U.S. Supreme Court Reverses Apple’s Nearly $400M Verdict in Smartphone Case, but Leaves Many Questions Unresolved
December 9, 2016
On Tuesday, December 6, the United States Supreme Court issued its first opinion in a design patent case in more than 120 years. The issue before the Supreme Court was the proper interpretation of a U.S. statute governing the award of "total" infringer profits to the patent owner following a finding of design patent infringement. In addition to the standard damages, such as reasonable royalty and lost profits, § 289 of U.S. Code Title 35 provides an additional remedy for design patent infringement. Under this section, when an infringer is found to have applied a patented design to any "article of manufacture," that infringer is "liable to the [patent] owner to the extent of his total profit, but not less than $250[.]"
Under this statute, a jury awarded Apple $399M in damages for Samsung's infringement of three of Apple's design patents, which are directed to the design and shape of the front face and bezel of smartphones, as well as arrangement of application icons on a screen. On appeal, the Court of Appeals for the Federal Circuit affirmed the jury verdict, identifying the entire Samsung smartphone, not its components, as the only permissible "article of manufacture" to be used for the purpose of calculating damages under § 289 because consumers could not purchase the components separately from the smartphone. While various tests for the application of § 289 and calculation of profits were discussed in the briefs and at oral argument before the Supreme Court, in the end, the Court made only a limited ruling. First, the Supreme Court outlined two steps to the inquiry under § 289: (1) identify the "article of manufacture" to which the infringed design has been applied; and (2) calculate the infringer's total profit made on that article of manufacture. Otherwise the Supreme Court did not adopt any specific details for the test, only stating that the Federal Circuit's interpretation of § 289 was not consistent with the language of the statute. Specifically, the Supreme Court held that while the relevant "article of manufacture" may be the end-product as sold, it may also be only a component of that end-product. The Supreme Court found that this reading was consistent with the legislative history of § 289 and the use of "article of manufacture" in other U.S. patent statutes. The Supreme Court declined to further develop a test for identifying the "article of manufacture" in general or specifically make a finding in this case and returned the case to the Federal Circuit for further proceedings.
The implications of this limited decision are not yet fully known, but absent settlement, the case is far from over. The case heads back to the Federal Circuit. The Federal Circuit has discretion in how to handle the case, but generally the court favors efficiency, and thus will likely first consider the legal issues related to the test for identifying the "article of manufacture." Once the Federal Circuit has adopted a test, then it will likely pass the case back to the District Court for the Northern District of California to conduct a new damages trial. At the new trial, the parties will be permitted to present evidence relevant to the new test developed by the Federal Circuit and render a verdict with a new damages award. Given the history of this case, it is likely the losing party will then appeal to the Federal Circuit once again, and perhaps seek another review by the Supreme Court.
In the meantime, the design patent damages award appears to be heading in the direction of a more complicated test to identify the "article of manufacture" and to assess the amount of profits to be awarded in design patent infringement cases, although the exact nature of that test may not be known for many years.
This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the author and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.