On October 11, 2016, the U.S. Supreme Court entertained oral arguments in the multi-million dollar dispute between Apple and Samsung, involving the design patent damages statute, 35 U.S.C. 289. I have delayed commenting on the oral argument to allow time for reflection.
The salient portion of 35 U.S.C. 289 states:
Whoever during the term of a patent for a design, without licence 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.
The sole issue to be decided by the Court is: “Where a design patent is applied to only a component of a product, should an award of infringer’s profits be limited to those profits attributable to the component?”
The detailed facts and arguments in the case are described fully on our website:
Newsflash- Supreme Court to Review Apple v. Samsung
The oral argument can be described in one word: disappointing.
During the argument, some of the Justices said that they do not buy a product because of how it looks; its functionality is more important to them. Several appeared to be swayed by Samsung’s argument that since a design patent protects only the outer appearance of a product, the components inside the product should be excluded from any damages calculation. And only a few expressed appreciation for aesthetic, ornamental qualities of a product – Justices Kagan, Sotomayor, and Ginsburg.
A Volkswagen Beetle was mentioned by several Justices as an example of a design of an attractive car body that was distinguishable from the “innards” of the car, and the Justices tried to use that example to figure out how to determine the value of the car body design compared to the value of the overall car.
Of course, anyone looking at that iconic car body knows it’s a Beetle. There are a lot of “innards” – hundreds of thousands of functional parts – under the body which are not observable, but of course which are included with the sale of the car. Suppose a fellow named Mr. Roberts copies exactly that body, or a clearly recognizable portion thereof, and puts it on top of a cheap, generic chassis and engine. Mr. Roberts sells his knock-off car for half of what the Beetle costs. It sells like hotcakes, because consumers love the Beetle look. The rather obvious reason Mr. Roberts copied the Beetle body or portion is to make his knock-off more attractive, to sell his cars. Is it unfair for Mr. Roberts to pay over his total profit on sales of his cars, including the body and “innards”, to Volkswagen? Of course not. It’s fitting and appropriate, both to compensate the design owner for stolen sales and to discourage similar behavior going forward.
Every case of design patent infringement (and I mean every case – I’ve done the research) involves an infringer who intentionally copied the patentee’s design, including Samsung. That is willful misconduct by definition. The injured party is never made whole by Section 289 since the infringer has, in effect, stolen the goodwill of the patentee and in some cases destroyed the market for the design by selling cheap knock-offs. Thus, part of the rationale for Section 289 is not only to penalize the infringer, but to act as a deterrent against future infringement. Why copy another’s product if you will ultimately have to turn over your total profit?
The major contradiction in the case, mentioned at oral argument only by Justice Kennedy, is this: everyone seemed to agree that Section 289 bars apportionment by the language “total profit”. Yet there was clear sentiment that an “article of manufacture” can mean less than that which the infringer is selling – which in my opinion will most assuredly result in back-door apportioning of the infringer’s total profit. Under normal principles of statutory construction, even the late Justice Scalia (a strict constructionist) would never have allowed this misinterpretation of the plain language of Section 289 to be swept under the rug.
All but Justice Kennedy appeared to fall in line with the government’s argument, agreed to by both Samsung and Apple, that the “article of manufacture” will need to be determined in each case, as a question of fact for the jury to decide. Most of the questioning from the Court involved coming up with a test or list of factors that would assist the finder of fact in that task.
Some Justices, and some of the parties, were confused by which ‘article of manufacture’ was relevant – the one mentioned in Section 171 (a patent may be granted for a design “for AN article of manufacture”), or that mentioned in Section 289 (damages for the infringer’s sale of “ANY article of manufacture” to which the infringer has applied the patented design). The answer is that it’s clearly the infringer’s article of manufacture that matters. Section 171 is about statutory subject matter (validity) for a design patent applicant (i.e., the design must be FOR an article of manufacture), while Section 289 is about an infringer’s liability when they apply their infringing design to ANY article of manufacture. As properly stated in perhaps the best of the amicus curiae briefs (thank you Professors Dumont & Janis): “Section 289 makes clear that while the infringer’s DESIGN must be at least a colorable imitation of the patented design, the infringer’s PRODUCT may be ANYTHING that bears the design.” This distinction is critical, and has been lost in the headlong rush to articulate factors that are supposedly relevant in determining the article of manufacture.
The “article of manufacture” has always been the product sold by the infringer, the product to which he has applied a colorable imitation of the patented design. A new list of factors to determine the article of manufacture will be extremely problematic. Uncertainty surrounding interpretation of new rules or factors would weaken enforcement, reduce settlements, and increase litigation of design patent disputes. This would harm innovative, design-conscious companies, particularly small businesses whose resources cannot match those of large infringing companies. Many big box retailers employ a business model that focuses on copying popular designs and selling them for significantly reduced prices; as with Mr. Roberts, the big box retailers don’t much care about the quality of the product, using the pilfered exterior appearance, i.e., the design, simply to sell it. It will be impossible for a small business who owns the original design to even bring a big box retailer to the negotiating table if the total profit rule gets watered down.
Although cooler heads might prevail, if the oral argument is any indication, the brave new world for design patent damages will very likely involve back-door apportionment, even if those words are not explicitly used.
Thus, I’m afraid that the stage is set for the Court to do damage to the current interpretation of Section 289, which will ultimately lessen the value of design patents, and thereby discourage their procurement.
A decision is expected by the end of the current term of the Court, in mid-2017.