Wednesday, August 27, 2014

Pacific Coast v. Malibu Boats - The Nightmare Apportionment Scenario Realized

Last Friday we commented on Professor Lemley's amicus brief in the Apple v. Samsung case, which addresses the issue of apportionment in design patent law.   Apparently,  Judge John Antoon II of the Middle District of Florida was working on his own "post" on design patent apportionment at the same time.  Last Friday, Judge Antoon issued a decision denying Malibu's motions for summary judgment, including a motion to limit potential damages to the profits for the accused windshields in the case of Pacific Coast Marine Windshields, Ltd. v. Malibu Boats, LLC.  As a result of Judge Antoon's decision Malibu's total profits for the sale of its speedboats will be at risk if they are found to have infringed Pacific Coast's design patent on a boat windshield.  

Here's a graphic to help explain the decision:

You might recall this case from its previous trip to the Federal Circuit, where the court reversed Judge Antoon's decision to apply prosecution history estoppel to limit Pacific Coast's claims against Malibu. While the Federal Circuit held that prosecution history estoppel applies to design patent, the court reversed the district court’s summary judgment of non-infringement because it found that the accused design was not within the scope of the subject matter surrendered during prosecution.

It is unclear why Malibu Boats did not renew its motion for summary judgment on remand.  Although its prosecution history estoppel argument had been defeated, it still had strong non-infringement arguments as a result of the Federal Circuit's decision.  For example, if, as the Federal Circuit says, the accused windshield was not within the scope of the canceled figure,  then how could the accused windshield be within the scope of the remaining figures of the '070 Patent?  The accused design appears to be more similar to the cancelled figure than the asserted design, and that fact might have been enough for Judge Antoon to grant summary judgment. 

Malibu's decision not to renew its motion for summary judgment on non-infringement may cost them. Judge Antoon's decision on Friday was a simple matter of statutory interpretation.  The court found that its hands were tied in light of the statutory history of § 289:

Congress removed the apportionment requirement in 1887, with the enactment of what later became§ 289.  [See Nike. Inc. v. Wal-Mart Stores. Inc., 138 F.3d 1437, 1441 (Fed. Cir. 1998)]. Design patent owners are no longer required “to apportion the infringer's profits between the patented design and the article bearing the design.” Id. at 1442.  The intent of Congress to allow more expansive recovery for design patent owners is exhibited in the plain language of the statute, which allows recovery of "total profit" from anyone who sells “any article of manufacture to which such design or colorable imitation has been applied.” 35 U.S.C. § 289.  In this case, Malibu sells boats, to which patented windshields have been applied. The plain language and intent of the statute support a conclusion that Pacific is entitled to Malibu's profits from the sale of its boats with the windshield.
This reading of § 289 is further supported by Federal Circuit and district court decisions. In Nike, the Federal Circuit referred to the damages as profits from "the infringing shoes" when the patent involved only part of the shoe. 138 F .3d at 144 7. In Apple. Inc. v. Samsung Electronics Co., the plaintiff had several patents pertaining to smartphones and tablet computers that claimed a portion of the design of particular electronic devices but disclaimed other portions. 678 F.3d 1314, 1317 (Fed. Cir. 2012). With respect to damages based on the defendant's profits, the district court ruled that the plaintiff was not required to prove which portions of the profits were earned by the design feature. Apple. Inc. v. Samsung Elecs. Co., 926 F. Supp. 2d 1100, 1111 (N.D. Cal. 2013). "Congress specifically drafted the design patent remedy provisions to remove an apportionment requirement that the Supreme Court had imposed. Thus, there is simply no apportionment requirement for infringer's profits in design patent infringement under § 289." Id.
While Judge Antoon's legal analysis is correct, the case of Pacific Coast v. Malibu Boats is a striking example of the sometimes inequitable result of § 289 in the absence of any equitable discretion in the hands of the Court.  Malibu's boats sell for anywhere between $50,000 and nearly $100,000, while the accused windshields cannot possibly cost more than a few hundred dollars, standing alone.  This is precisely the type of inequitable scenario that Professor Lemley highlighted in his amicus brief and is the type of situation that the Federal Circuit must grapple with in the appeal from the Apple v. Samsung case. 

Friday, August 22, 2014

Design Patent Apportionment - The Answer Lies in Copyright Law

On Thanksgiving last year, we wrote about the apportionment problem in design patent cases by analogizing to a thanksgiving favorite, turducken.  The apportionment problem deals with how courts should award "total profits" for design patent infringement under 35 U.S.C. § 289 when the infringing design is only one of many profitable features in the infringing product.  For example, in the Apple v. Samsung case (now on appeal), Samsung maintains that its accused Galaxy devices were profitable, at least in part, because of their functionality and software, not just Apple’s patented designs which it was found to have infringed.

As promised, the issue of design patent apportionment has reared its ugly head in Samsung's appeal to the Federal Circuit in the Apple v. Samsung case.  I recently had an opportunity to read the "Brief Amici Curiae of 27 Law Professors In Support of Appellant Samsung," which is available on the AIPLA web page for the industrial design committee.  I found Professor Lemley's brief to be well reasoned and persuasive and I think the Federal Circuit will have some tough decisions to make when it comes to the apportionment issue.  Two things in the Amicus Brief jumped out at me and my take on the apportionment problem differs only slightly from Professor Lemley's.

First, as professor Lemley appears to concede, the statutory history relating to § 289 is not easily ignored.  Congress specifically removed the apportionment requirement from the disgorgement remedy in response to a Supreme Court case that applied apportionment in such a way that it basically declawed the disgorgement remedy.  In Dobson v. Carpet Co., 114 U.S. 439 (1885), the Supreme Court held that a design patent plaintiff must be required to establish the profits attributable to the infringing design and, because there was no evidence the patented designs at issue had contributed to the profits of the infringing carpets, the Supreme Court reversed and awarded only nominal damages. See id. Congress then passed the statute of 1887 in response to the Dobson decision. "The manifest purpose of congress was to enlarge the remedy against infringers of design patents, and to declare that the measure of profits recoverable on account of the infringement should be considered to be the total net profits upon the whole article."  Untermeyer v. Freund, 58 F. 205 (2d Cir. 1893) (emphasis added); see also Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1441 (Fed. Cir. 1998) (“The Act of 1887, specific to design patents, removed the apportionment requirement when recovery of the infringer’s profit was sought….”).  This clear statutory history and legislative intent will be difficult for Samsung to overcome and nearly impossible for the Federal Circuit to ignore.  

While I agree that "awarding a defendant’s entire profits makes no sense in the modern world," the same could be said of the minimum $250 remedy that is also available under § 289.  In the modern world, a design patent holder will spend more in a single billable hour of design patent litigation than it could ever hope to recoup under this provision.  Yet, federal courts are incompetent to update § 289 so as to increase this minimum monetary award to a more modern amount.  Courts are equally incompetent to read apportionment back into § 289 after Congress deliberately removed it. 

Second, the Amicus Brief notes that the "closest analogue" for the disgorgement remedy in § 289 is found in the remedies for trademark infringement.  On this point, I would disagree.  The disgorgement remedy in design patent cases is a close cousin of the disgorgement remedy under copyright law.  See Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S. 390, 399 (1940) ("Prior to the Copyright Act of 1909..., there had been no statutory provision for the recovery of profits, but that recovery had been allowed in equity both in copyright and patent cases as appropriate equitable relief incident to a decree for an injunction."); Braun Inc. v. Dynamics Corp. of Am., 975 F. 2d 815, 824 (Fed. Cir. 1992) ("R]ecovery of an infringer's profits evolved in courts of equity").  Indeed, § 504 of the Copyright Act still uses language that is virtually identical to the disgorgement remedy in design patent law prior to Congress's decision to remove apportionment. See 17 U.S.C. § 504(b) ("The copyright owner is entitled to recover ... any profits of the infringer that are attributable to the infringement") (emphasis added).  Thus, Congress chose to require apportionment under copyright law in 1909, twelve years after deliberately removing the same language from the design patent statute.  This is strong evidence that § 289 and § 504 are intentionally different and the courts should not interpret these statutes as requiring the same things.  

However, copyright law may still provide the solution to the problem of apportionment in design patent cases.  The Copyright Act expressly provides for infringer's profits as a remedy for copyright infringement and expressly requires that such profits be apportioned.  However, courts have  uniformly interpreted § 504 as requiring a threshold showing by the plaintiff that there is a nexus between the infringer's gross profits and the infringement.  See, e.g. Polar Bear Productions, Inc. v. Timex Corp., 384 F.3d 700, 711 (9th Cir. 2004) (“Thus, a copyright owner is required to do more initially than toss up an undifferentiated gross revenue number; the revenue stream must bear a legally significant relationship to the infringement.”); Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003) (“In sum, we conclude that the Defendants could properly be awarded summary judgment...if...there exists no conceivable connection between the infringement and those revenues....”); On Davis v. The Gap, 246 F.3d 152, 160 (2d Cir. 2001) (“[W]e think the term ‘gross revenue’ under the statute means gross revenue reasonably related to the infringement, not unrelated revenues.”); Taylor v. Meirick, 712 F.2d 1112, 1122 (7th Cir. 1983) (“It was not enough to show [Defendant]’s gross revenues from the sale of everything he sold....”).  Indeed, the Federal Circuit, itself, has already applied this rule of law in the copyright context.  See The University of Colorado Foundation, Inc. v. American Cyanamid Co., 196 F.3d 1366, 1375 (Fed. Cir. 1999) ("The University's argument presumes that the sales of reformulated Materna were due to Cyanamid's copyright infringement. The University had the burden to show this connection.").  

The nexus requirement in copyright law is a judicially created, threshold requirement before the infringer's profits become available at all.  It has nothing to do with the statutory apportionment required under § 504 if disgorgement is found to be an appropriate remedy.  See Andreas v. Volkswagen of Am., Inc., 336 F.3d 789, 796 (8th Cir. 2003) (“burden of establishing that profits are attributable to the infringed work often gets confused with the burden of apportioning profits between various factors contributing to the profits”) (emphasis added).  Under copyright law, where the gross profits do not bear "a legally significant relationship to the infringement," the disgorgement remedy is unavailable and apportionment is simply irrelevant. 

There is no good reason why § 289 should not be interpreted as requiring this same threshold showing that the total profits bear "a legally significant relationship to the infringement."  Such an interpretation of § 289 would not impinge on Congress' clear intent that profits not be apportioned under § 289 and would honor the equitable roots of the disgorgement remedy for both design patent infringement and copyright infringement.  Under § 289, upon a threshold showing of a "a legally significant relationship to the infringement," a design patent infringer would be liable to the extent of their total profits, whereas under § 504, the court would then be required to apportion the infringer's profits.  When "a legally significant relationship" between the design patent infringement and the profits cannot be proved, the patent would still be permitted to recover their damages pursuant to § 284.

This interpretation of § 289 would also address the inequitable scenarios cited by Professor Lemley in the Amicus Brief, without improperly re-interpreting § 289 to include the same apportionment requirement that Congress has already deleted.  See Amicus Brief at 12 ("If United Airlines uses a patented part in one of its planes, the patent owner cannot simply point to that infringement and say, “Now I am entitled to the entire profit from all aspects of United Airlines.”).  Under this scenario, the patentee would likely be unable to show "a legally significant relationship" between United Airline's gross profits and its infringement of a single patented part and disgorgement would not be available as a remedy at all.  Samsung's infringement of Apple's Iphone design patents, however, presents a somewhat closer question as to whether there is a threshold nexus between the infringing design and Samsung's gross profits. 

Interpreting § 289 to require a threshold showing of a nexus between the patented design and the infringer's profits would honor the equitable roots of the disgorgement remedy and bring the interpretation of § 289 in line with its equitable cousin, § 504 of the Copyright Act.  This proposed interpretation would also address the sometimes inequitable result of awarding "total profits," where those profits are not reasonably related to the infringing design.  While apportionment should not be permitted in design patent cases, in accordance with congressional intent, the Federal Circuit should use this opportunity to allow for this basic equitable consideration in design patent cases, as a threshold issue.

Tuesday, August 19, 2014

Judge Wright Gets it Right on Design Patent Claim Construction

On Friday, Judge Otis D. Wright issued an always-risky claim construction order in the case of Carlini Enterprises, Inc. v. Paul Yaffe Design, Inc., which we first reported on last October.  This case involves two design patents for bike handles which allegedly cover Carlini's "Evil Apes" and "Gangster Apes" handlebar designs, although Yaffe disputes this fact through its false marking counterclaim.  The design patents-in-suit are U.S. Design Patent Nos. 629,343 and 604,212, shown below:

As we have previously noted, claim construction in design patent cases has become a rather sticky issue since the Federal Circuit's en banc decision in Egyptian Goddess.  In that watershed case, the Federal Circuit famously did away with the old “point of novelty” test, returning the ordinary observer test to its rightful place as the sole test for design patent infringement.  See Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 679 (Fed. Cir. 2008) (en banc).  However, in a less noted portion of the Egyptian Goddess decision, the Federal Circuit opined on the issue of claim construction, stating that “the preferable course ordinarily will be for a district court not to attempt to ‘construe’ a design patent claim by providing a detailed verbal description of the claim language.” Id.  The court reasoned that “a design is better represented by an illustration ‘than it could be by any description and a description would probably not be intelligible without the illustration.’”  Id. (quoting Dobson v. Dorman, 118 U.S. 10, 14 (1886)).

There is an implicit conflict between Egyptian Goddess and the Federal Circuit's other decisions regarding design patent claim construction, such as  OddzOn Prods., Inc. v. Just Toys, Inc., 122 F.3d 1396, 1405 (Fed. Cir. 1997), where the Court held that if "a design contains both functional and non-functional elements, the scope of the claim must be construed in order to identify the non-functional aspects of the design."  This contradicting guidance has left some courts confused as to when, if ever, it is appropriate to give  verbal claim construction regarding functionality.

In Carlini, Judge Wright struck a nuanced balance between the need to avoid unnecessary verbal claim constructions and the temptation to "filter" functional elements of a design patent out of the scope of the claim.  In declining to filter out any allegedly functional elements, Judge Wright reasoned that "the task of distinguishing the ornamental features from the functional ones must be tempered [because]a detailed verbal description of the claimed design may place an undue emphasis on particular features of the design and may hinder examination of the design as a whole." citing Crocs, Inc. v. ITC, 598 F.3d 1294, 1302 (Fed. Cir. 2010).

Yaffe had requested that the court filter out the three basic components of any motorcycle handle bars as functional, "parts, which Carlini refers to as the 'grips,' 'uprights,' and 'center section.'"  Judge Wright did not dispute that these three components provided functionality to the handlebars - "There is really no dispute that these parts provide some function. A rider must have something to hold onto—the grips—and there must be some point where the handlebar attaches to the motorcycle—the center section. The function of the uprights is to connect the grips to the center section."  However, he disagreed that evidence of function is synonymous with functionality in the design patent context and he cited the variety of bike handles available in the prior art, despite supplying this same basic functionality.

Moreover, the Court indicated that there would be no easy way to "filter out" the allegedly functional components of the handlebar, given the nature of the asserted design patents.  The Court reasoned that "it would be difficult for this Court to verbalize the design of the handlebars depicted in the patents-in-suit and separate the ornamental features from the functional ones. At the very least, a detailed verbal description would place undue emphasis on particular features of the claimed design."  The Court emphasized that "[t]he most important task is to facilitate examination of the design as a whole—ornamental and functional elements together."  (emphasis added).

In declining to issue a detailed verbal claim construction, Judge Wright appears to have struck the correct balance between the temptation to "filter out" functional elements while avoiding an unnecessary, detailed verbal claim construction.  Where, as here, the requested claim construction would impair a jury's ability to assess infringement of the claim "as a whole," the the proponent of such a construction should be required to come forth with clear evidence that the design elements are dictated by function alone.  Otherwise, such arguments are better handled in the context of a motion for summary judgment of invalidity based on functionality.  While it may still be appropriate to "filter out" purely functional design elements in the context of claim construction, such situations are rare and the resulting claim construction would always risk improperly affecting the jury's determination of infringement of the design patent "as a whole."

Wednesday, August 13, 2014

Poly-America, L.P. v. API Industries, Inc., - Identifying the Ordinary Observer

Here at the Ordinary Observer (the blog), one of the things we enjoy discussing most is the Ordinary Observer (the legal fiction).  Today, that discussion is facilitated by an August 6, 2014 Order on a Motion for Reconsideration issued in Poly-America, L.P. v. API Industries, Inc. (No. 13-cv-693-SLR) by Judge Sue L. Robinson from the United States District Court for the District of Delaware.

The Order on a Motion for Reconsideration follows an earlier denial of a motion for judgment on the pleadings, issued on April 10, 2014. There, Judge Robinson declined to find, as a matter of law, that API's design for a cardboard box and Poly-America's patented box design were plainly dissimilar.  In reaching her decision, the judge found that the ordinary observer would be a person who sees the box when it is merchandised in a store, and not one who views the box in a manufacturing facility.  Judge Robinson's Order on the Motion for Reconsideration is a great review of how the ordinary observer is defined, and why it matter so much in design patent litigation.