On October 11, 2016, the Supreme Court heard oral arguments in Samsung Electronics Co. v. Apple Inc. on the issue of whether damages resulting from the infringement of a design patent that is “applied only to a component of a product” should be limited to the profits that can be attributed to the component, as opposed to profits from the entire product. The three design patents at issue in this case protect the “overall visual impression of the iPhone’s distinctive front face,” “the iPhone’s distinctive combination of its form factor, flat contour of the front face, and bezel,” and “the distinctive design of the iPhone’s graphical user interface.” Apple brought an action against Samsung for infringement in 2011, contending that “various Samsung smartphones” infringed Apple’s design patents. The district court found in favor of Apple, awarding the company damages of 399 million dollars, the total profits Samsung made from the infringing phones, and the Federal Circuit affirmed. Based on the transcript from the Supreme Court’s oral argument, the high court will probably vacate and remand the case for re-calculation of damages, because Section 289 of the Patent Act dictates that total profits should only be awarded on “the article of manufacture” infringed, not on the entire product.
Section 171 of the Patent Act states that a design patent protects “new, original, and ornamental design[s] for an article of manufacture.” Section 289 of the Patent Act indicates that anyone who “applies the patented design. . .to any article of manufacture” without permission from the owner “shall be liable to the owner to the extent of his total profit.” The statute also provides that owners are not permitted to “twice recover the profit made from the infringement.” Although the statute does not define the term, “article of manufacture,” and the Supreme Court has never heard a case involving this issue, Circuit Courts have consistently ruled that an “article of manufacture” in a product that involves several components does not have to constitute the entire product.
Both Apple and Samsung agree that the relevant “article of manufacture” may be something less than the entire product, but Apple contends that Samsung did not meet its burden of production at trial, because Samsung’s expert only calculated the profits from infringing phones as a whole. However, in its oral argument, Samsung’s counsel argues that the expert witness only calculated profits for the entire phone, because when Samsung stated that the profit should be limited to the “article of manufacture,” the district court considered this theory to be apportionment in violation of Section 289, and therefore the court would not allow it to introduce evidence on this issue. In its reply brief and its petition for writ, Samsung claims that awarding profits on the entire product will have adverse consequences on innovation, and that patent trolls will acquire design patents to stifle competition. Apple disputes this contention, arguing that if Samsung’s claims were true, this would have already occurred, because the damages provision of the Patent Act has existed for 130 years. Although Apple recognizes that an “article of manufacture” may be something less than the entire product, Apple maintains that the “article of manufacture” in this case is the entire Samsung smartphone, because “Samsung’s smartphones are sold as single, unitary articles to ordinary purchasers, and their infringing designs are closely intertwined with the phones’ hardware and software to create the products’ overall look and feel.” To resolve the conflict between Apple and Samsung over what constitutes the “article of manufacture” in this case, the Government has proposed a four factor test.
The Government’s four factor test provides that juries should consider 1) “the scope of the design claimed in the plaintiff’s patent,” 2) “the relative prominence of the design within the product as a whole,” 3) “whether the design is conceptually distinct from the product as a whole,” and 4) “the physical relationship between the patented design and the rest of the product.” Counsel for Samsung has proposed a simpler two-part test that would require the jury to 1) “identify the relevant article of manufacture” from the scope of the patent claim and 2) calculate “the quantum of profits” from the “article of manufacture.” Both the government and Samsung agree that expert testimony would be required for juries to evaluate how much profit should be attributed to the “article of manufacture.” Several questions asked by the Justices focused on how the jury is supposed to apply the test, with Justice Kennedy expressing concern that the test is too complicated for a lay jury to apply.
The issue of how to calculate the profits from the “article of manufacture” was never briefed, but Samsung and the Solicitor General proposed ways juries would be able to figure this out at oral argument. Samsung indicated that juries could consider “ordinary accounting that would look to the cost of goods sold in relation to revenues for the relevant component.” As an alternative, Samsung’s counsel suggested that juries could consider consumer demand evidence. The Solicitor General also expressed that consumer demand surveys and expert testimony on value would help the jury to decide this question. Based on the lengthy discussion at oral argument concerning the standard juries should apply when deciding what constitutes an “article of manufacture,” and how damages should be calculated, the Supreme Court will probably remand the case.
Remanding the case is likely because the Supreme Court found that the trial court gave an erroneous instruction to the jury that a finding of infringement would allow them to award Apple the “total profit attributable to the infringing products.”. Since all parties are in agreement that the “article of manufacture” may be a component part of the phone, the lower courts need to evaluate whether Samsung produced sufficient evidence at the original trial that the relevant article of manufacture was not the entire phone. If it did, the jury should be required to apply the standard proposed at oral argument to identify the relevant “article of manufacture.” If the jury concludes that the “article of manufacture” is less than the entire phone, Apple then has the burden of producing evidence of profits from the “article of manufacture.”
Sydney Schein is a J.D. candidate, 2018, at NYU School of Law.