 35 U.S.C. § 289, but nonetheless held that the “article of manufacture” was limited to the (complete) product sold.

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Review

•  The Supreme Court granted Samsung’s Petition for Certiorari on one of the two issues presented:

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?

•  Heard: October 11, 2016 •  Decided: December 6, 2016

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Developments in briefing and argument: –  Samsung initially argued primarily that § 289 should be

interpreted to allow only damages caused by the infringement – apportioning the profits between the infringing and non-infringing portions of the infringing products. As previously discussed, this was a very difficult argument in view of the legislative history.

–  The United States, in its amicus brief, rejected the statutory arguments for apportionment, but argued that the “article of manufacture” could be a component of the product sold.

–  Apple reversed course from its earlier positions; it continued to argue against apportionment, and agreed with the Solicitor that the “article of manufacture” could be a component of the product sold. But, Apple’s position was that Samsung had waived any argument that the relevant “article of manufacture” could be less than the infringing product as sold.

Supreme Court

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Supreme Court

Developments in briefing and argument: • At the hearing:

–  Samsung abandoned its argument that statutory construction required apportionment. 137 S.Ct. at 434, n. 2; (see Oral Argument Transcript at 6, 52-53)

(Available at https://www.supremecourt.gov/oral_arguments/argument_transcripts/2016/15-777_1b82.pdf)

–  All parties (including the United States) agreed that the Federal Circuit was wrong in limiting the article of manufacture to the product actually sold.

–  All parties effectively agreed that the “article of manufacture” could be a component of the product sold.

–  The parties discussed (at some length) whether Samsung’s “article of manufacture” argument had been preserved in the lower courts, but the Supreme Court was not interested.

–  Instead, the Justices probed the parties and the Solicitor about the test to use to identify the article of manufacture.

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Supreme Court

Samsung Electronics Co., Ltd. v. Apple Inc., 137 S.Ct. 429, 2016 WL 7078449 (2016) • Decided: December 6, 2016

The unanimous Supreme Court (Sotomayor) reversed the Federal Circuit’s holding that the damages for infringement of a design patent with the total profit earned on the infringing products.

Instead, damages should be the total profit on the “article of manufacture” bearing the infringing design, and the “article of manufacture” may be either the product sold or some (smaller) component of the product.

However, the Court expressly declined to set out a test for identifying the relevant “article of manufacture,” leaving that to the Federal Circuit.

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Supreme Court

Samsung Electronics Co., Ltd. v. Apple Inc., 137 S.Ct. 429, 434, 2016 WL 7078449 (2016) “Arriving at a damages award under § 289 thus 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.”

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Supreme Court

Samsung Electronics Co., Ltd. v. Apple Inc., 137 S.Ct. 429, 434, 2016 WL 7078449 (2016) “The only question we resolve today is whether, in the case of a multicomponent 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. Under the former interpretation, a patent holder will always be entitled to the infringer's total profit from the end product. Under the latter interpretation, a patent holder will sometimes be entitled to the infringer's total profit from a component of the end product.”

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Supreme Court

Samsung Electronics Co., Ltd. v. Apple Inc., 137 S.Ct. 429, 435, 2016 WL 7078449 (2016) “[t]he term “article of manufacture” is broad enough to embrace both a product sold to a consumer and a component of that product, whether sold separately or not. Thus, reading “article of manufacture” in § 289 to cover only an end product sold to a consumer gives too narrow a meaning to the phrase.”

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Supreme Court

Samsung Electronics Co., Ltd. v. Apple Inc., 137 S.Ct. 429, 436, 2016 WL 7078449 (2016) “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.”

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Now What?

•  Next Steps:

–  Procedurally, it will be for the Federal Circuit to decide the proper test, which should then remand for a new trial on damages. (An additional trial on damages issues – including design patent damages - is currently stayed pending the outcome of the Supreme Court decision.)

–  Alternatively, the Federal Circuit could simply remand for the trial court to determine a test and hold a new trial on damages

–  Either way, there will most likely be another appeal to the Federal Circuit (and another cert petition).

It will likely be years before this is all settled, but there are (a few) clues as to where the test may end up.

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Now What?

•  Does the “article of manufacture” need to be sold (or available for sale) separately?

No: “But, for the reasons given above, the term “article of manufacture” is broad enough to embrace both a product sold to a consumer and a component of that product, whether sold separately or not.” 137 S.Ct. at 436. See also Application of Zahn, 617 F.2d 261 268 (C.C.P.A. 1980) (“While the design must be embodied in some articles, the statute is not limited to designs for complete articles, or ‘discrete’ articles, and certainly not to articles separately sold . . . “)

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Now What?

•  Does the “article of manufacture” need to be physically separable?

The article could be one or a few physical components:

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Samsung Galaxy S II: https://news.samsung.com/global/galaxy-s-ii-teardown-splitting-8-9-mm-of-the-latest-samsung-technologies

Now What?

•  Does the “article of manufacture” need to be physically separable?

But, the “article” could probably also be a conceptual one – the part of the overall product that is actually claimed in the patent - particularly where the design is transient or not readily separable from the rest of the product.

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Now What?

•  Does the “article of manufacture” need to be physically separable?

Probably not. Although the Supreme Court stated that an article of manufacture could be a “component” of the end product, it also granted, vacated, and remanded Systems’ cert. petition from Nordock, Inc. v. Systems Inc., 803 F.3d 1344 (Fed. Cir. 2015):

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Now What?

•  Does the “article of manufacture” need to be physically separable?

Probably not. “The Patent Office and the courts have understood § 171 to permit a design patent for a design extending to only a component of a multicomponent product. 137 S.Ct. at 435, citing Application of Zahn, 617 F.2d 261,268 (C.C.P.A.1980):

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Now What?

•  Does the patent itself define the “article of manufacture”?

Perhaps –  The dotted lines indicate disclaimed parts of the design.

E.g.: Apple, Inc. v. Samsung Electronics Co., Ltd., 678 F.3d 1314, 1318 (Fed. Cir. 2012) (emphasis added):

“The D#087 patent claims a bezel surrounding the perimeter of the phone's front face and extending from the front of the phone partway down the phone's side. The parts of the side beyond the bezel, as well as the phone's back, are disclaimed, as indicated by the use of broken lines in the patent figures.”

–  Fewer dotted lines could avoid such possible limitations, but the resulting patent would be narrower.

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Now What?

•  What is the effect of functional portions of the product sold?

Probably none. A design that is completely dictated by function is not entitled to design patent protection. However, if a design is at least partially ornamental (not completely dictated by function), it is not proper to dissect out (i.e., ignore) the functional parts of the design to determine the scope of protection. But, an increased number of functional elements decreases the scope of protection. See Sport Dimension, Inc. v. Coleman Co., Inc., 820 F.3d 1316 (Fed. Cir. 2016)

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Now What?

•  What is the “article of manufacture”?

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O - The whole carpet O – The top surface of the carpet

A B

Now What?

•  What is the “article of manufacture”?

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D730,423 Polaroid Cube Go-pro

O - The Go-Pro O – The Go-pro case

A B

Now What?

•  What is the “article of manufacture”?

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O - The Beetle body O – The whole Beetle

A B

Now What?

•  What is the “article of manufacture”?

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O - The windshield O – The whole boat

A B

Now What?

•  What is the “article of manufacture”?

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O - The BMW Cup-holder O – The BMW

A B

Now What?

•  What is the “article of manufacture”?

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O - The Jaguar Hood Ornament O – The whole car

A B

Now What?

•  What is the “article of manufacture”?

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O – Dock Leveler O – The Lip and Hinge Plate, welded to the leveler

A B

Now What?

•  Only the Solicitor has (thus far) proposed a test: Four factors for the fact finder (i.e., the jury) to consider

under the totality of circumstances: 1. the scope of the design claimed in the plaintiff’s patent, including the drawing and written description, provides insight into which portions of the underlying product the design is intended to cover, and how the design relates to the product as a whole. 2. the relative prominence of the design within the product as a whole. 3. whether the design is conceptually distinct from the product as a whole. (e.g., compare a patented book binding and the literary work continued in the binding) 4. the physical relationship between the patented design and the rest of the product may reveal that the design adheres only to a component of the product.

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Now What?

•  Only the Solicitor has (thus far) proposed a test: The Solicitor’s proposed test is largely drawn from the 100 year-old

Piano cases (Bush & Lane Piano Co. v. Becker Bros., 222 F. 902 (2d Cir. 1915); 234 F. 79 (2d Cir. 1916).) These, together with Young v. Grand Rapids Refrigerator Co., 268 F. 966 (6th Cir. 1920), are the only cases determining the damages for an infringing component.

Some further explanation is given in the Brief for the United States. (available at http://www.scotusblog.com/wp-content/uploads/2016/06/15-777npUnitedStates.pdf; or https://www.justice.gov/sites/default/files/osg/briefs/2016/06/28/15-777npunitedstates.pdf)

Apple agreed, at oral argument (Transcript at 39), that the Solicitor’s proposed four factors would be “appropriate factors to consider.” (but maybe not all)

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Now What?

•  Only the Solicitor has (thus far) proposed a test: –  The United States’ position is likely to be very persuasive and

at the center of future arguments regarding the proper test. –  There is room in this proposed test for a design to implicate an

entire product as sold (carpet pattern, silverware, VW Beetle (?)) where the “design sells the product”.

–  The Solicitor’s test does not propose any presumptions or burdens of production for either side; these will likely be fought over.

–  Probably any test will make it more difficult for the patent owner to prove damages, to obtain substantial damaages, or even to protect its design.

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Background

What is the relation between the first and second steps of the damages inquiry? What if one component or a relatively small or inexpensive feature drives the sale, leading to a profit that is disproportionate to the cost or size of the component? Samsung argued that it should be open to the patent holder to prove the bulk of the profit comes from one (design) feature –

Carpet Volkswagen Beetle Boat Windshield Cup Holder

Does the Supreme Court decision leave room for such considerations?

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Now What?

What is the relation between the first and second steps of the damages inquiry? Samsung Electronics Co., Ltd. v. Apple Inc., 137 S.Ct. 429, 434, 436, 2016 WL 7078449 (2016) (emphasis added): “Arriving at a damages award under § 289 thus 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.”

“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.”

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Questions?

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Appendix

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35 U.S.C. § 284 Damages

35 U.S.C. § 284 Damages Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.

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35 U.S.C. § 289 Additional remedy for infringement of design patent.

35 U.S.C. § 289 Additional remedy for infringement of

design patent. 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.