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By Tony Dutra
Oct. 12 — Apple Inc. disappointed design patent legal experts by failing to defend the current standard of awarding damages in design patent infringement cases at the U.S. Supreme Court.
Apple's counsel did not contest that infringement of its patented iPhone designs by 11 Samsung Electronics Co. models might encompass something less than the full phone during oral arguments at the high court Oct. 11. Apple generally accepted a multi-factor test proposed by U.S. government that would attempt to determine what portion of an infringer's profits correspond to the design it copied.
“It’s going to screw up design patent litigation for years to come if the Supreme Court adopts that test,” Perry J. Saidman, of Saidman DesignLaw Group, Silver Spring, Md., said at a post-hearing conference.
The stakeholders were less concerned about a multi-million dollar fight between smartphone behemoths than a far more typical design patent battle between a small company relying on a design patent to prevent “knock-offs” by bigger, established companies.
“If a multi-factor test is inserted into the damages calculation, it also inserts a huge uncertainty in the outcome, and will make the knock-off companies much more reluctant to stop their infringement, or even negotiate, and will create potential huge costs for the design patentees to litigate and prove those factors,” Saidman said in an e-mail. “In other words, what will really get screwed are the small- to medium-size companies who rely heavily on design patents to keep the knock-offs at bay.”
The government conceded in the oral arguments that its test would likely require a patent owner to present expert testimony and consumer survey results supporting its charges that consumers bought the whole product because of the patented design.
“The idea that [patent owners] have to provide survey evidence and extra experts and all—stuff that costs over $100,000, when the total amount of infringing sales is $40,000 to $50,000—totally breaks the system,” Robert Katz, Banner & Witcoff Ltd., Washington, said at the conference in Washington sponsored by American University School of Law.
Christopher V. Carani of McAndrews, Held & Malloy Ltd., Chicago, agreed, predicting after the arguments that the court seemed prepared to go well beyond the narrow question presented in the battle between Samsung and Apple.
“The very evolution of consumer products, both in appearance and function, both in the physical and the digital realms, will be significantly impacted by this decision,” he said. “It will have broad implications.”
The need for a test arises because of the language of 35 U.S.C. §289. It allows a district court to award damages, in design patent cases only, “to the extent of [Samsung's] total profit,” if it “sells or exposes for sale any article of manufacture” that infringes Apple's design patents. The judge instructed the jury that the “articles” in this case were Samsung's entire phones.
The jury awarded Apple $399 million for Samsung's infringement, a figure equal to Samsung's total profits on the 11 devices. But it also found that no device infringed all three patents asserted, and it is undisputed that no one patent covers the entire iPhone design.
After the Supreme Court decided to review the issue, the definition of “article of manufacture” became the focal point. With all parties in agreement, the court is at least poised to reject the ruling of the U.S. Court of Appeals for the Federal Circuit that Section 289 cannot possibly refer to anything less than “the entire infringing product.” Apple Inc. v. Samsung Elecs. Co., 786 F.3d 983, 114 U.S.P.Q.2d 1953 (Fed. Cir. 2015) (96 PTD, 5/19/15).
The oral arguments focused on the government's suggested two-step approach. The first step is to define the article of manufacture using a four-factor balancing test. At the second step, “the infringer [is] liable for all its profits for that article,” the brief filed by the U.S. Office of the Solicitor General said. But the brief didn't provide much guidance on how to determine that figure when the infringer sells a larger product encompassing the article identified at step one, and there is no separate market for that smaller article.
Apple's brief in the case foretold its argument in court. Yes, it said, the article of manufacture can be “less than the product as sold,” but the burden was on Samsung to show it in this case.
Matt Levy, patent counsel for the Computer & Communications Industry Association, Washington, told Bloomberg BNA he understood Apple's concession to the government's position because they are often on the other side.
“They were arguing for a rule that might work in this case, where they’re the patent owner, but that same rule could be disastrous if they were defendants against a design patent infringement suit,” Levy said. And, he added, keeping the $400 million damages award was certainly an incentive to focus on the case specifics. “Once they’ve conceded that the ‘article of manufacture' doesn’t have to be the whole phone, they don’t have a lot of ways to preserve that award.”
But the justices had difficulty reconciling the government's test with uncontested precedence on Section 289—no apportionment of “total profit.”
“Once you've identified the relevant article, then it seems to me necessarily what you're doing is apportioning profits,” Kennedy said. “I just don't see how we can get away from that word.”
“Both parties argued that although the test resulted in a division of profits, this was not the type of apportionment that the Congress had tried to avoid in enacting Section 289,” Elizabeth D. Ferrill of Finnegan, Henderson, Farabow, Garrett & Dunner LLP, Washington, told Bloomberg BNA in an e-mail. “At the end of the day, this is likely a distinction without a difference.”
Saidman called it “back-door apportioning.” All except Anthony M. Kennedy “seemed to have fallen prey to the major contradiction in the case,” he said in an e-mail Oct. 12.
Kennedy's proposed solution, instead of the government's test, was a “de minimis exception” that would allow a court to say infringement of a design patent on a cupholder could never justify awarding total profits on a Mercedes.
To contact the reporter on this story: Tony Dutra in Washington at email@example.com
To contact the editor responsible for this story: Mike Wilczek at firstname.lastname@example.org
Unofficial transcript available at http://src.bna.com/jiL.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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