Supreme Court to Review Lost Profits for Design Patent Infringement

06/29/2016 / Katherine Muller

Design patents may be unfamiliar to many businesses, but in certain situations they can be extremely valuable. In the long-standing smartphone battle between Apple and Samsung, Apple has been awarded millions of dollars in damages for Samsung’s infringement of several Apple design patents, covering the ornamental design of the phones’ face, bezel and grid of icons. This has prompted other businesses to consider design patents when developing their competitive strategies.

The Supreme Court recently agreed to review a lower court’s determination that Apple was entitled to recover all of Samsung’s profits earned on smartphones incorporating the protected designs, regardless of how much or how little the infringing design contributed to the sales or profits of the product. The Supreme Court will now determine: “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?”

The Federal Circuit Case

In its recent ruling, the Court of Appeals for the Federal Circuit rejected Samsung’s argument that Apple should only be able to recover the profit directly resulting from Samsung’s infringement of the protected designs. The applicable statute, 35 U.S.C. § 289, states that an infringer who uses the patented design on “any article of manufacture … shall be liable to the owner to the extent of his total profit.” The federal circuit concluded that this language explicitly authorizes the award of the total profit from the “article of manufacture” incorporating the patented design and precludes limiting the damages award to the profit attributable to infringement.

The court likewise rejected Samsung’s assertion that “article of manufacture,” as used in §289, does not refer to the entire product. Samsung argued that the “article of manufacture” could be a component of the larger product, thus limiting recoverable damages to the profit associated with the component incorporating the patented design. The court reasoned that because the external and internal parts of the smartphones are not sold separately, they are not distinct articles of manufacture. Because it is a unitary article, profits on the entire phone are appropriate.

The Supreme Court Review

The Supreme Court’s ultimate decision may well hinge on whether the justices agree with Samsung or the federal circuit about the meaning of “article of manufacture.”, and the standards for damages in other infringement cases. The federal circuit’s determination is in stark contrast to the law of damages as it applies to utility patents (i.e. patents on the functional aspects of an invention). It is well established by federal circuit case law that a utility patent owner may only recover the amount of the infringer’s profits which can be shown to result from the infringement unless the patent owner can show that the infringing feature drives consumer demand for the entire product. Samsung argued that such a disparate outcome for design patents is nonsensical because it would yield results like awarding profits on an entire car or an 18-wheeler where the infringer infringed only a design patent for an integrated cup holder. The cup holder is of only minor value in comparison to the profits on the vehicles.

Because the federal circuit’s approach does not require the design patent owner to prove what portion of the infringer’s profits are a result of the infringement, a design patent owner is able to recover a larger damages award with less proof, than could a utility patent owner. Claims for design patent infringement could thus be highly profitable for the patent owner. Patent assertion entities (PAEs) may well capitalize on this value proposition if the federal circuit’s approach stands. These entities would have substantial leverage to force alleged infringers into unfavorable settlements. In fact, Samsung itself was accused of infringement by a PAE within a month of the federal circuit’s decision.

As the previous cases have suggested, the availability of lost profits as a remedy for infringement will nevertheless continue to impart significant value to design patents for those who choose to protect their innovative designs. This could change drastically, as the Supreme Court will hear oral argument in its fall 2016 term.