US Supreme Court decides a design patent case

It’s not so very often that the US Supreme Court gets an opportunity to decide a case about a US design patent.  Some months ago the Court granted certiorari as to one of the sub-issues in the smartphone litigation by Apple against Samsung.  Today the Court decided this sub-issue.  The decision, which I discuss below, comes nowhere near to bringing an end to that litigation.  Perhaps more importantly for the world of design patents, the decision has ramifications for design patent law generally.

Readers will recall being astonished by the size of the jury verdict in Apple v. Samsung.  The jury added up the numbers and arrived at a damages award against Samsung of about one billion dollars.  The case involved utility patents and design patents, and the design patents contributed just over half of the damages total.

One reason this case was important was that it reminded everyone that design patents simply cannot be ignored as part of a company’s overall strategy for protection of intellectual property.  For many decades many practitioners (myself included) had failed to consider how important design patents might be.  Only in recent years had many practitioners gradually gotten a clue that they needed to think about design patents when counseling clients.   This Apple v. Samsung jury verdict was a smack on the side of the head to any practitioners who had somehow still not yet gotten the clue.

Not only was this case important for its “smack on the side of the head” for patent practitioners, but it was also important for corporate decisionmakers.  Any corporate decisionmaker that had not yet caught on that it is good to spend money getting design patents surely received a corresponding “smack on the side of the head” from this Apple v. Samsung jury verdict.

For any asset acquisition one can try to define or at least estimate a “payoff ratio” being the ratio between the payoff (such as a jury verdict) and the cost to obtain and enforce the asset (for example the patent prosecution costs and litigation costs).  And the payoff ratio for each design patent in the Apple v. Samsung verdict was something like ten times higher than the payoff ratio for each utility patent in that case.  A chief reason for the ten-times-higher payoff ratio was that it simply does not cost nearly as much money to get a design patent, as compared with the cost to get a utility patent.  Once the patent is granted, there are maintenance fees for utility patents but not for design patents.  The litigation cost to assert a design patent is lower than the litigation cost to assert a utility patent.

Those who (like me) were following the Apple v. Samsung litigation identified several legal issues that seemed ripe for exploration in later proceedings.

One issue related to one of the asserted design patents, a design patent that was almost entirely depicted with broken lines.  (In a US design patent, broken lines are used to denote unclaimed subject matter.)  As asserted by Apple, this design patent was said to cover essentially any consumer electronic device with a generally rectangular shape and a display window and four rounded corners.  One might have expected Samsung to ask the Supreme Court to review whether this patent was valid.  But the Supreme Court did not get asked to review this question.

The question that did get presented to the Supreme court (the question that got answered today) was a rather different question relating to the specific question of how damages should be calculated in a design case.  The question was whether infringement of any given design patent on (a design feature of) an item would necessarily lead to an award of the entire profit on the entire item.  The way I asked the question in the preceding sentence suggests that of course the answer should be “no”.  The way I asked the question suggests that there could be two or twenty design patents covering various bits of design in a product, and that the two or twenty design patent owners would have to work out among themselves how to divvy up the profit on a product.

I’m cheating in the way I say this.  Congress long ago spelled out the damages rule in the patent law, and Congress said the design patent owner (the first design patent owner that happens to have won the race to the court house, ahead of the other design patent owners, I guess) should be able to grab the entire profit.  35 USC § 289 says the infringer that made or sold the “article of manufacture” would have to cough up “his total profit” to the patent owner.  From Apple’s point of view, Section 289 is pretty clear.  If you are a patent owner, as Apple was in this case, you like very much that Section 289 says you collect “the total profit” on the article of manufacture.

The Court of Appeals for the Federal Circuit sided with Apple.  So far as the Court of Appeals was concerned, the correct way to award damages was to award “the total profit” on the entire telephone.

In the 1800’s when the first design patent cases were litigated, people were fighting over spoons (a particularly important case at the time involved spoons) or fireplace grates.  In many of these cases the total number of design patents that could cover a particular item would be “one”.  But in the present century, with a smart phone, it is easy to imagine that the phone might embody two design features or twenty design features.  It is easy to imagine that if twenty design patent owners were to march down to the court house and sue the phone maker one by one, each of them collecting the “total profit” on the smart phone, the result would be unreasonable.

The certiorari petition filed by Samsung asked the Supreme Court to reverse the Court of Appeals.  And today the US Supreme Court ruled on this question.  The Court, in a unanimous 8-0 opinion, ruled in Samsung’s favor.  The item for which the “total profit” should be awarded, says the Supreme Court, is not necessarily the entire phone.

Now what you might think is that the Supreme Court would say a little more than how not to do the calculation.  You might think that the Supreme Court would say not only how not to do calculation but also how to do the calculation.  Do you count up the number of design patents (say, twenty) that apply to the item and then divvy up the profit, with each design patent owner getting (say) 1/20th of the profit?  Do you identify the aspects of the item that are determined by their function, and allocate damages only according to what is left over (the presumably purely ornamental aspects)?  Do you ask the jury to work out what fraction of the consumer purchase decision was triggered by the ornamental appearance rather than being triggered by the brand name or by some utilitarian aspect of the phone (such as the audio quality of the telephone connection)?

But no, the Supreme Court did not breathe a word about how to do the damages calculation correctly.  The opinion says no more than that the courts below did not do it correctly, and left it to the courts below (on remand) to figure out how to do it right.  Justice Sotomayor, writing for the unanimous Court, said it this way:

The parties ask us to go further and resolve whether, for each of the design patents at issue here, the relevant article of manufacture is the smartphone, or a particular smartphone component. Doing so would require us to set out a test for identifying the relevant article of manufacture at the first step of the §289 damages inquiry and to parse the record to apply that test in this case. The United States as amicus curiae suggested a test, see Brief for United States as Amicus Curiae 27–29, but Samsung and Apple did not brief the issue. We decline to lay out a test for the first step of the §289 damages inquiry in the absence of adequate briefing by the parties. Doing so is not necessary to resolve the question presented in this case, and the Federal Circuit may address any remaining issues on remand.

Yes, this present circumstance, namely that as of right now nobody knows how to do it right, but only knows that until now it was not done right, is blamed on “the absence of adequate briefing by the parties”.  An enormous amount of work remains ahead for the Federal Circuit, and for the District Court, both in terms of articulating a rule as to how to work out how to allocate design patent damages for less than all of a smart phone (or any other consumer product), and in terms of how to apply that rule to the facts of a particular case.  The former task will, it is imagined, fall mainly on the Federal Circuit, and the latter task will fall mainly on the District Court.

Tens of millions of dollars (per design patent) are being fought over in this case.  There will thus be limitless lawyer money available to continue to brief this case as it passes back down the line to the appeals court and from there to the district court, then probably back to the appeals court and thence back to the Supreme Court again.  Only then might there be a well developed new law as to how to whack up the “total profit” for something like a smart phone, when working out how to allocate the contribution of one design patent among many other factors leading to the value of something like a smart phone.

More likely, the case will eventually settle.  In that event, this particular litigation would end without any court having worked out the correct way to allocate damage contributions in cases like this.

But anyway, one thing is clear.  As of now, the victorious design patent owner in a design patent infringement case will not be able to assume that the award will be the “total profit” on the entire consumer product.

What’s your take on this Supreme Court opinion?  Please post a comment below.