Supreme Court dials in to smartphone wars

Paul Onderick, BridgeTower Media Newswires

On Dec. 6, 2016, the Supreme Court sided with Samsung in their long-standing battle with Apple over smartphones. The court agreed that Samsung should not be required to turn over its entire profits on smartphones because of infringement of several design patents that Apple holds.

In making this decision, the Supreme Court may have solved one problem while potentially creating many others. The decision hinges on the meaning of 35 U.S.C. § 289. Section 289 states that the infringer “shall be liable to the owner to the extent of his total profit.” This represents profit disgorgement based upon a defendant’s use of the patented “article of manufacture.”

Many have criticized the Apple design patents, some of which are very simple and cover a smartphone that is rectangular in shape with rounded corners. Nonetheless, the lower courts, including the Court of Appeals for the Federal Circuit, held that the Apple patents were not invalid and that they were infringed by Samsung’s smartphone designs. The Court of Appeals for the Federal Circuit had upheld an award to Apple of $399 million which represented Samsung’s entire profit on their smartphones. This outcome was roundly criticized by some within the legal community and by other commentators as an absurd result.

The Supreme Court decision held that an “article of manufacture” covered by a design patent may sometimes be the entire product sold to consumers and sometimes includes only components of that product. This means that, in a case of design patent infringement, the entire profit to be disgorged may be based on something less than the entire value of the “article of manufacture.” The Supreme Court remanded the case for further analysis as to the monetary value of the subcomponents of the Samsung phones that should be taken into account in deciding a lower amount of profits to be awarded to Apple. This is contrary to the analysis of the Court of Appeals for the Federal Circuit which determined that the federal law “explicitly authorizes the award of total profits from the article of manufacture bearing the patented design.”

The Supreme Court opinion did not explicitly resolve the issue of whether the article of manufacture was the whole phone or just parts of it. However, the decision indicated that the Federal Circuit was wrong in finding that the relevant article of manufacture must always be the complete end product sold to the consumer.

As has been common in recent Supreme Court decisions related to patent law, this decision solves one problem — the seemingly absurd result of a huge award based on very simple design features — but creates another. The decision provides no guidance to lower courts for deciding in what circumstances the full profits for an infringing design are an appropriate damages award or whether a lesser award is appropriate and, if so, how one would determine that lesser award. It is not difficult to see how this decision could lead to a large increase in litigation costs by requiring a great deal of discovery, expert testimony, surveying of customers and perhaps speculation to determine what fraction of a sold product constitutes an article of manufacture for the purposes of calculating damages for design patent infringement. The decision also creates a great deal of uncertainty as to the value of design patents and to the value of enforcing them.

This decision represents another case in which the Supreme Court has struck down existing law that was considered to be fairly well-settled, if imperfect, in the area of patent law, yet has failed to provide alternative guidance for judges in the lower courts, not to mention guidance for patent examiners. It appears to many that the Supreme Court is inclined to make more and more decisions in patent law based on a totality of the circumstances consideration with the attendant uncertainty of that approach.
The court has made similar decisions in recent years affecting the determination of obviousness under section 103, when it is appropriate to award attorney’s fees in a patent case, and guidelines for deciding whether a patent has been willfully infringed.
These decisions have created uncertainty, which makes it difficult for patent holders to determine whether or not to enforce their intellectual property rights, under what circumstances it makes sense to do so, and what value to expect should they successfully enforce their rights. Such uncertainty is generally not well received by the business community.

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Paul Onderick is a patent attorney with the intellectual property law firm Patterson Thuente IP. He helps companies with securing patent protection, and developing and managing patent portfolios. He can be reached at (612) 349-5766 or onderick@ptslaw.com.

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