Designing Damages
In Samsung v. Apple, both determining “apportionment” and properly identifying an “article of manufacture” were key in the Court’s interpretation of the Code
For over a century, design patents have enjoyed a distinct advantage over their more popular siblings, utility patents, when it comes to infringement damages recovery. Utility and design patent damages are set forth in 35 USC Section 284, which provides the patent owner with two available measures of damages, a minimum recovery based upon a reasonable royalty, and, potentially, the patent owner’s lost profits. However, in addition to the damages provided under Section 284, design patents are also eligible for damages provided in 35 USC Section 289, which allows design patentees to seek the infringer’s total profits.1 By way of background, utility and design patents are different types of patents, with each covering different inventive attributes. Utility patents cover the structure, operation, use, and function of a product or process.2 Design patents, on the other hand, cover the ornamental and aesthetic aspects of products that are nonfunctional.3 Design and utility patents are not substitutes for one another but can more accurately be considered as complementary of each other.
A key distinction between utility and design patents is the way that they describe and depict their respective inventions. Utility patents must include a written description that details the background of the invention, the distinctions between the invention and the prior art and, usually, how the invention improves on the prior art, drawings and/or charts or tables that depict or cover the claim elements, and claims that define the various aspects of the invention. Design patents, on the other hand, contain only a minimal description of drawings of the invention and instead depict the invention primarily through drawings that identify the invention within its context.
As noted, when it comes to damages for patent infringement, design and utility patents are both eligible for a patent owner’s lost profits or at least a reasonable royalty. However, in practice, proving each of these measures of damages can be challenging. Reasonable royalty calculation is a rather complex task that involves consideration of some 15 factors, known as the “Georgia Pacific” factors, promulgated more than five decades ago in the Georgia–Pacific v. United States Plywood Corp. case, which sets forth the factors that a hypothetical patent owner and infringer would typically consider in coming to terms on a reasonable royalty rate.4 These include such considerations as the royalties patentee receives for licensing the patent, royalty rates for comparable patents, and exclusivity and territory restrictions on the license, to name a few.5 Determination of a reasonable royalty based on these factors is not a trivial task. Courts have noted that “determining a fair and reasonable royalty is often…a difficult judicial chore, seeming often to involve more the talents of a conjurer than those of a judge”6 and one that “requires courts to hypothesize, not to speculate.”7
Lost profits—the other damages measure for which patent owners can qualify—focuses on profits the patent owners would have made without the infringement.8 For example, in a case involving sales of infringing products, such profits are calculated by multiplying the quantity of the infringing sales by the profits the patent owner would have made on those sales. Although potentially and frequently the higher measure of damages available, lost profits are not always available to the patent owner. In order to qualify for lost profits, the patent owner must establish: 1) demand for the patented products, 2) absence of acceptable non-infringing alternatives, 3) manufacturing and marketing capability to meet the demand, and 4) the profit that would have been generated.9 Once, again, arriving at a number based on these factors is not a trivial task.
Compared with these two measures, calculating the total profits of the infringer from the infringing sales, which is typically prepared and available from standard business records, is much more straightforward. Moreover, under evidentiary rules, the patent owner is only required to establish the total revenues from the infringing sales, and the infringer then has the burden to show expenses and deductions to establish the portion that would be profits.10 Therefore, in the case of design patents, design patent owners and even courts are motivated to choose the infringer’s total profits over the other damages measures. One court, while awarding total profits as a measure of damages observed “the inherent difficulties in measuring damages, based in part upon a hypothetical negotiation between the two parties, given their respective positions in the marketplace, the animosity between them, and the limited applicability of many of the Georgia–Pacific factors in determining a reasonable royalty.”11
Historical Evolution
Section 289 provides:
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, recoverable in any United States district court having jurisdiction of the parties.
Nothing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement.12
After a century and a half, during which “article of manufacture” was defined as the entire product that included the patented design, the Supreme Court revisited “article of manufacture” and modified the standard for its determination.
In Nike v. Wal-Mart,13 the Federal Circuit Court of Appeals reviewed the historical evolution of design patent damages from the 1880s to the current time. According to that history, shortly after the United States achieved independence, Congress passed the Patent Act of 1800, which provided patent infringement damages in “a sum equal to three times the actual damage sustained by such patentee.”14 The act was subsequently amended to allow patent owners to elect damages between up to three times the patentee’s actual damages and the infringer’s profit.15 In 1870, the patent statute was revised to provide patent owners recovery of infringer’s profits and compensatory damages, seemingly allowing double damages recovery. The U.S. Supreme Court confirmed potential double recovery under the new law but limited it to instances “where the injury sustained by the infringement is plainly greater than the aggregate of what was made by the defendant.”16
In the meantime, the concept of apportionment was inserted into the patent damages scene by the Supreme Court, which required apportionment of infringer’s profits to patented and unpatented features of the product and limited patent owners damages to infringer’s profits that could be attributed to the patented features. The high Court explained that the patentee “must, in every case, give evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features.”17 However, apportionment proved a difficult concept to put into practice. The difficulty manifested itself in several court cases dealing with carpet designs, where courts awarded only nominal damages to the patent owners since the patentees were unable to establish what portion of their losses or the infringers’ profits were due to the patented design.18
Businesses complained, and their unhappiness with the apportionment requirement was reflected in a congressional report noting:
It now appears that the design patent laws provide no effectual money recovery for infringement. This is the result of the statute, as applied to the peculiar character of property involved, in a test case decided April last by the Supreme Court of the United States. Since that decision the receipts of the Patent Office in the design department have fallen off upwards of 50 percent, and the average weekly issue of design patents has also fallen off just one-half.”19
As noted in the House of Representatives report, the decisions resulted in a drastic reduction of patent applications. The report thus recommended that “the infringer’s entire profit on the article should be recoverable,” for “it is not apportionable,” and “it is the design that sells the article.”20 This congressional report led to enactment of the Patent Act of 1887, which did authorize the patentee to seek recovery of the infringer’s profit.21
The patent damages laws remained largely stable until 1946, at which time Congress rewrote the statute to provide a patent owner with reasonable royalty as a measure of damages, which would be in addition to “the recovery of profits as an element of general damages.”22 The law was codified in 1952 with the damages provisions placed into their current form.23 The 1952 amendment included sections 284, applicable to all patents, and 289 for design patents.24 Importantly, Section 284 eliminated the language of the 1946 Act that provided for recovery of general damages.25 This change in language was later interpreted by the Supreme Court to mean that Section 284 only allowed for losses suffered by the patent owner “without regard to the question whether the defendant has gained or lost by his unlawful acts.”26
Apple v. Samsung
The notorious and long-running patent disputes between smartphone giants Apple and Samsung that erupted a few years after the introduction of smartphones by Apple in 2007 ultimately led to a new interpretation of Section 289 by the U.S. Supreme Court, which seemingly resurrected the much-maligned and dreaded concept of apportionment.
At the outset of their patent wars, Apple sued Samsung for infringement of Apple’s novel and design-patented icons on the Apple iPhone. Following a jury trial, Apple was awarded over $1 billion in damages, which was the total profits earned by Samsung on its smartphone sales that used icons determined to be similar to Apple’s design patents.27 Samsung appealed, arguing that the jury’s design patent damages calculation was not based on the correct interpretation of the law and that the law required damages to be apportioned based on the profits attributable to the patented design. The Federal Circuit denied Samsung’s appeal on the basis that Congress had “removed the apportionment requirement” from calculation of damages for design patent infringement in 1887” and distinguished a 1915 decision, which had found that an “article of manufacture” can be a component of an infringing product, on the basis that Apple’s smartphone icons were part and parcel of the phones and not sold separately.28
The Supreme Court granted certiorari, agreeing to review the appeal court decision on the issue of whether the term “article of manufacture” in Section 289 could include less than the entire product.29 The Court found that the term “article of manufacture” was “broad enough to cover a product sold to a consumer and a component of that product, whether sold separately or not.”30 The High Court did not, however, promulgate a formula or method for apportionment and instead remanded the case for lower courts to make that determination. Subsequently, courts31 widely adopted a standard for determining whether an article of manufacture includes the whole or part of the product that is determined by reference to the following four factors, first suggested in an amicus brief to the Court:32
• The scope of the design claimed in the plaintiff’s patent, including the drawing and written description, provides insight into which portions of the underlying product the design is intended to cover, and how the design relates to the product as a whole.
• The relative prominence of the design within the product as a whole.
• Whether the design is conceptually distinct from the product as a whole.
• The physical relationship between the patented design and the rest of the product.
Most courts that have applied this standard have found that the article of manufacture comprises the entire rather than a subset of the product in issue. In one example, the jury found the article of manufacture to be the whole glove, rather than its patented lining, even though the liner was separable from the rest of the glove.33 Another court concluded that “the article of manufacture includes the entire Solar Spinner product as sold by Defendants,” even though the court described the “Spinner” as an optional addition.34 In yet another instance, a court found that the “full introducer sheath product is the relevant article of manufacture for purposes of § 289.“35
In Samsung, the district court, discussing the apportionment factors, noted that for the first factor the factfinder must consider the scope of the claimed design to determine to which article of manufacture the design was applied. However, the scope of the claimed design is not alone dispositive but rather “provides insight into which portions of the underlying product the design is intended to cover, and how the design relates to the product as a whole.”36 Regarding the second, third, and fourth factors, the decision stated that these aimed to “help the factfinder assess competing contentions where, like here, one party argues that the relevant article of manufacture is the entire product as sold and the other party argues that the relevant article of manufacture is some lesser part of the product. Each factor helps the factfinder think through whether the patented design has been applied to the product as a whole or merely a part of the product.”37
Article of Manufacture
The identification of the article of manufacture is part and parcel to damages under Section 289. In that regard, a plaintiff bears the burden of persuasion in determining the article of manufacture.38 However, once the plaintiff meets its initial burden of production with respect to the article of manufacture and the defendant’s total profit on that article, if the defendant contends that the article of manufacture is something else, the defendant has the burden to produce evidence as to this alternative article of manufacture.39 The defendant also has the burden to produce evidence as to any deductions it believes are appropriate from the total profit identified by the plaintiff.40
A key issue in determining what is the article of manufacture is whether to include the unclaimed elements of the design. In one example,41 the product at issue was “a kinetic sculpture with any one of a number of different environments, including one with a spherical ornament hanging in the middle.”42 The plaintiff, seeking to designate the whole product as the article of manufacture, argued that the scope of the article of manufacture included an optional ornament depicted in the patent in broken lines. The defendant argued that the optional ornament was unclaimed and therefore not part of the patented design, pointing out that some of the design patent figures depicted did not even include the optional element. Defendant thus argued that the optional element had value that was separate from the rest of the product.43 Agreeing with the plaintiff, the court found “that when determining the scope of the claimed design, it need not disregard the optional ornament shown in the broken lines of the patented design drawings.”44
Likewise, in Samsung, the defendant pointed out that the “relevant article of manufacture does not include any part, portion, or component of a product that is disclaimed by the patent.”45 The court rejected that argument, pointing out that the Supreme Court “did not rule out the possibility that the relevant article of manufacture could” be a multi-component product.46 The court concluded that “product as a whole” “necessarily comprises the claimed and unclaimed subject matter.”47 The decision interpreted the first factor in the four-factor test for appor- tioning the profits as necessitating an evaluation of the relationship between the claimed design and the unclaimed portions of the subject design. The court referenced the first factor as the only one focused on the patent itself, as opposed to the infringing product.48
Determination of design patent damages has unquestionably been impacted by the Supreme Court decision in Apple v. Samsung, which revised the standard for determining an article of manufacture. Design patent owners now have to pay more attention regarding how to define the patented designs in their products and how the product is presented to the consumer. Attorneys involved in design patent disputes can significantly impact damages determination for their clients based on their success in persuading the court to define article of manufacture more broadly.
1 35 U.S.C. §289.
2 35 U.S.C. §101.
3 35 U.S.C. §171.
4 Georgia–Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D. N.Y.1970).
5 Id.
6 Fromson v. Western Litho Plate & Supply Co., 853 F. 2d 1568, 1574 (Fed. Cir.1988).
7 Id.
8 35 U.S.C. §284.
9 Depuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 567 F. 3d 1314 (Fed. Cir. 2009).
10 Rocket Jewelry Box, Inc. v. Quality Int’l Packaging, Ltd., 250 F. Supp. 2nd 333, 340-41 (S.D. N.Y. 2003). 11 Id. at 741.
12 July 19, 1952, ch. 950, 66 Stat. 813.
13 Nike, Inc. v. Wal-Mart Stores, Inc., 138 F. 3d 1437, 1440-1443 (Fed. Cir. 1998).
14 Id. at 1440 (referencing Act of 1790, 1 Stat. 111; Act of 1793, 1 Stat. 318; Act of 1800, 2 Stat. 37).
15 Id.
16 Id. (quoting Coupe v. Royer, 155 U.S. 565, (1895)). 17 Nike, 138 F. 3d at 1441 (citing Garretson v. Clark, 111 U.S. 120, 121, (1884)).
18 Nike. 138 F. 3d at 1441 (citing Dobson v. Dornan, 118 U.S. 10 (1886); Dobson v. Hartford Carpet Co., 114 U.S. 439 (1885); Dobson v. Bigelow Carpet Co., 114 U.S. 439 (1885)).
19 Id. (quoting H.R.. No. 1966 at 1 (1886), reprinted in 18 Cong. Rec. 834 (1887)).
20 Id. (quoting H.R. No. 1966 at 2-3).
21 Id. at 1442.
22 Id. at 1442.
23 Id.
24 Id.
25 Id.
26 Id. (quoting Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476 (1964)).
27 Apple, Inc. v. Samsung Elecs. Co., Ltd., 926 F. Supp. 2d 1100, 1103 (N.D. Cal. 2013), vacated and remanded 786 F. 3d 983 (Fed. Cir. 2015), rev’d and remanded 580 U.S. 53 (2016).
28 Apple, 786 F. 3d at 1002 (Fed. Cir. 2015), rev’d and remanded 580 U.S. 53.
29 Id.
30 Samsung Elecs. Co., Ltd. v. Apple Inc., 580 U.S. 53, 60 (2016).
31 See, e.g., Apple Inc. v. Samsung Elecs. Co., No. 11- CV-01846-LHK, 2017 U.S. Dist. (N.D. Cal. Oct. 22, 2017).
32 Brief for United States as Amicus Curiae Supporting Neither Party, Samsung Elecs. Co., Ltd. v. Apple Inc., 137 S. Ct. 429 (2016) (No. 15-777), 2016 WL 3194218, at *30–31.
33 Columbia Sportswear N. Am., Inc. v. Seirus Innovative Accessories, Inc., No. 3:17-cv-1781, 2018 WL 4007986 (Aug.9, 2018), The jury determined that the article of manufacture was the entire glove rather than its lining. Id. at *18-19.
34 Red Carpet Studios v. Midwest Trading Group, Inc., No. 12CV501, 2021 WL 1172218, at *6 (S.D. Ohio 2021).
35 Junker v. Medical Components, Inc., 2021 WL 131340, at *33 (E.D. Pa. 2021)
36 U.S. Br., 2016 WL 3194218 at *27.
37 Apple Inc. v. Samsung Elecs. Co. Ltd., No. 11-CV- 01846-LHK, 2017 WL 4776443, at *12 (N.D. Cal., Oct. 22, 2017).
38 See Schaffer v. Weast, 546 U.S. 49, 56 (2005).
39 Id.
40 Apple, 2017 WL 4776443, at *14-15.
41 Red Carpet Studios, 2021 WL 1172218, at *3–6. 42 Id.
43
44 Id.
45 Apple, 2017 WL 4776443, at *9.
46 Id. at *9-10.
47 Id.
48 Apple Inc. v. Samsung Elecs. Co., No. 11-CV-01846- LHK, 2018 WL 1586276, at *5 (N.D. Cal. Apr. 2, 2018).
BY DARIUSH ADLI
Dariush Adli is the founder and president of ADLI Law Group in Los Angeles. He specializes in patent, trademark, copyright, trade secret, and complex commercial disputes.