Supreme Court Overturns $400 million Verdict For Apple Against Samsung

December 8, 2016

 

The biggest IP story this week was the December 6 Supreme Court decision in Samsung Electronics Co. v. Apple, a long fought battle over Samsung's infringement on three utility patents and three design patents owned by Apple. In its first design patent case of this nature in 120 years, Supreme Court's decision not only vacated the lower court's $399 million dollar damages verdict for Apple, asking the parties to go back to the drawing board for a better damages model, but also set a far reaching precedent for design patents in general.

 

Samsung and Apple first went to war in April 2011 in the U.S. District Court for the Northern District of California, when Apple accused Samsung of infringing three of its utility patents covering various features introduced in its iPhone and four design patents.

 

In a stunning verdict following less than three days of deliberation, the jury at the time awarded $1.05 billion in damages to Apple - though the figure was subsequently cut down to $639 million and a retrial was ordered for the remaining number. The judge noted, correctly, that the jury had erred in its calculation of damages - as the $1.05 billion figure included a period of time where Samsung lacked notice of at least some of the asserted patents.

 

Later in March 2014, the jury in the retrial for the remaining $410 million in damages awarded Apple a lesser verdict - $290 million, which with the addition of interest, climbed up to $399 million.

 

Samsung appealed the retrial verdict, of course - but to no avail. The Federal Circuit upheld the verdict in May 2015, finding that the Samsung's infringing phones in totality were articles of manufacture - as consumers indeed can purchase the phones in totality. Hence, as per the 35 U.S. Code § 289 statute, Apple was entitled to the whole of profits earned by Samsung by virtue of the infringing devices.

 

Samsung, with its never say die attitude, finally took the fight to the Supreme Court, arguing that the damages attributable from infringing a design patent can not and should not be derived from the entire profits from the products - especially when the design patents covered only certain aspects of the product's ornamental and aesthetic features.

 

Which brings us finally to Tuesday, December 6, 2016.

 

In all its wisdom, the Supreme Court found that since the design patents covered "an article of manufacture", it first needed to determine what an article of manufacture really means.

The traditional wisdom held the article of manufacture to mean the final product that is sold or purchased by consumers. The Court on the other hand determined that an article of manufacture should be defined strictly as per the dictionary (in this case the American Heritage Dictionary), i.e. "simply a thing made by hand or machine".

 

In other words, there is no reason to believe that a single component in an otherwise larger product cannot be an article of manufacture - as each single component is indeed a thing made by hand or machine.

Now, (in a characteristic move) whether the articles of manufacture claimed in Apple's design patents covered the entirety of Samsung's phones or just some components thereof - was a question the Supreme Court thought best not to answer and instead leaving it to the Federal Circuit to come up with an acceptable test with the understanding that an article of manufacture does not have to necessarily be the complete final product sold.

 

Design patents are arguably the Ugly Betty of IP development. Companies often ignore design patents altogether in their IP strategy – even though they carry 40-50% lower cost of preparation, filing and issuance. Add to that, until now, design infringement earned damages much larger in proportion to the lost profits from the invention as compared to utility patents. However, in narrowing down the definition and scope of what an article of manufacture meant for design patents, the Supreme Court has effectively further disincentivized design patents.

 

The ripples do not end at design patents alone, of course. Utility patents very frequently contain article of manufacture claims as well. Since the Supreme Court chose to define “article of manufacture” rather than deciding apportionment of damages to designs – the scope of article of manufacture claims in utility patents is also called in question.

 

Hopefully the lower courts will shed more light on what the test should be for deciding the exact scope of “article of manufacture” for both design patents and for utility patents in the months to come. For now, however, Samsung can draw a deep breath and enjoy the victory in this latest battle.

 

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