Samsung v. Apple, Explained

(This post was cross-posted at Huffington Post)

Tomorrow, the Supreme Court will hear arguments in Samsung v. Apple, a case about design patents. This is an important case, and the parties do have a lot at stake: the district court awarded Apple $399 million in damages for design patent infringement. That $399 million represents the entire profit that Samsung made on several phone models, even though the design patents only cover a few “ornamental” features of the phones.

Background

The damages statute, 35 U.S.C. § 289, says:

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, recoverable in any United States district court having jurisdiction of the parties.

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.

The patent owner is entitled to whatever profits the accused infringer made on the infringing “article of manufacture.” This is different from damages for utility patents (35 U.S.C. § 284) (which are the type of patents that are usually at issue):

Upon finding for the claimant 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, together with interest and costs as fixed by the court.

When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed. Increased damages under this paragraph shall not apply to provisional rights under section 154(d).

The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.

For utility patents, the damages are based on making the patent owner whole, that is, putting the patent owner in the position it would have been if not for the infringement. Why the difference?

The reasons are historical. Back in the late 19th Century, a rug manufacturer sued a competitor for selling rugs that infringed its design patent. The lower court awarded a tiny amount of money, reasoning that the design on the rug only contributed to a small part of the value. The Supreme Court agreed.

Congress stepped in and changed the statute to make damages the total profits of the infringer on the infringing article. In the case of rugs, this makes some sense; people do buy rugs based on the pattern that appears on the rug. There are other products that people buy based mainly on the appearance of the product: handbags and shoes, for example. And there unique designs that enhance the aesthetic appeal of a product, like the classic shape of the Coca-Cola bottle.

A big problem comes when the product is much more complex, like, say, a smartphone. There are clearly aesthetic design features to the smartphone, making a particular model visually appealing. But no one would buy a smartphone simply based on its appearance; people want smartphones that perform certain functions, like making phone calls, playing music, or surfing the Internet.

At a high level, the issue here is whether the Federal Circuit applied the statute correctly. The Federal Circuit held that the “article of manufacture” must be the thing that is sold to “ordinary purchasers.” (Note: CCIA filed an amicus brief arguing that the “article of manufacture” referred to the outer shell, or chassis, of the phone, not the entire phone.)

Three Things to Watch For At Oral Argument

It seems likely that the Court took this case in order to at least partially reverse the Federal Circuit. While it’s not possible to know for sure, here are a few things to watch for at oral argument.

The Meaning of “Article of Manufacture”

There’s a dispute about what the Federal Circuit said in its decision. Samsung (and CCIA) argued that the Federal Circuit had created a rule that “article of manufacture” refers only to a complete end product. Here’s the relevant passage from the panel opinion:

The innards of Samsung’s smartphones were not sold separately from their shells as distinct articles of manufacture to ordinary purchasers. We thus do not agree with Samsung that [] the district court [had] to limit the damages for design patent infringement in this case.

The government agreed with Samsung (and CCIA) that:

The court thus appeared to adopt a categorical rule that the relevant “article of manufacture” under Section 289 is always the finished product sold to end-users.

Apple argued in its brief that the Federal Circuit didn’t create such a rule. As a result, according to Apple, this case is just a factual dispute over the “article of manufacture,” and the Supreme Court shouldn’t get involved in factual disputes.

If Samsung and the government are right, the Federal Circuit read a requirement into the statute that isn’t there. If Apple is right, there’s really nothing here for the Supreme Court to decide.

The Justices may reveal pretty quickly how they read the Federal Circuit’s opinion. If they agree with Samsung and the government, Apple is probably in trouble.

The Size of the Damages Award

Apple was awarded Samsung’s entire profits on eleven different smartphone models, nearly $400 million dollars. But its design patents only cover one set of icons on a screen and a couple of features of the outer shell of the phone.

The Court may be concerned by the disproportionate size of the damages award relative to what the design patents actually cover. While Samsung is capable of paying, a smaller company could be driven into bankruptcy by such an award. And the Court may worry about the problem of patent trolls using design patents to demand even larger settlements.

Alternatively, the Court might not be sympathetic to a dispute between large companies. It might reason that Samsung has many other phone models and plenty of cash to pay the damages.

Concern About Patent Trolls

CCIA and other amici argued strenuously that under the Federal Circuit’s interpretation of § 284, it would be easy for patent trolls to start using design patents. After all, a design patent lets a patent troll threaten a company with losing all of its profits for any accused product. That’s orders of magnitude higher than they might be able to get with a utility patent, and should lead to much higher settlements.

Apple dismissed those concerns out of hand, arguing that it hadn’t happened and wasn’t likely to happen in the future.

Several members of the Court, including Justices Kennedy and Breyer, have expressed concern about patent trolls in the past, so they might bring up the issue at oral argument.

Conclusion

It should be an interesting argument. I’ll be doing a panel at American University in the afternoon to sum it all up; hope to see you there!