Design or utility patents: Which one trumps in the world of patent infringement litigation?
You may be surprised that in patent infringement cases, design patents that cover the ornamental design of an article can be more valuable than utility patents covering functional innovations to it. This is because potential damages are much, much greater.
Based on the Federal Circuit’s current reading of the Patent Act, a patentee is entitled to the infringer’s total profits in cases of design patent infringement, without apportionment or proving causation or intentional infringement. That was what happened in Apple Inc. v. Samsung Electronics Co., in which Apple was awarded all of Samsung’s total profit for design patent infringement.
Notably, Apple’s damages award didn’t take into account that the patented design covered only certain design elements of the accused devices—“a rectangular round-cornered front face curved edges” of a smartphone. It also overlooked the facts that the accused devices included Samsung’s investment in thousands of other more complex patents and technological innovations, and that Samsung spent millions in marketing to generate sales. No such remedy exists for other types of intellectual property.
For utility patent infringement, a patentee may only recover damages “attributable to the infringing features,” which typically results in a fraction of the infringer’s profit. VirnetX, Inc. v. Cisco Systems, Inc., 767 F.3d 1308, 1326 (Fed. Cir. 2014). As of this writing, the Apple v. Samsung damages award is before the Supreme Court, which decided to review the laws applicable to design patents for the first time in over 120 years.
What is the reason for allowing disproportionately greater damages for design patent infringement? What are the implications of this disparity? What issues are being appealed in Apple v. Samsung? How are the companies that sue for patent infringement, and those that are sued regularly, reacting to this decision? What companies are vulnerable to design patent claims, and how can you prepare them in advance?
Section 171 of the U.S. Patent Act defines a design patent as “any new, original and ornamental design.” 35 U.S.C. § 171(a) (2014). Examples of attributes protected by design patents include the ornamental appearance of a shoe upper, sunglasses frame, hoverboard—and even ridges on potato chips. Because a design patent protects only “ornamental” design, the design cannot be functional. For instance, if an article must be designed a certain way to function as intended, design patent protection is unavailable. The design itself, however, need not be complex or groundbreaking—and it often isn’t—which leads to the question of why greater damages are permitted for design patent infringement.
This is because section 289 of the Patent Act, which applies only to design patent cases, provides for recovery of “total profit[s]” of infringing articles of manufacture. 35 U.S.C. § 289 (2014). In contrast, for infringement of utility patents, section 284 of the Patent Act applies, which allows “damages adequate to compensate for the infringement.” 35 U.S.C. § 284 (2014). In other words, an award of actual damages (i.e., lost profits), which is often difficult to prove, or a reasonable royalty, which is typically a fraction of the total profits. The result? If you can prove design patent infringement, you may be able to recover multiples of what you may recover for utility patent infringement.
Why such a disparity? At the inception of design patent law in 1842, the same standards for damages applied to both utility and design patents. This required apportioning the damages to the patented design, as compared with the value of the underlying article. Because of case law illustrating the difficulty of apportioning the damages to a design patent, however, Congress amended the Patent Act of 1887 to permit recovery of total profit from the manufacture or sale of any accused article, with a minimum liability of $250. The Patent Act of 1887 was later codified in section 289.
But Congress had no way of knowing—fast forward a hundred years—that a thriving cottage industry of nonpracticing entities (NPEs) would be formed for the sole purpose of acquiring and asserting patents against companies to generate licensing fees. Nor did Congress anticipate that design patents would be asserted against technologically complex devices, rich with their own intellectual property rights—as in Apple v. Samsung.
In the smartphone war, rivals Apple and Samsung have accused each other of infringing their respective patents. This has been litigated across the globe, with tribunals finding in each side’s favor in various cases. But the case filed by Apple in 2011 in San Jose, its backyard, resulted in a record damages award.
Specifically, Apple accused Samsung of infringing its utility patents, design patents, and trade dress for iPhones. Samsung counterclaimed, asserting that Apple infringed Samsung’s utility patents. In 2012, a jury awarded Apple $1.05 billion in damages, later reduced by $450.5 million by the court. In a follow-on trial, a jury awarded Apple an additional $290.5 million in damages, bringing the total to $930 million. The verdict and opinions in these cases have been subject to exhaustive appeals.
Apple v. Samsung isn’t most notable for the record-breaking number of appeals, the hundreds of millions in legal fees, or the relentless press coverage, which was rumored to have increased both companies’ sales. The real stars were the design patents—a kind of patent unknown to most people until this case. Although Apple’s patents covered only a portion of the outer cover of Samsung’s smartphones, they resulted in the biggest portion of the damages award: $399 million, or Samsung’s “total profit” from sales of the phones at issue. Apple was also awarded $382 million for trade-dress dilution and $149 million for Samsung’s utility patent infringement.
Apple’s award broke the record as the largest for infringement of a design patent, and it made the list of the top five infringement awards of all time. Other billion-dollar awards have involved utility patents covering complex pharmaceutical or biotechnology innovation, including the heart valve patent asserted against Medtronics and a Roundup Ready technology patent asserted against DuPont. And while these patents were central to their product’s functionality, the patentees didn’t recover total profits; they were limited to actual lost profits or a reasonable royalty.
By contrast, Samsung was ordered to fork over all of its profits on the accused devices, though it maintains Apple’s design patents claimed only a “trivial” design of a “particular black rectangular round-cornered front face, a substantially similar rectangular round-cornered front face plus the surrounding rim or ‘bezel,’ and a particular colorful grid of sixteen icons.” Petition for a Writ of Certiorari at 1, 31, Samsung Elecs. Co., Ltd. v. Apple Inc. (2015) (No. 15-777), 2016 U.S. LEXIS 2024.
On appeal, the Federal Circuit reversed the $149 million trade-dress dilution damages but affirmed the $399 million in damages attributable to the design patent infringement. Apple Inc. v. Samsung Elecs. Co., 786 F.3d 983, 989 (Fed. Cir. 2015). While acknowledging arguments that “an award of a defendant’s entire profits for design patent infringement makes no sense in the modern world,” the Federal Circuit said that it was bound by what section 289 says. Id. at 1002 n.1. The court explained that because an “article of manufacture” under section 289 constitutes the entirety of the product as to which an infringer must pay total profits, no matter how little of that profit may be attributable to the actual infringement, it was precluded from adopting a causation or apportionment rule to limit damages. Id. at 1002.
Samsung’s certiorari petition points out that, as of 2012, the U.S. Patent and Trademark Office had issued 250,000 smartphone patents, and any smartphone incorporates the vast majority of these. Therefore, allowing recovery of total profit for a design patent covering only a component of a product “greatly overprotects and overcompensates design patents,” resulting in “massive windfalls far exceeding the inventive value of . . . [such] patents.” Petition for a Writ of Certiorari, supra, at 20, Samsung (No. 15-777). Samsung explained that this would produce “absurd and anomalous” results—such as awarding “the entire profits on a car (or even an eighteen-wheel tractor-trailer) that contains an infringing cup-holder” or “the entire profits on every pair of shoes that contains an infringing heel, sole or lace.” Id. at 26, 31.
Samsung isn’t the only one challenging the disparity of design patent damages. A consortium of tech giants—including Dell, Facebook, Google, and eBay—filed amici briefs challenging the Federal Circuit’s decision. This group argues that the Federal Circuit’s decision will have “a devastating impact on companies, including amici, that spend billions of dollars annually on research and development for complex technological products and their components.” Brief for Dell Inc., et al. as Amici Curiae Supporting Petitioners at 3, Samsung (2015) (No. 15-777). They warn that the decision has already “prompted so-called ‘patent trolls’ to threaten design-patent litigation against Samsung and its amici,” and they conclude that “companies are applying for and obtaining record numbers of design patents, which are certain to be asserted at similarly growing rates.” Id. at 5. They claim this will undermine innovation and research and development efforts—“a particularly troubling development in light of the spurious quality of many design patents.” Id.
Not surprisingly, Apple claims this is much ado about nothing. The Federal Circuit’s decision isn’t “cert worthy,” it argued, because it “broke no new legal ground” and “simply applied the statute and well-settled law to the extraordinary record of infringement and copying [by Samsung].” Brief in Opposition at 2, Samsung (2015) (No. 15-777).
The concern expressed by Samsung and other tech companies that we may now face an explosion of design patent lawsuits has some merit. The ability to collect greater damages for infringement—without having to prove causation or apportion damages—may prove irresistible to many patentees and can only attract NPEs. This is particularly true because the Supreme Court’s decision in Alice Corp. Pty. Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014), greatly limited the patent eligibility of software and business methods and NPEs’ ability to enforce and profit from those patents in their portfolios. Moreover, consumer products companies are now filing and asserting design patents against competitors at an increasing rate. From 2004 to 2014, there has been a 32 percent increase in design patent applications, and from 2005 to 2015, there has been a 32 percent increase in design patent infringement cases filed.
Design patents can be powerful, but there are disadvantages. For instance, to prove infringement, one must prove that the overall design of the accused item is “substantially the same” to the ordinary observer. In contrast, utility patents may be infringed even if the accused device looks different, as long as the device falls within the literal scope of a patent or is equivalent to the claimed invention.
Moreover, if a patentee elects damages under section 289, it can’t recover enhanced damages or attorney fees even if the infringement is found to be willful or the case is deemed “exceptional” under 35 U.S.C. § 285 (i.e., the claims or defenses are objectively baseless and in bad faith). It would also forgo recovery of actual damages. Therefore, where a plaintiff thinks it can prove actual damages, willful infringement, or an exceptional case, it is best to keep all options open.
As applied in Apple v. Samsung, section 289 raises compelling questions about the assertion of design patents against increasingly complex products. Consumer products companies shouldn’t be surprised to receive a cease-and-desist letter or a complaint asserting design patent infringement from NPEs or competitors. Here are some tips to help your clients be prepared before they do: