Supreme Court Limits Design Patent Damages, Vacates Apple’s $399 Million Award Against Samsung

Wednesday, December 07, 2016

In a 8-0 ruling, the U.S. Supreme Court ruled that damages for infringement of design patents under 35 U.S.C. § 289 can be limited to the defendant’s “total profits” from the article of manufacture that contains the patented design, which may only be one component of a commercial product, rather than the entire product. As a result, the Court vacated a $399 Million damage award against Samsung Electronics Co. in a lawsuit alleging infringement of design patents covering features of Apple, Inc.’s iPhone smartphones and sent the case back to the Federal Circuit Court of Appeal for further analysis. The decision is likely to provide a platform for the Federal Circuit to limit available damages in design patent cases involving complex products, such as where an infringed patent covers design elements present only in individual components of the product. Samsung Electronics Co. v. Apple, Inc., No. 15-777 (Dec. 6, 2016).

Background

The Supreme Court decision is part of a far-reaching patent dispute between Apple and Samsung involving their respective smartphone and mobile device products. Apple owns three design patents at issue in the case. Two of the patents cover a design for the exterior face of a mobile phone: U.S. Design Patent No. D618,677 and U.S. Design Patent No. D593,087. Apple’s third design patent, U.S. Design Patent No. D604,305, covers the graphical user interface for a display screen. In April 2011, Apple sued Samsung for patent infringement in the U.S. District Court for the Northern District of California. A jury ruled for Apple on those claims and the district court awarded Apple $399 Million in damages, based on the total profit Samsung realized from sales of infringing devices.

At the Federal Circuit, Samsung argued that the award violated § 289, because the damages should have been based on profits from the components that infringed, not Samsung’s entire products. The appeals court affirmed the district court, distinguishing prior cases awarding design patent damages for components by noting that the components in earlier cases were sold separately and considered separate products. “The facts at hand are different. The innards of Samsung's smartphones were not sold separately from their shells as distinct articles of manufacture to ordinary purchasers.” Apple Inc. v. Samsung Elecs. Co., 786 F.3d 983 (Fed. Cir. 2015).

Supreme Court Vacates Damage Award

In a unanimous decision written by Associate Justice Sotomayor, the Supreme Court vacated the damage award. The central issue on appeal was whether an “article of manufacture” is necessarily an entire product sold to a consumer, or whether it can be a component of a product made from multiple parts. Section 289, governing damages in design patent cases, provides 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, 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.

35 U.S.C. § 289. The Court noted that the term “article of manufacture” used in the statute is very broad:

So understood, the term “article of manufacture” is broad enough to encompass both a product sold to a consumer as well as a component of that product. A component of a product, no less than the product itself, is a thing made by hand or machine. That a component may be integrated into a larger product, in other words, does not put it outside the category of articles of manufacture

Slip op. at 6. The Court’s broad definition was consistent with other Patent Act provisions using the term “manufacture” or “article of manufacture” and prior authority, which indicated that “[t]he broad term includes the parts of a machine considered separately from the machine itself.” Id. at 7 (quotation omitted). As a result, contrary to the Federal Circuit’s interpretation, “the term ‘article of manufacture’ is broad enough to embrace both a product sold to a consumer and a component of that product, whether sold separately or not.” Id. at 8.

Since the district court and Federal Circuit required that Section 289 be applied to the entire Samsung products, the Court vacated the damage award. The Court, however, declined to identify a test for identifying the appropriate “article of manufacture” for a product made up of components, or to determine the relevant component for each of Apple’s design patent found to infringe. Instead, it remanded for the Federal Circuit to “address any remaining issues on remand.”

Practical Significance

The Court’s decision is consistent with the broader trend of apportioning damages in utility patent cases to the particular patented technology found to infringe. Although Congress amended Section 289 in 1887 to overrule cases limiting damages to profits “due to” an infringed design, the Court focused on the phrase “article of manufacture,” and said damages may be limited to articles of manufacture that are mere components not separately sold to end users in certain instances. While this decision does not affect design patent damages based on the patent owner’s lost profits or a reasonable royalty, it is likely to limit the desirability of seeking the infringer’s profits under 35 U.S.C. § 289 in some cases, primarily those involving designs on portions of products. The full impact of the decision will depend on how the Federal Circuit resolves the important unresolved issues on remand, including how to identify the appropriate “article of manufacture” for this analysis.

Clients with portfolios including design patents should monitor the developing law in this area and assess their current strategies. For example, patents covering the overall design of a product may have advantages over patents covering individual components of the product. Clients may decide that their portfolios should include a mix of design patents of different scope to maximize their ability to collect damages from infringing competitors.

In addition, since a design patent’s title establishes the “article” that embodies the protected design and may contribute to defining the scope of the patent, clients should avoid titles that may restrict the availability of infringement damages based on profits.