Business and Legal Insights

Yesterday, the Supreme Court heard oral argument in Samsung Electronics Co., LTD., et al. v. Apple, Inc., the long-running dispute over the design of smartphones. The relevant patents-in-suit are three design patents: D618,677 (a black rectangle with rounded corners), D593,087 (with bezel on surrounding rim), and D604,305 (a colorful grid of 16 icons). After appeals, Apple’s original $1.05 billion jury verdict was reduced to $548 million. Of that, $399 million in damages stem from infringement of the three design patents that are part of the Supreme Court case.

The dispute arises because of the unique nature of design patents. While utility patents protect “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof” (35 U.S.C. § 101), a design patent protects “any new, original and ornamental design for an article of manufacture” (35 U.S.C. § 171)(emphasis supplied).

Design patents also receive special treatment when determining damages. 35 U.S.C. § 289 – titled “Additional remedy for infringement of design patent” – permits “[w]hoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250. . .” "Nothing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement.” Id.

The issue is the application of the special damage statute. At trial, once the jury determined that a Samsung smartphone infringed one of Apple’s design patents, Apple was awarded the profit Samsung made on the entire smartphone. Samsung alleged this was error because Apple's design patents covered only the rounded corners, the bezel, and the icon layout on the phone – small components of the overall device when compared to the chips, screens, and circuitry that are required for functionality.

An example used throughout the argument that is illustrative was if a design patent covers the ornamental design of the body of the Volkswagen Beetle but the rest of the car (engine, drivetrain, steering, etc.) is not patented, what are the profits Volkswagen would be entitled to against an infringer of its Beetle design? The parties and the Court discussed this hypothetical at length, covering how much of the Beetle design is important to consumers as opposed to the engine, gas mileage, or steering. They also questioned what the outcome would be if the design of the Beetle were critical to consumers, but the design had taken minimal time to create and was an insignificant part of the vehicle overall. Other hypotheticals discussed included what would happen if a design patent protected a cup holder in a car and what would happen if a design patent protected the windshield on a boat.

At the outset, both parties and the Solicitor General agreed that it was error when the appellate court held that the relevant article of manufacture for which profits are owed is always the entire product. The question became, what should the Supreme Court do about the agreed-upon error?

Samsung briefed two theories – the Article of Manufacture Test and the Causation Test – but argued only the Article of Manufacture Test. Under the Article of Manufacture Test, Samsung urged the Court to consider a two-step analysis: (1) examine the patent-in-suit to determine the article-of-manufacture; and then (2) ascertain the quantum of damages (profits) that arise from that article. The article-of-manufacture would be the component of the overall device to which the ornamental design of the patent-in-suit had been applied.

As to the second step, Samsung briefed three ways of determining profits but argued only two: (1) through ordinary accounting that would look to the cost of the goods sold in relation to the revenues for the relevant component; and (2) consumer demand evidence. The accounting method would examine the cost of the particular article-of-manufacture to which the patented design had been applied and compare that with the expense of the overall device, and the profit margin of the device, to calculate the overall profit attributable to the infringing article. The consumer demand evidence could consist of consumer surveys and expert testimony to determine

Samsung urged that its test would award all profits for a particular component, even if the design patent-in-suit does not cover aspects of that component. For example, consider a smartphone screen that has a patented design but is also scratch-, water-, and shatter-resistant. The patent-in-suit covers only the design, but the consumer may also value the other features of the screen. Samsung’s proposed Article of Manufacture Test would award all profits for the screen; even those profits are attributable to the non-design features (such as the water-resistant feature). Samsung argued that their proposed test was, therefore, more generous than it needed to be and would award damages that pure apportionment (which is prohibited by statute) would not.

The Solicitor General argued that Section 289 allows a patent owner to recover all profits from the sale of an infringing article-of-manufacture, not just the portion of the profits caused by or attributable to the design – the same concept that Samsung argued.

However, the relevant article of manufacture for which profits are owed is not always the entire product. Therefore, the Solicitor General proposed that the Court should find a two-factor test: (1) what is the article-of-manufacture; and (2) how much of the total profits from the device are attributable to the infringing article-of-manufacture.

The Solicitor General stated that the second part of the government’s proposed test had not been fully briefed and should be addressed at a later time. As to the first element, a four-factor analysis to determine the article-of-manufacture was proposed: (1) compare the scope of the patented design as shown in the drawings in the patent; (2) determine how prominently that design features in the accused article; (3) determine whether there are other conceptually distinct innovations or components in the article that are not part of or associated with the patent design; and (4) compare the physical relationship between the patented design and the rest of the article.

Finally, Apple argued that no matter what the Court determines the proper test to be, there is no basis to overturn the jury’s damages verdict. Apple claimed that Samsung never identified for the jury any article of manufacture other than the phones themselves. Samsung’s expert calculated total profits only on the phones themselves. Apple posited that no reasonable juror in the trials could have awarded the total profits on anything other than the phone.

When pushed by the Justices, Apple conceded that the four factors proposed by the Solicitor General could be appropriate, depending on the evidence presented to the jury. The Justices asked Apple’s counsel to stay on topic multiple times as the Court wanted to hear argument on possible tests and rules of law that could be applied while Apple apparently wanted to focus on the lack of any basis to reverse the verdict. Apple also argued that Samsung’s profit margin theory was incorrect because when Congress passed the Design Patent Act, it was worried that if the only penalty for copying a design were a small amount, that amounted to the cost of doing business, there would be no deterrent to copying designs. For example, a 10% profit margin on a $2.50 is so de minimus as to render the statute useless as a deterrent against potential infringers.

Ultimately, the Court took issue with the theories advanced by both Samsung and Apple. Some justices – Kennedy and Sotomayor – appeared to lean towards affirming the appellate court’s decision while others – Beyer and Chief Justice Roberts – seemed to lean towards at least a partial reversal. It seems likely that some guidance will result from this case as inventors appear to be increasingly using narrow, strategically drawn design patents to protect narrow features of their inventions to prevent others from copying their designs.

We will have another post when the decision is released.

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