When the Supreme Court took the Apple case alleging that Samsung had stolen its patented iPhone designs for Samsung’s own smartphones, product designers, lawyers and business executives were paying close attention. The case promised to shed new light on a relatively unexplored area of ââpatent law: design patents.
Unlike what are called “utility patents”, design patents do not protect the function of a device, but rather its appearance. A federal jury ruled in 2012 that Samsung had in fact violated Apple’s design patents by copying elements of the iPhone’s design, including the rounded corners of the device and the “chiclet” layout of the icons on the iPhone. screen. When a person infringes a design patent, the law requires that person to pay the patent owner âthe extent of his total profitâ from the âmanufactured articleâ that was infringed.
Last year, a federal appeals court ruled that the law required Samsung to hand over all profits it made on its smartphones to Apple – a whopping $ 399 million. This move was made despite the obvious fact that design patent infringements were only part of the phones appeal to consumers, and therefore only part of Samsung’s profit base. The appeals court, however, felt limited by the wording of the law.
Samsung appealed to the Supreme Court and, despite a tough few months with other issues – including exploding phones and a reinstated patent infringement verdict in another case – came out on top. On December 6, the court ruled that it was unreasonable to require Samsung to reimburse all profits from its smartphones.
But the judges deliberately “refused to give” directions on how to calculate a reasonable amount. As such, they have reduced the value of design patents to their owners, which could lead others to go ahead and risk infringing on those patents. At a minimum, the ambiguity of the decision ensures that the case will last for years to come, possibly even ending up in the Supreme Court.
Leave a major question unanswered
The Supreme Court has been asked to decide, indeed, what a “manufactured article” is. Is this the entire end product – Samsung’s smartphone with preinstalled software, as sold to the consumer? Or is it something less, like the screen?
Instead, they dodged the question, except in its broadest and vaguest form. The judges ruled that the article of manufacture could be something other than the whole product, but did not tell us by how much less. In the court’s own words, âthe term ‘manufactured article’ is broad enough to encompass both a product sold to a consumer as well as a component of that product. “
And that’s all he said.
The Supreme Court offered no suggestions as to how other courts in this case or future ones should divide a product to assess which part of the product is relevant. All we know is that they will have to do it.
A two-part problem
There are two separate issues that the courts below will have to grapple with. And if they are wrong, it could end up in the Supreme Court again. First, the courts will have to determine what exactly is the âarticle of manufactureâ relating to patented designs. If not the entire phone, which part of the phone is relevant?
Second, once the courts draw that difficult line, they will then have to determine how much of Samsung’s profits can be attributed to that slice of the proceeds. In other words, what is the value of this part of the product?
It is not clear how either of these distributions will take place. Courts can look to the cousin of design patents – utility patents. Although the analysis in the context of design patents is technically different, the result is the same: the court must determine the value added by the patented design to the product. In the context of utility patents, courts have performed similar analyzes to determine the value of an invention that is a component of a larger product.
For example, in one case an appeals court had to determine the added value of Microsoft Outlook’s “date pick” graphical function compared to the overall software product. But advice from these cases also remains elusive, as every invention and every market is likely to be different. The added value of the invention will depend on a myriad of factors, such as the importance of the invention to the product and what aspects of the product drive consumer demand. These factual inquiries do not lend themselves to standardized rules that will be easy for courts to apply uniformly in several cases.
The value of design patents is falling
At best, there are two clear lessons to be learned from the Supreme Court’s decision. First, patent owners are not necessarily entitled to the infringer’s profits on the product actually sold. A court may divide the product into different articles of manufacture in order to assess the appropriate damage. In some cases, patent holders may still be able to obtain benefits for the entire product, but this is no longer a guarantee.
Second, ironically enough, design patents have now lost some value. This is precisely because the patent holders are not entitled to the profits of the entire infringing product. Sometimes they can get only a fraction of that amount. Therefore, on average, this case reduces the value of design patents.
This result is a bit ironic because, as the Supreme Court itself recognized, Congress a long time ago – in 1887! – passed the Profits Act precisely because the courts had gutted the value of design patents by awarding insufficient damages.
Interpreting a lack of direction
By the time Congress passed forfeiture of design patent infringer’s profits as a measure of damage, there was generally a one-to-one correspondence between a design and a product. For example, a design patent on a carpet corresponded to the product itself.
In the modern age, a single product can have a number of patentable design features. Think about cars: the car itself can have different design shapes, as well as aspects of the interior, the layout of a computer screen in the car, and even the cup holders. Any of them affects the value of the car to some extent.
Congress probably did not anticipate this development when it tried to re-energize design patents by providing the infringer’s profits as a remedy. Nonetheless, the Supreme Court reasonably believes that Congressional efforts to give value to design patents are no longer appropriate in a world of complex products. The law, in essence, is the product of an era long gone. Interestingly, however, the court decided to make this adjustment; he did not leave it to Congress to adapt the statute to modern markets.
How much damage has been done to the value of design patents? It will depend on whether the courts are willing to âslice and diceâ a counterfeit product to determine which is the relevant âmanufactured itemâ.
It will also depend on the extent to which the courts attribute product value to that slice of product. If the courts allow large portions of the profits to be returned to the patentee, the value of design patents will remain high, albeit somewhat reduced. But if the ruling means the penalty for infringement is reduced, competitors may be more willing to take the risk of infringing someone else’s design.
There is no doubt that the Supreme Court ruling reduces the value of design patents. We’ll have to wait and see – maybe another case hits the highest court in the land – to find out how badly.