U.S. Supreme Court Creates Test for Assessing Damages for Design Patent Infringement
Addressing design patents for the first time in over a century, the U.S. Supreme Court in Samsung Electronics Co., Ltd. v. Apple Inc. reversed the Federal Circuit's interpretation of Section 289 of the Patent Act, which provides unique remedies for infringement of design patents. The Supreme Court held that the phrase "article of manufacture," as used in Section 289, can apply to individual components of multicomponent end products, regardless of whether such components are separately sold to consumers. In doing so, the Supreme Court pronounced a new standard for determining the damages in design patent actions.
Section 289 creates a special form of damages for infringement of design patents, whereby a patent owner may elect to pursue "total profits"(also referred to as "infringer profits") as an alternative to the traditional patent damages available under Section 284, such as reasonable royalty. "Total profits" damages are calculated using the infringer's total sales and subtracting appropriate costs and expenses.
Five years ago, Apple accused Samsung of infringing multiple patents relating to Apple's smartphones, including design patents claiming various aspects of those smartphones, i.e., a black rectangular front face with rounded corners, a rectangular front face with rounded corners and a raised rim, and a grid of 16 colorful icons arrayed on a black screen. After finding Samsung liable for design patent infringement, the jury awarded Apple all of Samsung's profits from its smartphones, amounting to $399 million in damages.
The Federal Circuit affirmed the jury's damages award, rejecting Samsung's position that damages should have been limited to the infringing "article of manufacture," which Samsung argued was the "screen or case of the smartphone" rather than the entire smartphone and all the unseen constituent technology (such as hardware and software). Giving prominent weight to the fact that the "innards of Samsung's smartphones were not sold separately from their shells as distinct articles of manufacture to ordinary purchasers," the Federal Circuit concluded that the entire smartphone was the infringing "article of manufacture" and held that damages should include all of Samsung's profits.
The Supreme Court reversed, reasoning that the Federal Circuit's interpretation of Section 289 as requiring that an "article of manufacture" be an entire commercial product and not its components (such as the screen or shell of a smartphone) was incorrect. The Supreme Court set forth a two-part test for determining damages under Section 289: "First, identify the 'article of manufacture' to which the infringed design has been applied. Second, calculate the infringer's total profit made on that article of manufacture."
The Supreme Court further explained that because an "article of manufacture" should "embrace both a product sold to a consumer and a component of that product, whether sold separately or not," it is irrelevant for purposes of calculating total profits whether consumers can purchase the "article of manufacture" separately from the commercial product. Turning to the specific facts before it, the Supreme Court ultimately declined to "set out a test for identifying the relevant article of manufacture at the first step of the § 289 inquiry," and instead remanded to the Federal Circuit to resolve whether the screens or shells of Samsung's smartphones were the relevant "article of manufacture" under Section 289.
The immediate take-away from the Supreme Court's decision is clear: When determining damages under Section 289, courts must first identify the relevant "article of manufacture" and then limit damages to the "total profit made on that article of manufacture." The first inquiry may no longer be as simple as identifying the commercial product that includes the patented design, but the Supreme Court left it to the Federal Circuit to decide the proper test. Thus, the Federal Circuit's decision on remand will be closely watched and is likely to have significant impact on the remedies available for design patent infringement going forward.
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