Supreme Court Opinion in Samsung v. Apple: Analysis

As I noted earlier today, the U.S. Supreme Court this morning issued its opinion in Samsung Elecs. Co. v. Apple Inc., Case No. 15-777, reversing the Federal Circuit's judgment and remanding for further proceedings.  Justice Sotomayor wrote for a unanimous Court.

In case you're not familiar with this matter already, it arises out of Apple's civil action against Samsung for, inter alia, the infringement of three design patents relating to the iPhone.  The jury found for Apple and awarded Samsung's entire profit from the sale of its infringing smartphone models ($399 million, according to the Supreme Court).  To put the issues in context, at one time it was common to award the successful patent owner the infringer's profits from the sales of infringing products.  Congress eliminated this remedy for utility patent infringement in 1946, though it's still a common remedy for patent infringement in many countries.  Congress kept the disgorgement remedy for design patent infringement, however, where it is enshrined in its own provision of the Patent Act, 35 U.S.C. § 289.  In its entirety, the statute reads as follows:

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.

In the present case, both the district court and the Federal Circuit read this statute as requiring a design patent infringer to disgorge its entire profit earned from the sale of a design-patent-infringing end product.  The question presented to the U.S. Supreme Court was "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?"  We now know that the answer to this question is yes, though the Supreme Court decided to leave it to the Federal Circuit to come up with a test for defining the relevant "article of manufacture"/component for purposes of the statute.

The Court begins with a brief explanation of the genesis of § 289:

In 1885, this Court limited the damages available for design patent infringement. The statute in effect at the time allowed a holder of a design patent to recover “the actual damages sustained” from infringement. . . . In Dobson v. Hartford Carpet Co., 114 U. S. 439 (1885), the lower courts had awarded the holders of design patents on carpets damages in the amount of “the entire profit to the [patent holders], per yard, in the manufacture and sale of carpets of the patented designs, and not merely the value which the designs contributed to the carpets.” Id., at 443. This Court reversed the damages award and construed the statute to require proof that the profits were“due to” the design rather than other aspects of the carpets. Id., at 444; see also Dobson v. Dornan, 118 U. S. 10, 17 (1886) (“The plaintiff must show what profits or damages are attributable to the use of the infringing design”).

In 1887, in response to the Dobson cases, Congress enacted a specific damages remedy for design patent infringement. . . . The new provision made it unlawful to manufacture or sell an article of manufacture to which a patented design or a colorable imitation thereof had been applied. . . . It went on to make a design patent infringer “liable in the amount of ” $250 or“the total profit made by him from the manufacture or sale . . . of the article or articles to which the design, or color-able imitation thereof, has been applied.” . . . 

The Patent Act of 1952 codified this provision in § 289. . . .

As I've stated before, in my view the 1887 amendment was an unfortunate response to the Dobson cases, insofar as awarding the plaintiff the entire profit from the article of manufacture--whether the relevant article of manufacture is the entire end product or just a component--runs contrary to the sound economic principle that the plaintiff should recover damages reflecting only the value of the patented feature.  The statute in effect creates a legal presumption that the entire profit from the article of manufacture is attributable to the patent, which seems wildly overinclusive.  I don't know, maybe such an assumption would have been justified in the carpet case, but it's hard to see why it would be appropriate across the board; people might buy a product for lots of reasons not limited to the features covered by the design patent.  But so it goes.  There is, by the way, a counterargument that I believe was presented in some of the briefs in the Samsung case to the effect that the second sentence of § 289, referring to "the profit made from the infringement," actually does require some sort of apportionment, that is, a causal connection between the infringement and the profit to be awarded (as would have been required for the disgorgement of profits in a case involving utility patents, back when the disgorgement remedy was available in that context), but the Supreme Court says that "Samsung abandoned this theory at argument, and so we do not address it" (p.5 n.2).  See also opinion p.5 ("The 'total profit' for which § 289 makes an infringer liable is thus all of the profit made from the prohibited conduct, that is, from the manufacture or sale of the 'article of manufacture to which [the patented] design or colorable imitation has been applied.'”).    

Moving along, then, the Court turns to the question of whether the relevant article of manufacture must be the end product, or whether it can be a component.  Citing some dictionary definitions, the Court opts for the latter view (pp. 6-7): 

. . . the term “article of manufacture” is broad enough to encompass both a product sold to a consumer as well as a component of that product. A component of a product, no less than the product itself, is a thing made by hand or machine. That a component may be integrated into a larger product, in other words, does not put it outside the category of articles of manufacture.

This reading of article of manufacture in §289 is consistent with 35 U. S. C. §171(a), which makes “new, original and ornamental design[s] for an article of manufacture” eligible for design patent protection. . . . The Patent Office and the courts have understood §171 to permit a design patent for a design extending to only a component of a multicomponent product. . . .

This reading is also consistent with 35 U. S. C. §101, which makes “any new and useful . . . manufacture . . . or any new and useful improvement thereof ” eligible for utility patent protection. . . . The broad term includes “the parts of a machine considered separately from the machine itself.” 1 W. Robinson, The Law of Patents for Useful Inventions § 183, p. 270 (1890).

As noted above, however, the Court decides to leave it to the lower courts to come up with a standard for defining the relevant article of manufacture, rather than coming up with one itself (as I had expected the Court might do, after reading the oral argument transcript):

The parties ask us to go further and resolve whether, for each of the design patents at issue here, the relevant article of manufacture is the smartphone, or a particular smartphone component. Doing so would require us to set out a test for identifying the relevant article of manufacture at the first step of the §289 damages inquiry and to parse the record to apply that test in this case. The United States as amicus curiae suggested a test, see Brief for United States as Amicus Curiae 27–29, but Samsung and Apple did not brief the issue. We decline to lay out a test for the first step of the § 289 damages inquiry in the absence of adequate briefing by the parties. Doing so is not necessary to resolve the question presented in this case,and the Federal Circuit may address any remaining issues on remand (p.9).

So now things move back to the Federal Circuit to come up with an appropriate test for defining the relevant article of manufacture (the "first step," as it is referred to in the quote above).  At oral argument, Assistant Solicitor General Fletcher suggested that "you should compare the scope of the patented design as shown in the drawings in the patent, how prominently that design features in the accused article, whether there are other conceptually distinct innovations or components in the article that are not part of or associated with the patented design, and finally the physical relationship between the patented design and the rest of the article" (transcript p.28).  But should the court also consider the extent to which the patented feature contributed to the demand for the (proposed) article, or whether there is a separate market for the component to which the feature is affixed?  (The latter sounds like what the Federal Circuit did, though, and that's clearly not what the Supreme Court has in mind.  See opinion p.1 ("The United States Court of Appeals for the Federal Circuit identified the entire smartphone as the only permissible “article of manufacture” for the purpose of calculating §289 damages because consumers could not separately purchase components of the smartphones. The question before us is whether that reading is consistent with § 289. We hold that it is not.").)   And let's not forget that once you determine what the relevant article is, you still have to conduct a second step of determining how much of the profit on the sale of the end product is attributable to that component (though not how much is attributable to the patented feature affixed to the component, because that would mean the patent owner isn't getting the entire profit from the relevant "article of manufacture").  

At the end of the day, it seems to me that if we're going to involve ourselves in such complexities, we may as well just apportion profits to the infringing feature, which is arguably economically justifiable (it's certainly debatable, but not crazy, to believe that disgorgement of the profits attributable to the infringement, rather than an award of lost profits or reasonable royalties, may sometimes be an appropriate remedy for patent infringement), rather than going through this exercise in pursuit of a goal that has no economic justification (awarding the entire profit from the article).  But so it shall be, I guess.  Maybe we just need to adopt an existential approach.  If as Camus imagined Sisyphus could be happy rolling the boulder uphill for eternity, only to see it come crashing down at the end of the day, maybe judges, experts, and patent lawyers can be happy engaging in a task that is similarly meaningless.  (And unlike Sisyphus, at least they'll get paid for their effort.)       

As a closing note, at page 8 of the opinion the Court cited with apparent disapproval the Federal Circuit's design patent damages decision in Nordock, Inc. v. Systems, Inc., which has been the subject of a pending cert petition while the Court decided Samsung.  (See my previous blog post on Nordock here.)  So I'd expect a vacate and remand in light of Samsung in that case; looks like the Court will be considering it on Friday.

Update (December 7):  Not surprisingly, there's lots of commentary on the Supreme Court's opinion throughout the blogosphere, including FOSS Patents, IPKat, Patently-O, SpicyIP, and Written Description.  I should note that my post above wasn't intended to be overly negative.  The Court's decision, that the relevant article of manufacture can be less than the entire product, is surely an improvement that should result in fewer overly generous awards.  My point was simply that it makes little sense, as a matter of policy, to require the disgorgement of the entire profit of whatever the article of manufacture is, rather than just the portion that is attributable to the infringing design; and that if we're going to have to devote substantial time and energy now to defining the article of manufacture, we may as well go the remaining distance and determine what portion of the profit attributable to the article is attributable to the design.