Samsung v. Apple – U.S. Supreme Court Again Reverses CAFC

07.12.2016

By Lawrence Hoffman

J.D., B.Sci. Electrical Engineering and Comp. Sci., U.S. Patent Attorney

In a decision on 6 December 2016 that should surprise no one, the Court has unanimously reversed and remanded the decision by the U.S. Court of Appeals for the Federal Circuit (CAFC) that affirmed a jury verdict of about $400 million for Apple Inc. in its design patent infringement action against Samsung Electronics Co., Ltd., Et Al.

Background:

One of the early battles in the Apple – Samsung worldwide smart phone war began in 2011 when Apple sued Samsung for infringement of several patents including three design patents covering the appearance of Apple’s first-generation iPhone. Ultimately, a jury found that Samsung’s smartphones infringed the three patents and awarded $399 million in damages. The amount represented the entire profit Samsung made from its sales of the infringing smartphones.

Section 289 of the U.S. Patent Act provides, in relevant part, that:

Whoever 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 . . . .

The trial judge instructed the jury to treat Samsung’s smartphones as a whole as the infringing product, so the damage award represented the entire profit Samsung made from its sales of the infringing smartphones.

In its appeal to the CAFC, Samsung argued that the profits awarded should have

been limited to the infringing ‘article of manufacture— for example, the screen or case of the smartphone—“not the entire infringing product”— i.e., the smartphone as a whole. The CAFC affirmed the damage award, reasoning that limiting the damages award was not required because the innards of Samsung’s smartphones were not sold separately from their shells as distinct articles of manufacture to ordinary purchasers (internal quotes and citations omitted).

The Decision of the Supreme Court:

The Supreme Court reversed and remanded the case in a surprisingly short and straightforward opinion. The Court first noted that determining damages under §289 requires a two-step analysis. First, a court must identify the “article of manufacture” to which the infringed design has been applied. Second, the infringer’s total profit made on the article of manufacture identified in the first step needs to be calculated. It then stated, “[T]his case requires us to address a threshold matter: the scope of the term “article of manufacture.” The only question

we resolve today is whether, in the case of a multi-component product, the relevant “article of manufacture” must always be the end product sold to the consumer or whether it can also be a component of that product. . .”

In its decision, the Court held that, for purposes of Section 289, the relevant article of manufacture can be a component of the end product sold to the consumer, in this case, the shell and not the whole phone.

The Court based its decision largely on the text of Section 289 and dictionary definitions of article and manufacture. Supporting its decision, however, the Court noted that Section 171(a) of the Patent Act and its predecessors makes new, original and ornamental design[s] for an article of manufacture eligible for design patent protection and pointed out that since at least 1898, courts have interpreted article of manufacture as not limited to designs for complete articles, or ‘discrete’ articles, and certainly not to articles separately sold (internal quotes and citations omitted).

In addressing the CAFC decision, the Court simply stated, ” The Federal Circuit’s narrower reading of “article of manufacture” cannot be squared with the text of §289”.

Finally, the Court noted that the parties had requested it to determine the relevant article of manufacture with respect to each of the patents. The Court declined to do so, noting that it would require setting out a test for implementing the first step of the §289 damages inquiry noted above and to apply the test to the record. While the U.S. as amicus curiae had suggested a test, the parties had not addressed the issue and the Court left these matters to the CAFC on remand.

As Few Observations:

To this observer, the decision is not a surprise. Any other statutory construction would lead to an absurd result. Even an elegant industrial design will not overcome the defects of a technically inferior product. It makes no sense for a damage award for design infringement to be based on the consumer demand for the technical capabilities when the appearance of the product is only part of the basis for success of the product. Indeed, the technical features may be so attractive that the ornamental design may contribute little or nothing to success of a product. No doubt, separating the profit attributable to the appearance from that attributable to the functionality may be difficult, but application of statutory requirements is often not an easy task.

Secondly, the result is not surprising because the CAFC has a pro-patent attitude which it often expresses by reaching a decision and then creating an argument to support the decision. This is a poor way to go about things. Reasonable legal standards need to come first.

The CAFC has no monopoly on decision-making by drawing the line and then plotting the points”; the Supreme Court has been known to do it on occasion as well. However, the Supreme Court begins from a more neutral or even an anti-patent viewpoint and reversals of CAFC decisions is more common than not.

Finally, the Court’s decision does not end this matter, since the CAFC and the trial court still have lots of work to do. Perhaps a further jury trial will be needed, or perhaps the parties will tire of the game and settle the case. In either case, this decision seems good for the design patent owner. Judges are human (mostly) and bad precedent or unreasonable statutory construction tends to distract from sound decision-making. The Court’s decision here is neither bad precedent nor an unreasonable statutory construction. Patent owners and courts are showing a growing respect for design patents as a worthwhile IP asset and the Court’s decision won’t derail this desirable trend.

 

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