Supreme Court Apple Samsung

WASHINGTON — In a case that could have significant implications for the fashion industry, the Supreme Court on Tuesday heard oral arguments over the level of damages awarded in the long-running design patent infringement lawsuit between Samsung Electronics Co. Inc. and Apple Inc.

Justices on Tuesday grappled with a central legal question of whether total profits from the sale of an infringed product should be awarded to a company if the design patent applies only to the component part of a product. Apple is arguing that it should be entitled to the total profits.

It is a critical review by the High Court that could have major implications for the fashion world. Calvin KleinAlexander Wang, Nicolas Ghesquière, Dries Van NotenAlber Elbaz, Sir Paul Smith and Chitose Abe of Sacai were part of an original group of designers signing an amicus brief in support of Apple. Those designers were later joined in separate briefs filed by Tiffany & Co., Adidas AG and Jenny Yoo and Crocs.

The case before the High Court, filed by Samsung, is the culmination of a five-year battle between the two largest phone makers.

Apple filed a patent infringement lawsuit against the South Korean firm in 2011, charging Samsung with infringing on its patents and directly copying the design elements and technologies of its iPhone.

A jury in California found in favor of Apple in 2012, awarding it more than $1 billion. That patent infringement verdict was later upheld by the U.S. Court of Appeals for the Federal Circuit in Washington, but the award was reduced.

Samsung paid Apple $548 million provisionally last December, but decided to appeal to the Supreme Court, which agreed to hear the case in March. In its case, Samsung is challenging whether it is liable for $399 million of the jury award.

In its appeal to the High Court, the South Korean company said the $399 million was awarded to Apple based on infringement of three patents in question — a black rectangular round-cornered front face, a bezel and a colorful grid of 16 icons. Those patents, Samsung alleged, cover only “specific, limited portions of a smartphone’s design” and thus the award should be reduced.

Apple disagreed, arguing that only significant financial damage awards will act as a disincentive to the copying and infringement of patented products.

Under discussion in the case is section 289 of Title 35 of the United States Code, which gives the owner of a patent the right to all the profits made from the sales of an infringing design.

Samsung asked the court to consider the legal question of whether damages in infringement cases can be limited to profits made on a component that a patent covers, as opposed to the total profits of an infringed product.

During arguments Tuesday, the Supreme Court justices questioned the arguments made by both sides, with some justices appearing skeptical of Samsung’s position and others peppering Apple over why the High Court should step in as opposed to remanding the case back to the lower courts.

Several references were made to the Volkswagen Beetle as an example of how consumers identify with the design of a product and whether single components drive demand and therefore should be considered individually in patent infringement awards.

“A smartphone is smart because it contains hundreds of thousands of the technologies that make it work,” argued Kathleen Sullivan, Samsung’s attorney. “But the Federal Circuit held that Section 289 of the Patent Act entitles the holder of a single design patent on a portion of the appearance of the phone to total profit on the entire phone. That result makes no sense. A single design patent on the portion of the appearance of a phone should not entitle the design-patent holder to all the profit on the entire phone.”

Justice Anthony Kennedy seemed to challenge Sullivan’s argument at one point.

“Suppose the Volkswagen Beetle design was done in three days, and it was a stroke of genius and it identified the car. Then it seems to me that that’s quite unfair to say, well, we give three days’ profit, but then it took 100,000 hours to develop the motor,” Kennedy said.

In her response, Sullivan argued, “We concede that the total profit from the ‘article of manufacture’ [the legal term used in the statute] may sometimes be a substantial part of the total profit on the product. Let’s take the Beetle, or let’s take a cool, shark-shaped exterior body on a car like the Corvette.

“It may be that the article of manufacture to which the design patent is applied is just the exterior body of the car, but it may be that nobody really wants to pay much for the innards of the Corvette or the Beetle. They want to pay for the cool way it looks. If that’s so, it should be open to the patent-holder to prove that the bulk of the profits come from the exterior of the car,” she added.

Justice Sonia Sotomayor argued that the Federal Circuit Court “bought” Apple’s argument that “people…bought this product mostly…because of the look of the phone.”

She said the argument was that “people don’t really put much value on the unit. This is what they were arguing and they put on an expert that gave total profits.

“If the jury credited them [Apple] and it was a properly instructed jury, could you overturn that finding?” Sotomayor asked.

Seth Waxman, Apple’s attorney, argued there is “no basis to overturn the jury’s damages verdict in this case.”

Waxman underscored what many of the fashion designers and other industrial designers argued in their brief. “Congress was concerned in 1887 when it passed the Design Patent Act… if the only compensation [to companies whose patents are infringed] was something that could be viewed as the cost of doing business [for example getting] a 10 percent margin on $2.50 for what it cost to produce this little component, there would be no deterrents to what Congress deemed to be an emergency,” Waxman said.

In their amicus brief filed this summer, 113 fashion designers and other designers across a broader spectrum argued: “Design patents…protect from misappropriation not only the overall visual design of the product, but the underlying attributes attached to the design of the product in the eye and mind of the consumer. When an infringer steals the design of a successful product, it captures the consumer’s understanding of what the product does and what the product means in addition to the emotional connections associated with the company’s brand.

“The plain text reading of [the statute] requiring disgorgement of total profits, thus remains sound and perfectly aligned with modern cognitive science. Indeed, disgorgement of total profits is the only appropriate remedy for design patent infringement,” the designers said in the brief.

Charles Mauro, founder and president of Mauro New Media, a firm representing the designers in the amicus brief, said Tuesday that awarding damages based on total profits of a product in a patent infringement case is “the primary reason we do not have rampant infringement in the U.S.” He has said if the compensation method is changed for infringers, from total profits to a calculation based on profits of an individual patent or patents, it will essentially remove the major disincentive — full disgorgement of profits — to copy product designs.

Mauro, who attended the oral arguments, expressed concerns about the debate at the High Court over patent infringement awards.

“This was not a good day for design IP protections in the U.S. and for design overall,” Mauro declared. “The oral argument only added confusion and probably reduced the perception of design as a protectable asset in the U.S.”

Brian Fletcher, assistant solicitor general, arguing on behalf of the government, said the “relevant article of manufacture to which a patented design may be applied will sometimes be a part or a component of a larger product sold in commerce. And when that is the case, all parties agree that the patent-holder is entitled only to the profits from that infringing article and not to all.”

 

The Solicitor General’s office has proposed a four-part test to help determine an article of manufacture and the relevant analysis that should be used to determine a component’s design value.

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