Design Patent Damages: Clear as Mud

moneyWhen the United States Supreme Court decided Apple v. Samsung on December 6, 2016, some criticized the Court as “bailing out” Samsung, a company that critics know for copycat antics and exploding phones. The decision marked the latest in a series of battles between the two smartphone magnates regarding Samsung’s infringement of several Apple design patents. The Supreme Court considered only the validity of Apple’s $399 million damages award, not whether infringement occurred.

Under Section 289 of the Patent Act, infringers of design patents are liable for their “total profits” from the sale of an infringing “article of manufacture”.  The lower court based the damage award on the profits Samsung earned from the sale of its phones. The Supreme Court disagreed with the lower court’s determination that an “article of manufacture” used to calculate damages must be the whole product. The Federal Circuit now gets the case again.

Beyond the immediate impact on Samsung’s and Apple’s bottom lines, what does this decision actually mean for you? The short answer: muddy waters.

When Is An Article of Manufacture Not a Whole Product?

While the Court noted that articles of manufacture can be less than the entire product when it comes to component design patents, it did not say this must always be so. It strongly implied that component designs should be considered independent “articles of manufacture,” but did not define how deep this rabbit hole might go.

If Apple cannot recover the profits from the entire Samsung phone for infringement of a component design patent, how much can it get? Is the front design one “article of manufacture,” the side buttons another, and the back a third? Are the screen, camera, front button, and each side button their own articles of manufacture? How do courts attribute portions of the profit of the phone to the component pieces? The Court failed to delineate a test or to give any guidance as to how to apportion damages when an “article of manufacture” is less than the whole product. Instead, the Court sent the issue back to the Federal Circuit for further consideration.

Everything Old Is New Again

If history is any guide, the Federal Circuit will announce a new test in a few months regarding when an “article of manufacture” is less than an “article of manufacture” for the purposes of calculating design patent infringement damages. If that statement confuses  you, it should. After all, Congress enacted the current law 130 year ago because of the difficulty of partitioning components from an entire product for damages calculation.

That’s right: Congress enacted the current section 289 in response to a design patent case that enumerated essentially the same rule the Supreme Court did last month. Unhappy with a decision that design patent damages should be limited to what is attributable to the infringed component, Congress crafted the current language about damages being equal an infringer’s total profit.

Accordingly, since 1886 design patent owners have recovered the total profit from an infringer’s product, regardless of how much of that profit might be attributable to the particular infringed design component. Design patent owners knew their patents had a real value, and a real bite against would-be infringers. Further, the rule took care of the messy uncertainty that necessarily comes with a system that must weigh factors in a subjective test. If you infringed, you gave up your total profits. Period.

And now 130 years later, we appear to be back at square one searching for a reasonable way to apportion damages according to component parts. I do not envy the Federal Circuit its task.

Uncertainty in Value

Nor do I envy the business owners and product designers out there that will be adversely affected by this rule. Whatever your view of the fairness of giving up your total profits from a product when only a component of that product infringes another’s design patent, people making business decisions regarding the value of design patents and the risk associated with potential infringement benefitted from the clarity.

Certainty breeds good business, and there are few things more certain than bright line rules. Of course, Apple will take a financial hit as it will likely lose out on a good portion of that original $399 million damages verdict. But Court’s imposition of uncertainty on the business world, which must wait an indeterminate number of years until a new test is formulated and fleshed out, is a far more important consequence.

Granted, it might not be all doom and gloom. After all, the Federal Circuit will reconsider the issue of damages, and come up with its own test. Perhaps that court will find a way to limit the relatively non-committal language of the Supreme Court: that an article of manufacture can be less than the entire product. After all, the Court did not dictate that courts must always find it so.

Until then, we will keep watching to see how the currents of this decision affect the value and desirability of design patents in the future. Perhaps we will see some of the other areas of intellectual property law, such as trade dress or copyright, take up the slack where it makes sense.

Photo Credit: Pictures of Money via Creative Commons license

 

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