Jury Awards Apple $539 Million for Design Patent Infringement

The award in Apple Inc. v. Samsung Elecs. Co., Civil Action No. 5:11-cv-01846-LHK, was announced yesterday.  As others have noted, the amount is higher than the $399 million judgment entered after the first trial, though it's lower than the amount the jury initially awarded in the first trial in 2012 (which Judge Koh later reduced to $399 million, to exclude damages for trade dress infringement) and lower than the $1 billion-plus that Apple sought this time around (though quite a lot higher than the $25 million proposed by Samsung).  In between the first trial, of course, and the one that concluded yesterday the U.S. Supreme Court in 2016 held that under section 289 of the U.S. Patent Act the prevailing design patent owner is entitled to recover only the total profit from the relevant "article of manufacture," which is not necessarily the total profit from the entire product (though it could be, depending on whether the relevant article of manufacture is the entire product or just a component of it).  The Court didn't explain how to determine what the relevant article of manufacture is, however, and on remand Judge Koh instructed the jury to consider the four factors proposed in the 2016 case by the Solicitor General.  (For previous insightful commentary on these issues on this blog, see this guest post by Professor Sarah Burstein.)  According to FOSS Patents, a juror explained to a reporter for Law360 that for one of the three design patents at issue (the D'305 Patent, which covers the iPhone's graphical user interface (GUI)), the jury concluded that the entire phone constituted the relevant article of manufacture. 

We'll see what happens next; unless the case settles, I would expect Samsung to appeal, in which case perhaps the Federal Circuit will offer some guidance on what the appropriate factors are for determining the article of manufacture (and how to apportion the profit attributable to that article); or maybe, though I'm not sure off the top of my head whether this is an issue a court may raise sua sponte, it will consider whether this is an appropriate matter for a jury determination at all (see previous post here, expressing doubts).

For coverage elsewhere, see also these articles in Bloomberg, Law360, the New York Times, Reuters, and the Wall Street Journal.

Federal Circuit Remands for Recalculation of Ongoing Royalty

The decision, XY, LLC v. Trans Ova Genetics, L.C., was published this morning (majority opinion authored by Judge Chen and joined by Judge Dyk; partial dissent on non-damages-related issues by Judge Newman).  The facts are complex, involving six patents relating to the sorting of X- and Y-chromosome bearing sperm cells, and there are several legal questions in dispute, including antitrust and collateral estoppel issues.  For purposes of this blog, the principal issue of interest is the calculation of an ongoing royalty for the use of XY's technology.  The jury awarded a royalty for past infringement using a rate of 15%  of the defendant's gross sales and 4% for "reverse sorting" services (described in the opinion at p.3 n.1).  The judge awarded an ongoing royalty using lower rates, respectively 12.5% and 2%.  This is unusual; typically, the rate for the ongoing royalty is higher than the rate for past infringement, in accordance with Federal Circuit case law holding that the ongoing royalty should reflect the change in circumstances now that the defendant has been adjudicated liable for infringing a valid patent.  I and others have critiqued this case law numerous times, on the ground that, since the rate for past infringement is supposed to reflect the bargain the parties would have struck ex ante knowing the patent to be valid and infringed, the rate for past and future infringement should be identical.  But the case law is what it is.  Here, in awarding a lower rate for future infringement, the district court erred in the opposite direction, adopting a rate that was in between the rate awarded by the jury for past infringement and the rate the parties themselves had agreed at one time, prior to the dispute that resulted in this litigation.  But the difference between those rates is what you would expect, given that a real-world ex ante rate will reflect some discount for the probability of invalidity and infringement, and the royalty awarded for past infringement should, again, reflect the assumption that the parties bargained knowing the patent to be valid and infringed.  Anyway, the Federal Circuit, without couching the matter in economic terms vacates the district court's judgment as to the ongoing royalty and remands, stating:

. . . The focus should have been on XY’s improved bargaining position and any other changed economic factors (as articulated in Amado, ActiveVideo, and Paice) rather than XY’s past acts.

XY points out that, if we were to affirm the result in this case, it would result in the “absurd practical result . . . that XY would have been better off forgoing the 12.5% ongoing royalty and suing Trans Ova repeatedly for future infringement at the jury’s 15% reasonable royalty rate.” XY Reply Br. at 13. Assuming no changed circumstances exist (either good or bad for XY) between the date of first infringement and the date of the jury’s verdict, we agree with XY that allowing the district court’s ongoing rates to stand in this case would create an odd situation. Although district courts may award a lower ongoing royalty rate if economic factors have changed in the infringer’s favor post-verdict—for example, if a newly developed non-infringing alternative takes market share from the patented products—the district court identified no economic factors that would justify the imposition of rates that were lower than the jury’s. . . (p.26).   

Stays Pending Design-Around in Germany, Part 3: Don't Hold Your Breath

As most readers are aware, following the U.S. Supreme Court's 2006 decision in eBay v. MercExchange courts deny the prevailing patent owner an injunction about 1/4 of the time, and award instead an ongoing royalty.  Patent assertion entities almost never get injunctions, but even operating companies sometimes are unsuccessful in obtaining injunctions, particularly where the patent is only one of many embodied in a complex device.  Occasionally, however, courts adopt something of an in-between position, awarding a permanent injunction but delaying (staying) the entry of the injunction for a period of time, to enable the infringer to come up with a noninfringing design-around; in the interim, the infringer will pay an ongoing royalty.  Sometimes this may seem more equitable or proportionate than either granting an injunction that would take effect immediately, or denying the injunction altogether.

In most other countries, injunctive relief remains the norm, though (depending on the circumstances and the country) there sometimes can be ways to avoid it--in the common law countries, as a matter of equitable discretion, or in civil law countries by application of the abuse of right doctrine, or else by means of competition law (e.g., Huawei v. ZTE) or perhaps via application of the "proportionality" concept set forth in the E.C. Enforcement Directive.  I think it's fair to say, however, that German courts do not interpret any of the possible exceptions to injunctive relief very broadly.  (See also this recent discussion  on IPKat.)  And while there is some potential leeway in Germany to stay an injunction pending design around--a concept known as the Aufbrauchfrist--to date German courts have applied this procedure only rarely.  The leading case is a 2016 decision of the Bundesgerichtsfhof--Judgment of 10 May 2016, X ZR 114/13 (Wärmetauscher, or "Heat Exchanger"), available in the original German here--which I've discussed on this blog a couple of times previously (here and here).  As those posts indicate, the German court seems to be of the view that the Aufbrauchfrist should rarely if ever be granted in a patent case.

A more recent decision of the Düsseldorf Landesgericht (trial court), which I learned of from Daniel Hoppe's article titled Die Rechtsprechung der deutschen Instanzgerichte zum Patent- und Gebrauchsmusterrecht seit dem Jahr 2016 ("The Patent and Utility Model Case Law of the German Lower Courts Since 2016"), GRUR-RR 2017, 465, further drives home the point.  In its Judgment of March 9, 2017, 4a O 17/15, the court denied an Aufbrauchfrist that would have stayed an injunction to enable the defendant to design around a medical device (an "Apparatus for endovascularly replacing a patient's heart valve").  Consistent with Wärmetauscher, the court describes the Aufbrauchfrist as exceptional, available only in narrow circumstances, etc. etc.  The court then states (paras. 213-217) that is not evident from the governing case law that the interests of third parties or of the public should be considered at all, in deciding whether to grant such a stay.  According to the legislature, the right to an injunction doesn't depend on proportionality considerations; rather, those considerations may play a role only in determining whether to grant a compulsory license   under section 24 of the Patent Act.  (Later in the decision, however, the court does conclude that the interest of third parties is to be considered in deciding whether to order the recall and destruction of the infringing goods, and that here such an order would cause disproportionate harm to the interests of hospitals, heart centers, and patients.)  Further, the court sees nothing out of the ordinary in granting an injunction here, or any bad faith on the part of the patentee; interestingly, perhaps, the court notes that the patent owner is not a PAE.

Bottom line:  maybe the German courts someday will come around to the view that granting a stay pending design-around is a good idea in a wider range of cases.  But for now, I wouldn't hold my breath waiting for that to happen.  

Patent Wars: How Patents Impact Our Daily Lives

A little self-promotion here:  my new book, Patent Wars: How Patents Impact Our Daily Lives, is now available for pre-order from Amazon, Barnes & Noble, and Oxford University Press's own webpage.  The book is intended not only for patent law enthusiasts but also for a broader range of readers--the sort of person who from time to time might read an article in, say, the New York Times or the Wall Street Journal about the smartphone wars, patent trolls, or the debates over the patentability of human genes, and wants to know something more about these and other issues in contemporary patent law.  Here is the description:

Patents are ubiquitous in contemporary life. Practically everything we use incorporates one or more patented inventions, and recent years have witnessed epic disputes over such matters as the patenting of human genes, the control of smartphone design and technology, the marketing of patented drugs, and the conduct of "patent trolls" accused of generating revenue from nuisance litigation. But what exactly is a patent? Why do governments grant them? Can patents simultaneously encourage new invention, while limiting monopoly and other abuses?

In Patent Wars, Thomas Cotter, one of America's leading patent law scholars, offers an accessible, lively, and up-to-date examination of the current state of patent law, showing how patents affect everything from the food we eat to the cars we drive to the devices that entertain and inform us. Beginning with a general overview of patent law and litigation, the book addresses such issues as the patentability of genes, medical procedures, software, and business methods; the impact of drug patents and international treaties on the price of health care; trolls; and the smartphone wars. Taking into account both the benefits and costs that patents impose on society, Cotter highlights the key issues in current debates and explores what still remains unknown about the effect of patents on innovation.

An essential one-volume analysis of the topic, Patent Wars explains why patent laws exist in the first place and how we can make the system better.

 

The Apple v. Samsung Retrial: Breaking Down Apple’s Design Patent Claims

This evening I am delighted to publish a guest post by Professor Sarah Burstein on the Apple v. Samsung design patent damages retrial, which began this week.

Professor Burstein: In August 2012, a jury awarded Apple over a billion dollars in its case against Samsung. That award was based on Samsung’s infringement of three design patents, three utility patents, and various registered and unregistered trade dress rights. Now, on remand from the U.S. Supreme Court, Apple is arguing it is entitled to a billion dollars for the design patent infringement alone.

Under 35 U.S.C. § 289, the owner of a design patent can recover the “total profits” earned from certain acts of infringement. According to the Supreme Court, 

Arriving at a damages award under § 289 . . . involves two steps. 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 Court refused, however, to “to set out a test for identifying the relevant article of manufacture at the first step of the § 289 damages inquiry.” (For prior coverage of the Supreme Court’s decision on this blog, see here.)

When the case came back to her, Judge Koh decided to adopt the multi-factor balancing test proposed by the United States Government as amicus curiae in Samsung v. Apple. That test requires the jury to consider:

(1) “[T]he scope of the design claimed in the plaintiff’s patent,”

(2) “[T]he relative prominence of the design within the product as a whole,”

(3) “[W]hether the design is conceptually distinct from the product as a whole,” and

(4) “[T]he physical relationship between the patented design and the rest of the product.”

So the jury will have to decide if the relevant articles are the entire Samsung phones, as Apple argues, or just components thereof, as Samsung argues. The test chosen by Judge Koh doesn’t provide them much guidance in applying or weighing these factors. Therefore, the verdict will likely come down to what the jury thinks is fair. (For more on the problems with the Government’s test, see here.)

Based on media reports, it appears that Apple spent most of its opening argument focusing on the importance—and value—of the design of the iPhone as a whole. But none of the design patents at issue actually claim the design of the iPhone as a whole. To clarify the issues in this case, it may be helpful to review what the first jury did—and did not decide—on Apple’s design patent claims.

In the first trial, Apple accused 19 Samsung phones of infringing three of its design patents. The jury found that 18 of them infringed at least one design patent. Of those 18, the jury found that 11 infringed one design patent, four of them infringed two design patents, and three of them infringed all three design patents:

Specifically, the jury found that a third (6/18) of the infringing phones infringed only the D’305 patent, which claims this screenshot of the iPhone graphical user interface (GUI):

The jury also found that almost another third (5/18) infringed only the D’677 patent, which claims a flat, black phone face with rounded corners:

Only 3/18 of the infringing phones were found to infringe all three design patents. Coincidentally, these three were also the only ones found to infringe the D'087 patent, which claims the flat front face and bezel:

 

 

Apple has argued that these three design patents cover “the overall look-and-feel of the iPhone.” Even if that were true, that reasoning would only apply to 3/18 of the infringing phones. Here is a more detailed breakdown of the claims by product:

Product	D'305	D'677	D'087
Captivate	Infringed	Not accused	Not accused
Continuum	Infringed	Not accused	Not accused
Droid Charge	Infringed	Not accused	Not accused
Epic 4G	Infringed	Not accused	Not accused
Fascinate	Infringed	Infringed	Not accused
Galaxy S 4G	Infringed	Infringed	Infringed
Galaxy S (i9000)	Infringed	Infringed	Infringed
Galaxy S (i9100)	Not accused	Infringed	Not infringed
Galaxy S II (AT&T)	Not accused	Infringed	Not infringed
Galaxy S II (Epic 4G Touch)	Not accused	Infringed	Not infringed
Galaxy S II (Skyrocket)	Not accused	Infringed	Not infringed
Galaxy S II (T-Mobile)	Not accused	Infringed	Not accused
Galaxy S Showcase (i500)	Infringed	Infringed	Not accused
Gem	Infringed	Not accused	Not accused
Indulge	Infringed	Not accused	Not accused
Infuse 4G	Infringed	Infringed	Not infringed
Mesmerize	Infringed	Infringed	Not accused
Vibrant	Infringed	Infringed	Infringed

If Apple’s theory of the case is correct, then it effectively got three bites at the apple for each accused product. Under Apple’s theory, it wouldn’t matter whether a particular Samsung phone infringed one patent, two patents, or all three of them—Apple would be entitled to the same amount of damages either way. That seems like a strange result. (And no, it isn’t one dictated by the original intent of Congress.)

Of course, some may believe that Samsung’s suggested amount of applicable “total profits”—$28 million—is also disproportionately high, in light of any actual harm suffered.

But whichever way the jury goes, its verdict will pave the way for the seemingly inevitable appeal. If the Federal Circuit hasn’t done so by then, it will have to pick an “article of manufacture” test. (There is another case currently on appeal that may or may not raise that issue.) And even if the Federal Circuit adopts the Government’s test—which I, for one, hope it doesn’t—that would still leave a number of open questions about what the factors mean and what kinds of evidence can be used for each of them. So regardless of what happens this week, the “article of manufacture” issue is still far from being resolved.