WASHINGTON — The Supreme Court on Tuesday issued a unanimous ruling in favor of Samsung Electronics Co. over Apple Inc. that was seen as a setback for design patent protections and a loss for fashion designers and the broader design community.
The High Court sided with Samsung’s argument in a long-running infringement case with Apple involving design patents on smartphones.
The justices essentially ruled that damages in a patent infringement case need not be derived from the profits of an entire product but could be based on the profits from an infringing component part covered by the patent.
“This case involves the infringement of designs for smartphones. The United States Court of Appeals for the Federal Circuit [which upheld Apple’s lower court damage award] identified the entire smartphone as the only permissible ‘article of manufacture’ for the purpose of calculating damages because consumers could not separately purchase components of the smartphones,” wrote Justice Sonia Sotomayor in the majority opinion. “The question before us is whether that reading is consistent with [the statute]. We hold that it is not.”
Design patent experts said the ruling essentially overturns decades of design patent protection and removes one of the biggest deterrents to infringers — infringement awards based on the total disgorgement of profits from the end product — further weakening the legal framework.
The case held such significant implications for fashion designers that several signed onto an amicus brief in support of Apple.
They were later joined in separate briefs filed by Tiffany & Co., Adidas AG, Jenny Yoo and Crocs.
“This is a very bad day for design overall and an even worse day for design protection,” said Charles Mauro, founder and president of Mauro New Media, a firm representing the designers in the amicus brief. “It is going to make design protection for small manufacturers almost impossible and design protection for large manufacturers exceedingly complex, risky and expensive.
“Just at a time when fashion as a large and very important industry sector was beginning to really understand and operate on the value of design protection, it now flips everything on its head,” Mauro said of the court’s ruling. “It makes design protection in the fashion field even more complex that it is currently.”
“Apple’s loss to Samsung reduces the value of design patents at the very moment when the fashion industry was starting to embrace them as an alternative form of intellectual property protection that could augment the limited copyright protection for fashion designs,” said Susan Scafidi, director of Fordham University’s Fashion Law Institute. “Industry sectors such as footwear, which have relied on design patent protection for years, will be hardest hit, but overall this is a disappointment for proponents of IP rights.”
Mauro said it will also likely open the door to more infringement.
“Within two to three years, you will see a return to what is technically known as the exact copyist,” Mauro said. “Infringement will now become a manner of determining the relative cost-benefit of infringing a product and whether or not [infringers] feel that in a court of law they would be able to diminish the value of design to such a level that damages would be minimal compared to the benefit [of infringing].”
The case was the culmination of a five-year legal battle between Apple and Samsung.
Apple filed a patent infringement lawsuit against the Samsung 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 a “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 was section 289 of Title 35 of the United States Code, which until now gave the owner of a patent the right to all the profits made from the sales of an infringing design.
“Before the decision, an advantage of design patents over all other forms of intellectual property was the calculation of damages: a successful patent holder was typically awarded all of the infringer’s profits for the consumer product at issue,” Scafidi added. “Now, the patent holder can only receive the portion of damages that a court attributes to the copying. Not only is the potential award smaller, but the cost of litigation is also likely to be higher as the issues grow more complex. For example, is the relevant ‘article of manufacture’ the entire shoe or just the sculptural heel? And what are the profits attributable to a sculptural heel, as opposed to the shoe itself?”
Justices remanded back to the federal circuit court without resolving the question in the case of whether the “relevant article of manufacture for each design patent at issue here is the smartphone or a particular smartphone component.”
“Arriving at a damages award under [the statute] thus 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,” Sotomayor wrote. “This case requires us to address a threshold matter: the scope of the term ‘article of manufacture.’ The only question we resolve today is whether, in the case of a multicomponent product, the relevant ‘article of manufacture’ must always be the end product sold to the consumer or whether it can also be a component of that product.”
The Court said it does not have to be the end product to be considered an “article of manufacture.”
“An article of manufacture, then, is simply a thing made by hand or machine. So understood, 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.”
The High Court also declined to establish a specific test for how damage awards in infringement cases should be calculated, leaving that to the lower court to decide.
Experts argued that by ruling an “article of manufacture” under the statute is not solely defined as the entire product and can be considered as components of a product covered by the patent, the lower courts will now be able to apply that standard to the Samsung-Apple case and all other patent design infringement cases.
“The Court’s decision is likely to take a big bite out of Apple’s award and the damages available in design patent cases generally, but the case is not over,” Scafidi said. “On remand, the lower court will have to identify the relevant ‘article of manufacture’ — not necessarily the entire smartphone, but perhaps only certain components — and then decide what percentage of the infringer’s profits was attributable to copying patented elements. Savvy fashion professionals should watch their own screens for the next phase in the evolution of design patent protection.”