For Design Patent Damages 'Article of Manufacture’ Not Necessarily Entire End Product

by McDermott Will & Emery
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In Depth

On December 6, 2016, Justice Sotomayor, writing for a unanimous Supreme Court of the United States, held that for purposes of determining damages for design patent infringement under 35 U.S.C. §289, the relevant “article of manufacture” may include either the end product sold to the consumer or simply a component of that product. Samsung Elecs. Co. v. Apple, Inc., Case. No. 15-777, 2016 WL 7078449, at *6 (U.S. Dec. 6, 2016). This decision reverses a damages award of $400 million against Samsung, which been affirmed on appeal by the Federal Circuit.

Background

The District Court Findings

In 2011, Apple sued Samsung for infringement of a range of its utility and design patents and dilution of its trade dresses. Three years later, the District Court for the Northern District of California entered final judgment in favor of Apple after a jury trial, upholding the jury’s findings of infringement, dilution and validity, as well as upholding the jury’s award of over $1 billion in damages—including $399 million in design patent damages equaling Samsung’s entire profit made from sales of the infringing smartphones. Samsung appealed each of the district court’s findings to the US Court of Appeals for the Federal Circuit.

Appeal to the Federal Circuit

On appeal, the Federal Circuit affirmed the district court’s findings related to design patent infringement, validity, and utility and design patent infringement damages, while reversing the district court’s trade dress dilution finding (IP Update, Vol. 18, No. 6). Regarding the design patent infringement damages award, Samsung argued that damages should be limited to profits from sales of the infringing “article of manufacture,” rather than the profits from sales of the entire end product. Thus, damages should be limited to profits from the front face, bezel or display screen design of the smartphone. Apple should not be entitled to profits from the entire smartphone. 

The Federal Circuit disagreed, stating that such apportionment arguments were rejected by Congress and prohibited under §289, which codifies the remedy for design patent infringement, stating in relevant 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.. . .” (emphasis supplied)

According to the Federal Circuit, an “article of manufacture” as codified in §289 could not be construed to include specific components of an infringing article when those components are not sold separately from the end product. Because “the innards of Samsung’s smartphones were not sold separately from their shells as distinct articles of manufacture to ordinary purchasers,” the damages award could not be limited to reflect apportionment among the varying components of the infringing smartphones. Thus, the court found that the “total profit” accounted for in §289 must constitute the infringer’s total profits from an entire product, regardless of whether the infringement is attributable to the product as a whole or simply a component thereof. In reaching this decision, the Federal Circuit addressed criticism from amici and did not dispute that allowing an award based on infringement of one component of a complex article “makes no sense in the modern world,” but held that it was bound to do so by statute. Samsung was subsequently denied rehearing en banc and filed a petition of certiorari to the Supreme Court.

Petition for Certiorari

In its petition, Samsung argued that rewarding profits for sales of an entire product where only a small component of that product was infringed over-compensates the patent holder by allowing massive windfalls exceeding the inventive value of the patents. Samsung raised the question: “[w]here 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?” The Supreme Court granted Samsung’s petition on this question (IP Update, Vol. 19, No. 3) and heard oral argument on October 11, 2016.

Supreme Court Decision

In reversing the Federal Circuit, Justice Sotomayor explained that the appellate court’s interpretation of “article of manufacture” was too narrow.

Section 289 of the Patent Act allows a patent holder to recover the total profit an infringer makes from the infringement. That total profit encompasses “all of the profit made from the prohibited conduct, that is, from the manufacture or sale of the ‘article of manufacture to which [the patented] design or colorable imitation has been applied.’” Any award of damages for design patent infringement under §289 must follow a two-step inquiry: (1) identifying the “article of manufacture” to which the infringed design has been applied, and (2) calculating the infringer’s total profit made on that article of manufacture. Under the first step, in the case of a single-component product, the “article of manufacture” is the product itself. However, in the case of a multicomponent product, it is not so obvious. Under either circumstance, the Court explained that the term “article of manufacture” as used in §289 may encompass both a product sold to a consumer and a component of that product.

In doing so, the Court looked to the dictionary definition of “article” and “manufacture” to define an article of manufacture as “simply a thing made by hand or machine,” noting that the definition is broad enough to encompass both an end product as well as the individual components of that product. As Sotomayor explained, this broader interpretation of “article of manufacture” is consistent with 35 U.S.C. §171(a), which defines the scope of eligible design patents: “[w]hoever invents any new, original and ornamental design for an article of manufacture may obtain a patent therefor.” Because the US Patent and Trademark Office and the courts have permitted design patents for designs extending to complete products, as well as components of a multicomponent product, the Court reasoned that “article of manufacture” should be understood to include both components and end products. 

The Court reversed the Federal Circuit’s judgment, declining to define the specific article of manufacture at issue since neither party had briefed the issue, and remanded the case to the Federal Circuit for further proceedings.

Conclusion 

Analysis of design patent damages must begin with identifying the “article of manufacture.” Because many design patents only cover a component(s) of a larger multicomponent device, the Supreme Court analysis is designed to prevent disproportionate awards or inappropriate damage demands in those situations where the asserted design patent is directed to only a component of an end product.
 
Going forward, future patent holders will likely attempt to define the article of manufacture as broadly as possible in order to ensure the maximum damages award. The specifics behind making that decision, however, remain unclear as the issue of how to define the appropriate article of manufacture in a particular case has been remanded to the Federal Circuit.

Practice Note

The Court declined to explain how lower courts should go about the task of deciding whether profits apply to the product as a whole or to an individual component. “We decline to lay out a test for the first step of the §289 damages inquiry in the absence of adequate briefing by the parties.”
  
On remand, it will be interesting to see if the Court’s broader definition of the statutory “article of manufacture” language will be found to include digital designs—such as the GUI (graphical user interface) icons on the Samsung phones.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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