Supreme Court Reverses Apple v. Samsung Design Patent Damages Award: Shutts & Bowen LLP

Supreme Court Reverses Apple v. Samsung Design Patent Damages Award

12.6.16

On December 6, the Supreme Court reversed Apple’s $399 million patent infringement verdict against Samsung. The decision – the first from the Supreme Court to interpret design patent damages since 1886 – arguably raises more questions than it answers.

In a series of widely-publicized cases around the globe, Apple and Samsung have been battling over the alleged infringement of smartphone designs since 2011. Through multiple trials and appeals, Apple eventually obtained a $399 million verdict for Samsung’s infringement of three Apple design patents covering various aspects of the iPhone, including the front screen and ‘rounded corners.’

At issue was the proper measure damages when an infringing design is applied to a component of a larger item that also comprises non-infringing designs. The Supreme Court’s prior cases addressing the issue – Dobson v. Hartford Carpet Co., 114 U.S. 439 (1885) and Dobson v. Dornan, 118 U.S. 10 (1886) – required the plaintiff demonstrate that the defendant’s profits were “due to” the infringement of the patented design rather than other aspects of the product embodying the patented design. Congress responded by creating an alternative, special measure of damages for design patent infringement, enacting what is now known as 35 U.S.C. § 289. Unlike the normal measure of patent infringement damages (still available in design patent cases), where “…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…” (35 U.S.C. § 284)(emphasis supplied), whomever “…applies the patented design…to any article of manufacture for the purpose of sale…shall be liable to the owner to the extent of his total profit…” (35 U.S.C. § 289)(emphasis supplied).

Apple’s damage award was based on a determination that the “article of manufacture” to which its design patents had been applied must be the entire Samsung smartphone. The lower courts reached this conclusion on the theory that the shell of the smartphone was inseparable from the smartphone itself because Samsung did not sell the shell of the infringing smartphone as a stand-alone product. Using this logic, the lower courts found that the “article of manufacture” on which profits would be awarded as damages was the entire Samsung smartphone.

In a unanimous opinion authored by Justice Sotomayor, the Supreme Court reversed Apple’s award and remanded the matter to the Federal Circuit. Relying on dictionary definitions and a comparison to utility patents, the Court concluded that “…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.” Based on this holding, the Supreme Court found lower courts erred when they determined that the “article of manufacture” must always be the entire product sold to the consumer was improperly overbroad. The holding does not mean that the “article of manufacture” cannot be the entire product and does not prohibit the Federal Circuit from ultimately finding the “article of manufacture” is the entire Samsung smartphone and reinstating the verdict in Apple’s favor.

What happens next is unclear because of what the Court refused to do. The parties had requested the Court annunciate a test to be applied in identifying the relevant article of manufacture and calculating damages. Finding that only the United States as amicus curiae had briefed the issue, the Court refused to create such a test. The decision, therefore, leaves an important question unanswered: if the infringing article of manufacture is only a component of a larger product, how are damages calculated? Because apportionment of damages under Section 289 is prohibited, it is unclear what non-apportionment test should be applied when an infringing design is applied to an article of manufacture that is only a component of a larger product. The parties and the Court wrestled with this issue at oral argument with no clear consensus emerging. It is unclear whether the Federal Circuit will craft a test or find that the damages awarded Apple were reasonable and reinstate the verdict. Given this uncertainty, the value of incremental design patent portfolios is also in question as the infringement damages they can generate may be substantially compromised.

The Supreme Court’s decision has another potential, possibly unintentional, implication. In determining the definition of “article of manufacture,” the Court found it to mean “a thing made by hand or machine.” One of the patents-in-suit covers a “[g]raphical user interface for a display screen or portion thereof,” commonly referred to as the ‘grid of icons’ patent. Because a grid of icons is not “a thing made by hand or machine” it is unclear whether this particular design patent, or any other digital or virtual design, can be an “article of manufacture” within the meaning of Section 284 and therefore enforceable.

What is clear is this story is far from over. Stay tuned!