'; High Court Might Have a Big Say on Design Patent Infringement, Damages

High Court Might Have a Big Say on Design Patent Infringement, Damages

April 4, 2016 Chicago Daily Law Bulletin

Design patents can be a big club in an infringement litigation. But that may change.

35 U.S.C. § 289 provides that an infringer of a design patent is liable to the design patent owner to the extent of the infringer’s “total profit.” This has been a powerful tool for design patent owners. Often the prospect of paying a design patent owner all of the profits on the sale of a product compels a settlement; when a settlement is not achieved, substantial damage awards are possible, as demonstrated in Apple’s ongoing litigation with Samsung. There Apple was awarded damages of $290,456,793. In view of this large award, Samsung filed a petition for certiorari requesting that the U.S. Supreme Court limit the meaning of “total profit” under § 289. The Court has agreed to consider this issue.

By way of background, design patents protect the ornamental aspects of manufactured articles. To qualify for protection, the design must be new, original, nonobvious and not inherently functional. When issued, the patent owner has the right to exclude others from making, using and selling the design for fourteen or fifteen years, depending on the filing date of the design application. Unlike utility patents, this right is not subject to the payment of periodic maintenance fees.

A distinction between design patents and utility patents is how damages for infringement are calculated. The patent statutes provide, as an additional remedy for design patent infringement, that an infringer "shall be liable to the [design patent] owner to the extent of its total profit…." This statutory requirement of an infringer’s “total profit” as a basis for damages has been uniformly applied to the profits earned from the sale of the product that infringes the claimed design.

To put this remedy for design patent infringement in context, under 35 U.S.C. § 284, a utility patent owner can recover at least a reasonable royalty, and perhaps lost profits, under certain circumstances. Determining a reasonable royalty requires that a court undertake a hypothetical negotiation between the patent owner and the infringer to determine what royalty the patent owner would have received had it licensed the infringed patents to the infringer. This results in the infringer keeping a portion of its profits.

Even more difficult to prove are damages based on lost profits, which require a showing that sales made by the infringer would have been made by the patent owner but for the infringement. This involves balancing a complex set of economic factors regarding the market for the accused product, and how the patent owner’s own activity within that market was affected by the infringer’s actions.

An assessment of damages for design patent infringement based on §289 requires none of the nuanced arguments involved in determining a reasonable royalty or lost profits; the only determination required is the “total profits” on the sale of the article of manufacture that is found to have caused the infringement. In practice, this simplifies the determination of damages for infringement of a design patent and, as a practical matter, often helps to drive a settlement between the parties when infringement of a design patent is alleged.

However, not every case settles, as demonstrated by Apple’s dispute with Samsung. The latest turn of events in this litigation will take the parties to the U.S. Supreme Court, where the Court has agreed to consider the following issue: “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?”

Samsung filed its petition based on a district court finding, upheld by the Federal Circuit, of infringement of several Apple patents, of both the utility and design varieties, and an assessment of damages at least partially based on Samsung’s “total profit” for the infringing sales. Most pertinent to Samsung’s petition is the finding of infringement of design patents D618,677, D593,087 and D604,305.

At issue is whether Apple is entitled to Samsung’s “total profits” on the sale of the infringing products. 35 U.S.C. § 289 recites, in part:

Whoever during the term of a patent for a design … (1) applies the patented design … 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 … has been applied shall be liable to the owner to the extent of his total profit … but he shall not twice recover the profit made from the infringement.

Samsung’s petition focuses primarily on the “article of manufacture” and “made from the infringement” language of the statute. Samsung asserts that “[t]he Federal Circuit erred in deeming the relevant ‘article of manufacture’ to be the entire product” sold to consumers. Samsung asserts that the correct interpretation of the statute would require awarding profits based on a specific portion of the product covered by the infringed design patents. In this case, that portion is limited to the ornamental features on the front face of a smartphone.

Regarding the “made from infringement” language, Samsung contends that, under a proper reading of the statute, the language modifies the earlier appearing “article of manufacture” such that a showing of causation is required. Under Samsung’s interpretation of the statute, the total profit of the article of manufacture is limited to profit made only from the infringement, i.e., Apple is entitled only to the profit based on the specific claimed ornamental features of the design patents, and not the total profit from the sale of infringing smartphones.

Given that the Court decided to hear Samsung’s appeal on Mach 21, 2016, it will be some time before the Court provides a definitive answer concerning the calculation of “total profits” under §289. Nevertheless, and regardless of the Court’s ruling, we predict that design patents will continue to be an important part of a patent owner’s portfolio, because infringement is often readily apparent, and design patents are often the only tool available to protect the ornamental features of a product.