Why Samsung Owes Apple $930 Million

Why Samsung Owes Apple $930 Million

As the latest clash between Apple and Samsung echoed through news headlines recently, few noticed an issue buried deep in the appellate court’s 34-page page opinion: The infringement of a design patent, which applies only to a product's ornamental features and shape, can lead to much higher damages than the infringement of a utility patent, which protects the way a product actually functions.

Apple accused Samsung of infringing various proprietary features of its flagship iPhone. The lower court awarded $930 million in damages to Apple, $399 million of which was for infringing Apple's design patents covering the iPhone’s shape, corners, screen, and icon arrangement. By comparison, Apple received $149 million for infringement of its utility patents covering the "autocorrect," "slide to unlock," and "quick link" features. The Court of Appeals for the Federal Circuit affirmed these findings.

Utility patents allow their owner to claim the profits lost from a defendant's infringing sales or a reasonable royalty. Damages work much the same way in copyright and trademark law as well. In contrast, the patent statute allows a design patent's owner to disgorge the defendant of its "total profit" — and when multiple patents are at issue, the patent owner can in theory be awarded the defendant's "total profit" multiple times.

This quirk began with a series of 19th-century Supreme Court cases that awarded the owner of a carpet design nominal damages because, in the Court's opinion, the design failed to add a premium to the value of the carpet. Congress responded by enacting the provision in 1887. A House report noted that it was intended for situations where the design actually sold the article, a point that seems to have been lost with the passage of time.

Samsung protested that Congress could not have intended to award a defendant's entire profits on each count of infringement. This result undervalues the technical innovation and manufacturing know-how that the defendant and others might have conferred to the final product. It also unfairly enriches owners who contribute commercially insignificant features but can legally claim the entire value of the product.

The court rejected those arguments, saying that the statute did not allow it to apportion the damages award based on the importance of the proprietary feature. It noted that while some have argued that the "total profits" measure "makes no sense in the modern world," any change to the rule must be made by Congress.

For three reasons, the court’s self-professed statutory adherence could have the unintended consequence of encouraging patent hold-ups in complex, multi-component products like smartphones and tablets.

First, unlike utility patents, design patents are kept secret until they issue. Companies may invest substantial amounts into a design only to face the threat of hold-up once a design patent emerges.

Second, infringement may become a fairly frequent occurrence. The number of design patents has exploded, doubling in ten years. They are less costly to obtain than utility patents, and recent legislation makes it easier for foreign design rights to gain a foothold here. Patent-assertion entities (also known as "patent trolls") may soon capitalize on design patents as they have on utility patents, spurring companies to stockpile design patents to preserve their freedom to operate.

Third, the threshold for infringement of a design patent is fairly low: An independent inventor could infringe merely because the ordinary observer would think his or her design is similar to a patented one.

A doctrine that makes even the smallest part equal to the whole and disgorges a defendant's profits multiple times is bad innovation policy. It will be up to the Supreme Court or Congress to fix the issue. Neither seems likely at the present time. In the meantime, for Apple, the court's ruling on design patents confirms what it had known since the beginning: There's gold in them hills.

Daryl Lim is a professor at the John Marshall Law School, where he teaches courses in intellectual property and antitrust law.

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