Supreme Court Ruling in Samsung v. Apple Decision Opens Door for Apportionment of Patent Damages

But based on the recent Supreme Court ruling—greatly weakening the design patent damages clause of the Patent Statute—Apple is in jeopardy of losing most of the $400 million damage award it had achieved against Samsung Electronics Inc.

Steve Jobs initiated enforcement of Apple Computer Inc. patents to protect his iPhone and to extract hundreds of millions of dollars from infringing competitors.

Part of the Apple enforcement effort relied on an image of the exerior design of a tablet and iPhone to conquer the galaxy and slay its South Korean competitor in the earlier district court battles. And Apple’s victory could have potentially prevented thousands of innocent people from receiving their treasured media from the ether using their Android smart phones.

But based on the recent Supreme Court ruling—greatly weakening the design patent damages clause of the Patent Statute—Apple is in jeopardy of losing most of the $400 million damage award it had achieved against Samsung Electronics Inc.

Design patents had been strong weapons used to protect products and “articles of manufacture.” Design patents are not concerned with novel functional aspects of technology (covered by utility patents), but are more trivial and are examined closely for proper shading of the drawings by the U.S. Patent and Trademark Office (USPTO) rather than more substantive concerns.

The design patents issued by the USPTO and assigned to Apple covered the aesthetic appearance of the exterior shape of its tablets and IPhones and circular icons on the screen. Enforcement of this intellectual property was used by Apple to attempt to stop Samsung from selling its Galaxy tablet and Galaxy phone products and redirect all of the Samsung profits to Apple.

Design patents had been one of the most potent weapons from the intellectual property arsenal of corporations (e.g. patents, trademarks, copyrights, trade secrets) for efficiently enjoining others from selling infringing designs and obtaining damages. Yet the recent Supreme Court ruling has greatly weakened design patents as a result of its Samsung v. Apple decision.

Designs depicted in two of the asserted Apple design patents illustrate electronic devices that are merely rectangular prisms having a rounded backside. A third Apple design patent covers the circular icons displayed on the screen of an IPhone. While Apple is not entitled to design patents covering solely a rectangular prism, the depiction of such a modified rectangular prism representing its tablet and iPhones have undergone scrutiny from multiple courts and have been found novel.

Unlike other types of (utility) patents which take 3-5 years to obtain and tens of thousands of dollars to issue through the painstaking prosecution process at the USPTO; Apple's asserted design patents were issued by the USPTO in less than 2 years and probably cost Apple not much more than the USPTO prosecution and issuance fees of $1,520.

The landmark case of Egyptian Goddess v. Swisa established a new infringement test for design patents. Egyptian Goddess held that a design patent will be infringed when an ordinary observer would be deceived into thinking that the accused design was the same as the design illustrated in the design patent drawings.

On June 25, 2012, Judge Koh of the Northern District of California issued a preliminary injunction—relying in part on the Egyptian Goddess precedent—finding that the Apple design patents were infringed and prohibiting Samsung from selling its Galaxy tablet and Galaxy phones.

It did not matter that the Samsung tablet or Galaxy phone was 3G or 4G. It did not matter that the tablet or phone allowed thousands of Android apps to be quickly loaded. None of the electronic functionality of the Samsung phones or tablets mattered when determining whether Apple's design patents were infringed.

Even though a few of the patents are titled "Electronic Device," all that mattered to Judge Koh was whether the Samsung tablet and phones were similar looking to the rectangular prism depicted in the drawing figures of Apple's design patents.

For a company renowned for its technology prowess and ability to integrate software and hardware in harmonious, easy to use electronics; the triumph of a victory enforcing patents covering a rectangular prism were probably not what Steve Jobs had in mind for his epitaph. Certainly not the deceased former Apple CEO on his own, as there are 13 other inventors listed on most of the asserted design patents besides Steve Jobs.

While the district court ruling stood as a shining moment for celebration for patent attorneys around the country—as they had a short-lived category of intellectual property (IP) to offer designers that could provide a big "bang for the buck." Unlike a utility patent which could take up to five years to prosecute through the USPTO and costs two to five million dollars to enforce and unlike a copyright which is extremely narrow—a design patent offers its applicant a rapid means of obtaining protection for the ornamental features of a design that may be enforced more quickly than other types of IP.

In the case of Apple v. Samsung, the infringement of the Apple design patents had initially entitled Apple to all profits obtained by Samsung for the infringing Galaxy phone sales based on sales of the entire “article of manufacture” under section 289 of the patent statute.

The Supreme Court’s ruling in Samsung v. Apple, establishes a new meaning for the term “article of manufacture;” under Section 289 of the Patent Satute. The unanimous Court ruled that an “article of manufacture” encompasses both a product sold to a consumer and a component of that product; providing for a narrowed damages calculation when a patent is infringed. The Court’s holding may allow use of damages principals from utility patent cases for the calculation of damages in all patent cases.

The Supreme Court draws support for its ruling that patent damages may be limited to a component of an infringing product by relying on Section 101 of the Patent Statute—the threshold requirement that patentable subject matter must be present in order to obtain a utility patent.  In doing so, the Supreme Court has provided a new interpretation of section 289 of the Patent Statute and opened the door for narrowing damage calculations down to the infringing components of an “article of manufacture.”

So although the Court was hesitant to enunciate the process by which its new infringing component test should be carried-out; it appears that the degree to which the infringing components drive sales of the entire product may be calculated using apportionment principals for damage calculations from utility patent cases.

In the case of a design patent, the total profits obtained for the sale of the infringing product likely can be apportioned according to the degree that the infringing components drive the sales. With respect to the infringed Apple design patents, Apple may have to prove to what extent the exterior rectangular prism shape or circular icons on the screen depicted in their design patents for an iPhone drives sales (in comparison to the other functional features, such as swiping the screen with your finger to operate the phone’s features) in order to maintain as much of the original $400 million damage award as possible.

The concept of the entire market value rule (EMVR), previously used in determining damages for infringement of utility patents, appears to have been foreclosed in determining damages for infringement of design patents. Because the Court opinion written by Justice Sotomayor states that, reading section 289 “to cover only an end product sold to a consumer gives too narrow a meaning to the phrase [article of manufacture];” a damage calculation based on the EMVR may be improper under the Samsung v Apple decision.

The district court and appellate court victories over Samsung, based on the Apple design patents did not enshrine Apple's technology domination. Nor did those rulings hold-up as a means of causing Samsung great financial stress. The Supreme Court ruling has greatly reduced the strength of the design patent damages calculation clause of the Patent Statute.

As a result, the district court award of $400 million against Samsung will be greatly reduced and potentially apportioned according to the consumer demand caused by the patented components of the smart phone product. But possibly of more importance, defendants across the US who are involved in other patent infringement lawsuits will likely attempt to quickly extrapolate and apply the Supreme Court’s (open ended) infringing component “test” vaguely laid out in this unanimous decision.  

While importing the use of the EMVR into design patent lawsuits may be improper, it will be interesting to see whether defendants are able to use the smallest saleable patent-practicing unit (SSPPU) precedents from utility patent damage rulings to narrow damage awards in design patent cases going forward. For example, Samsung may attempt to prove that the SSPPU is the phone’s outer housing having an exterior shape of a rectangular prism having rounded corners on the backside, as depicted in the Apple design patents.

Based on such a SSPPU, Samsung may then argue that a small fraction of its sales of accused Galaxy phones were related to consumer demand based on the exterior shape of a rectangular prism having rounded corners on the backside and that a damage award should be only a minor fraction of the original $400 million award. In that instance, Steve Jobs “thermonuclear war” to punish Android knock-offs may have been dealt a huge setback. 

Contributing Author

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David Newman

David Newman is chair of Gould & Ratner’s Intellectual Property Practice, handling not only IP litigation, but also preparation and prosecution of applications for patents...

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