Tuesday, December 6, 2016

Supreme Court Sides with Samsung on Design Patent Damages

On December 6, 2016, the Supreme Court issued a unanimous opinion authored by Justice Sotomayor in the Samsung Electronics Co., Ltd. v. Apple, Inc. case concerning apportionment of design patent damages under 35 U.S.C. § 289. Specifically, § 289 makes it unlawful to produce or sell an “article of manufacture” bearing a patented design and makes infringers liable to the patent holder “to the extent of [their] total profit.” The Supreme Court’s ruling rejects Apple’s argument and holds that the meaning of the phrase “article of manufacture” can refer to a single component within a multicomponent product sold to consumers. In support of its reasoning, the Court cites a similarly broad interpretation of the phrase as previously applied to 35 U.S.C. § 171. The § 171 statute defines subject-matter eligibility for design patents.

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Prior to this appeal, Apple had been awarded $548 million in damages for Samsung’s infringement of U.S. design patents D593087, D604305, and D618677 as applied to various Samsung smartphones and tablets being sold in 2011. The calculation of damages was based on Samsung’s total U.S. profits earned in connection with the products at issue. Samsung and amici successfully argued before the Supreme Court that the patents at issue were only relevant to certain specific smartphone components and that the “article[s] of manufacture” used to calculate profits should be limited to those select components only, not the entire smartphone. Accordingly, the validity of $399 million out of the original $548 million damage award has been remanded to the Federal Circuit in light of this new ruling.

The Supreme Court’s ruling raises a number of issues concerning the scope of judicial review vis-à-vis legislative intent and equitable remedies. Specifically, the Supreme Court’s 1885 decision in Dobson v. Hartford Carpet Co. held that design patent holders can recover “actual damages sustained” from infringement. Two years later, Congress passed the Patent Act of 1887 introducing what is now § 289 and abrogating Dobson. In addition to being enacted in response to Dobson, § 289 was also designated as an equitable remedy, meaning it is not subject to the causation requirements inherent in conventional damage calculations. A discussion or mere mention of either issue is strangely absent from the opinion! The Court’s reliance on a separate statute (§ 171) is not unprecedented, but it is unusual considering the lack of any discussion on legislative history or the status of § 289 as an equitable remedy.

If anything, the Supreme Court’s decision appears to be based less on well-established principles of judicial review and more on the complexities associated with modern technological products. It is unlikely that Congress in 1887 could have envisioned products as multifaceted and advanced as smartphones, and thus the Supreme Court appears to be making somewhat of a hindsight judgment as to the meaning of § 289 in view of modern day results. Either way, it is clear that this ruling will adversely affect the value of design patents in many instances.

The ruling also provides no specific test for determining which particular components of a multicomponent product constitute the “article of manufacture” under § 289. The Federal Circuit is now charged with formulating such a test when it hears this case on remand. Whatever test the Federal Circuit decides on, it is likely to be fact-intensive and render design patent damage issues more complex and expensive to litigate going forward. Congress also has the power to pass legislation reinforcing this decision, reversing this decision, or introducing a new set of rules for design patent damages.

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