When it comes to damages recovery, design patents trump utility patents
Determination of reasonable royalty is often difficult to prove and can leave a large portion of the profits with the infringer. Lost profits, on the other hand, corresponds to the sales the patent owner would have made if it had not been for the infringement.
Design patents are not as popular as their better-known sibling, i.e., utility patents, but based on an unexplained discrepancy in the law, they have an advantage over utility patents when it comes to damages recovery for patent infringement.
In the U.S., about 5% of patent applications filed each year pertain to design patents, with almost all the rest corresponding to utility patents. The two patent types play distinct roles in protecting different aspects of products. Whereas utility patents cover structure, operation, use and function of a product, design patents cover the ornamental and aesthetic, but non-functional aspects of the product. Thus, while some may think of design and utility patents as a substitute for each other, they more accurately function as complimentary aspects of each other.
Obtaining any patent, whether utility or design, begins with filing an application with the U.S. Patent and Trademark Office (USPTO), which is then examined by a USPTO examiner. The examination process at the USPTO involves a comparison of the claimed invention with the prior art (i.e., what came before it) and identifying any protectable aspects of the invention in an interactive process involving the examiner and the inventor and the inventor’s attorney. With respect to complexity and detail, utility and design patent applications are diametrically different. A utility patent application includes a description of the background of the invention, the differences between the invention and the prior art, drawings and/or charts, which depict various aspects of the invention, and claims which define the invention. A design patent application, on the other hand, is quite brief in comparison as it does not have any written description and only includes drawings that emphasize the ornamental aspects of the product from different angles.
Because of their relative straight forwardness and brevity, design patents applications are relatively simple to prepare, quicker to process at the USPTO, less costly to prepare and prosecute and more likely to issue as a patent than utility patents. Whereas utility patents take between 2-3 years from filing to issue, design patents take about a year to issue.
A key distinction between utility and design patens is in the area of potential damages recovery for patent infringement. Damages available for infringement of utility patents is governed by 35 U.S.C. §284, under which the patent owner can recover its lost profits or at least a reasonable royalty. Damages available for design patent infringement is governed 35 U.S.C. § 289, according to which the patent owner is entitled to the infringer’s total profits, as well as the remedies available under Section 284, as long as there is no double recovery. In other words, Section 289 provides a broader measure of damages recovery than Section 284.
As noted above, under section 284 damages available for patent infringement have a floor that is set at “reasonable royalty.” The Federal Circuit Court of Appeals, which has plenary jurisdiction over all patent appeals, has explained that a reasonable royalty compensates the owner not for the damage suffered, but for the value of what was taken as a result of the infringement. Warsaw Orthopedic, Inc. v. NuVasive, Inc. 778 F.3d 1365, 1377 (Fed. Cir.2015). Under this measure of damages the law assumes that the patent owner would agree to license the invention to the infringer and receive a percentage of the infringer’s profits in exchange.
Courts determine reasonable royalty by reference to a set of 15 factors known as the “Georgia Pacific” factors, promulgated more than five decades ago in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F.Supp. 1116, 1120 (S.D.N.Y.1970), which considers the criteria that a hypothetical patent owner and infringer negotiators would consider in arriving at a reasonable royalty acceptable to both. However, as courts have noted, “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.” Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1574 (Fed.Cir. 1988), and one which “requires courts to hypothesize, not to speculate.” Id. “Thus, the trial court must carefully tie proof of damages to the claimed invention’s footprint in the market place.” ResQNet.com, Inc. v. Lansa, Inc. 594 F.3d 860, 869 (Fed. Cir. 2010). In sum, determination of reasonable royalty is often complex and difficult to prove, and, are frequently unsatisfactory to the patent owner as it leaves a large portion of the profits with the infringer.
Lost profits, on the other hand, corresponds to the sales the patent owner would have made if it had not been for the infringement. In simple terms, lost profits are calculated by the quantity of the infringing sales multiplied by the profits the patent owner would have made on those sales. Lost profits are therefore generally much more robust and thus preferable to the patent owner than reasonable royalty, which, as noted, still leave a large portion of the ill-gotten profits with the infringer. However, to recover lost profits, the patent owner must meet certain criteria. In general, recovery of lost profits requires a showing of: 1) demand for the patented products, 2) absence of acceptable non-infringing alternatives, 3) manufacturing and marketing capability to exploit the demand and 4) the amount of profit that would have been made. Depuy Spine, Inc. v Medtronic Sofamor Danek, Inc. 567 F.3d 1314 (Fed. Cir. 2009)
Therefore, recovery of lost profits is not always an available option to the patent owner. For example, if the patent owner does not manufacture the patented product, it can’t claim lost profits. Likewise, the patent owner is not entitled to recovery of lost profits if the infringing product and the patented product do not directly compete in the same market, or if the infringer can establish existence of non-infringing alternatives in the market. The challenges in qualifying for and establishing lost profits and the often unsatisfactory reasonable royalty measure of damages render infringer’s profits, available to design patent owners, especially attractive.
Although calculating the infringer’s total profits may also not be entirely straightforward, it still may be easier to prove than the alternatives. For example, in Bernhardt L.L.C. v. Collezione Europa USA, Inc., the court found the damages under Section 289 to be “the most reasonable measure of damages, especially given the inherent difficulties in measuring damages based in part upon a hypothetical negotiation between the two parties, given their respective positions in the market place, the animosity between them, and the limited applicability of many of the Georgia-Pacific factors in determining a reasonable royalty.”
Despite the advantages of infringer’s profits, as a measure of damages, over the lost profits and reasonable royalty measures available under § 284, section 284 does provide for enhanced damages for willful infringers, a provision not available under Section 289. Therefore, in instances where willfulness of the infringement can be established, patent owners need to consider the potential for enhanced damages in deciding which measure of damages to pursue.
Section 289 of the Patent Act allows the owner of a design patent owner the option of seeking an infringer’s total profits under § 289 as an alternative to the remedies available under Section 284, which is applicable to all patents. Thus a design patent owner possesses more flexibility in seeking a damages recovery than does the owner of a utility patent.
President, ADLI Law Group