More than 120 years have passed since the United States Supreme Court last tackled the issue of damages in design-patent cases. This month, the Court put an end to that silence with its decision in Samsung Electronics Co. v. Apple Inc., handing Samsung a huge victory in its patent war with Apple over the designs of smartphones. In a unanimous ruling, the court limited the damages available to Apple for Samsung's infringement of Apple's iPhone design. This case could have a ripple effect across the legal galaxy (well, at least as it relates to the technology industry).
Some history adds context to the significance of this decision. In the mid-1880s, the Court decided the Dobson cases (Dobson v. Hartford Carpet Co., 114 U.S. 439 (1885) and Dobson v. Dornan, 118 U.S. 10, 17 (1886)), two cases involving carpet designs in which the Court awarded only nominal damages for patent infringement. In response to the Dobson cases, Congress enacted a specific damages remedy that made the design-patent infringer "liable in the amount of" $250 or "the total profit made by [the infringer] from the manufacture or sale * * * of the article or articles to which the design, or colorable imitation thereof, has been applied."
The Patent Act of 1952 codified this provision in Section 289. That codified language now reads, in part:
"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 * * *." 35 U.S.C. §289.
A century after the carpet-design cases, the Court found itself amid a patent war, one of many, between Apple and Samsung. In 2007, Apple released its first-generation iPhone and secured many design patents in connection with the release. Among those patents were design patents for (1) a black rectangular front face with rounded corners, (2) a rectangular front face with rounded corners and a raised rim, and (3) a grid of 16 colorful icons on a black screen.
Samsung subsequently released a series of smartphones that resembled the iPhone, including the Samsung Galaxy S II. In 2011, Apple responded by suing Samsung, alleging, among other things, that various Samsung smartphones infringed Apple's design patents. A jury agreed with Apple, finding that several Samsung smartphones infringed those patents. The jury awarded Apple $399 million in damages for Samsung's design-patent infringement, the entire profit that Samsung made from its sales of the infringing smartphones.
On Samsung's appeal, the U.S. Court of Appeals for the Federal Circuit affirmed the design-patent-infringement damages award. In doing so, the Federal Circuit rejected Samsung's argument that the profits awarded should have been limited to the infringing "article of manufacture"—for example, the screen or case of the smartphone—rather than based on the entire infringing product—the smartphone. In the court's view, limiting the damages award was not required because the "innards of Samsung's smartphones were not sold separately from their shells as distinct articles of manufacture to ordinary purchasers."
On review, the Supreme Court unanimously reversed the Federal Circuit. In her opinion for the Court, Justice Sotomayor began by reciting the two-step process for arriving at a damages award under 35 U.S.C. Section 289 of the Patent Act. The first step is to identify the "article of manufacture" to which the infringed design has been applied. The second step is to calculate the infringer's total profit made on that article of manufacture. That's it.
The Court proceeded to tackle the first question: the scope of the term "article of manufacture." Specifically, the Court pondered whether, in the case of a multicomponent product, such as the iPhone, the relevant "article of manufacture" must always be the end product sold to the consumer, or whether it can also be a component of that product. Under the former interpretation, a patent holder will always be entitled to the infringer's total profit from the end product. Under the latter interpretation, however, a patent holder will sometimes be entitled to the infringer's total profit from a component of the end product. Samsung maintained that Apple's interpretation would stifle innovation. Apple, on the other hand, believed that a win for Samsung meant the weakening of protections afforded to new creations.
To solve the cosmic question, the Court looked to the text and determined that the term "article of manufacture," as used in Section 289, is broad enough to encompass both a product sold to a consumer and a component of that product. The Court explained that an article of manufacture is simply a thing made by hand or machine, and that a component of a product, likewise, is a thing made by hand or machine. According to the Court, the potential or actual integration of a component into a larger product does not put it outside the category of articles of manufacture. The Court noted that this reading is consistent with 35 U.S.C. Section 171(a), which provides for design patents and has continuously been understood by the Patent Office and the courts to permit a design patent that extends only to a component of a multicomponent product, as well as with 35 U.S.C. Section 101, which covers utility patents and similarly allows for patents on a portion of a multicomponent product. The Court concluded that the Federal Circuit's reading "article of manufacture" in Section 289 to only cover an end product sold to a consumer "gives too narrow a meaning to the phrase."
Although the Court held that an "article of manufacture" may only be a component of the end product, the Court did not establish a test for identifying the relevant article of manufacture for purposes of a damages award under Section 289 because the parties had not briefed that issue.
This case foreshadows that ongoing design-patent cases, including those on appeal, will face the Supreme Court's new interpretation of "article of manufacture." And that will likely mean lower damages in design-patent cases going forward.
For another installment in the ongoing smartphone patent wars between Apple and Samsung relating to patents covering Apple's slide-to-unlock, autocorrect, and "quick link" features, read Elizabeth Milesnick's The Federal Circuit Reinstates an Apple Victory and Reestablishes the Limits of the Court’s Fact-Finding Function.