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.

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