In a December 6, 2016 opinion, the U.S. Supreme Court rendered the latest decision in the long-running war over smartphones between industry and cultural titans, Apple and Samsung. While many might have hoped for a clarifying decision with a bright-line rule, or even a multi-factor test, the Supreme Court instead resolved a narrow question and remanded the case to the Federal Circuit to arrive at a more nuanced approach on how to handle design patent damages.
The value of design patents gained new found attention in 2012, when the Apple v. Samsung smartphone infringement case resulted in a billion dollar jury verdict, $399 million of which was due to infringement of Apple’s design patents. That amount reflected Samsung’s entire profits on the infringing devices, based on a special damages statute for design patents that allows the patent owner to recover the infringer’s total profits.
The design patents at issue related to Apple’s iPhone front face, bezel, and graphical user interface. Samsung appealed to the Federal Circuit, arguing that the price of the entire phone should not be considered in calculating damages, but rather an apportionment based on the value attributable to the designs in comparison to the remainder of the product. The Federal Circuit unambiguously rejected Samsung’s arguments, stating that 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.
Samsung appealed to the Supreme Court, which agreed to review how design patent damages should be determined. However, it appears that the Supreme Court ultimately decided that the particulars of the Samsung v. Apple litigation were not well-suited for clarifying this issue. In the end, the Court determined it would only resolve the narrow question of whether “in the case of a multi-component product, 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.”
The Supreme Court, in a unanimous opinion delivered by Justice Sotomayor, disagreed with the Federal Circuit. It held that “the term ‘article of manufacture’ is broad enough to embrace both a product sold to a consumer and a component of that product, whether sold separately or not.” In doing so, the Supreme Court recognized that “a test for identifying the relevant article of manufacture as the first step” of the damage inquiry must be established. At the same time, the Court explicitly declined to do so and remanded the case to the Federal Circuit, directing it to determine what that test should be and how it applies to the smartphones at issue between Samsung and Apple.
In what has become a recurring theme, the Supreme Court determined that the Federal Circuit relied on a rule that was simply too rigid. While some commentators have already predicted that the value of design patents has been impaired by the decision, that conclusion is premature. The Supreme Court’s ruling is more accurately characterized as a directive to the Federal Circuit to craft an analysis that reflects a distinction that could lead to extreme results in cases where components can be more readily apportioned. How the new analysis will affect the Apple case, in which the design patents are for the exterior of a relatively simple and indivisible device (a modern smartphone) is an open question which will have to await further appellate review by the Federal Circuit. Until that court develops a test for identifying the relevant article of manufacture as the first step of the damages inquiry, it is impossible to assess what affect this Supreme Court ruling might have on the value of design patents.
