Tuesday, June 25, 2013

German court inclined to hold Samsung liable for unfair exploitation of iPhone design elements

On August 9, 2011 the Düsseldorf Regional Court shocked the wireless world by ordering a preliminary injunction against Samsung's Galaxy Tab 10.1 over a Community design (EU equivalent of U.S. design patent) held by Apple. Apple won several other cases against Samsung in different jurisdictions over a diversity of intellectual property rights, but Apple prevailed on design-related rights in only two countries: Germany and the United States.

Almost to the day two years later, on August 8, 2013, the same German court tentatively plans to announce a ruling on Apple's allegation that six Samsung smartphones (Galaxy S I , S Plus, S II, Galaxy Ace, Galaxy R, and Galaxy Wave M) and one Samsung media player (Galaxy S WiFi 4.0) constitute unlawful imitations of its iPhone and iPod products. Apple claims confusion of consumers about the origin of those products, exploitation of its reputation, and competitive harm arising from the systematic imitation of various of its products. This is not about Community designs or other registered rights. Apple's claims in this case are based on Article 4 para. 9 of German unfair competition law. This is all about the behavior of the parties and about Apple's rights as a market actor vis-à-vis a competitor (Samsung) as opposed to its rights as an innovator/creator.

I have information from an absolutely reliable and independent source that the court indicated to the parties at the outset of today's trial its preliminary position that Samsung has created a derivative imitation of key characteristics of the iPhone. The debate focused particularly on the question and implications of an exploitation of the iPhone's product image ("Rufausbeutung") by Samsung.

The same court had stayed a design rights-based case against multiple Samsung phones because of doubts that Apple's asserted Community designs would be upheld at the end of a revocation proceeding before the Office for Harmonization in the Internal Market, an EU agency in charge of Community (= Eu-wide) trademark and design registration. But Apple's unfair competition claims are about whether Samsung deliberately imitated the iPhone, not about whether other parties created prior art to an iPhone design patent.

German unfair competition law prohibits imitation of a unique product or service. The analysis is holistically based on the overall impression made by the parties' products. Imitation requires a defendant's knowledge of the imitated product, which is an established fact in this case (the evidence presented to the California jury spoke for itself). Independent creation does not count as imitation, nor does copying of a third party's creation. There are three different degrees of imitation: "unmittelbare Leistungsübernahme" (identical imitation); "nahezu identische Leistungsübernahme" (near-identical imitation); and "nachschaffende Leistungsübernahme" (derivative imitation, involving a greater amount of creative effort on the defendant's part than the other two degrees of imitation). The key test for the derivative imitation the court is inclined to find here is whether the design elements the defendant adopted (i.e., copied) are those who are characteristic of the plaintiff's asserted product.

I'm against overbroad monopolies. The "rounded corners" myth is just propaganda, though the first Düsseldorf ruling on the Galaxy Tab 10.1 (at a time when Samsung had not yet presented some of the prior art it identified later) came close to the notion of a monopoly over flat, rectangular devices with rounded corners. Design patents and Community designs can indeed be interpreted broadly in some cases. By contrast, an unfair competition claim based on intentional copying of key characteristics of a product faces a reasonably high hurdle. In this particular case, I think the court's inclination is right. Samsung's products didn't become iPhone lookalikes by happenstance (this CONAN video is a funny version of the story). Samsung wanted it this way. And under German competition law a business strategy centered around imitation exposes you to liability.

Apple alleged consumer confusion about the origin of those products. The court doesn't have to agree with that theory in order to hold Samsung liable. Nor does it have to be convinced that the iPhone's reputation was adversely affected. The intentional, unfair exploitation of the iPhone's product image will suffice.

The products at issue in this unfair competition case are rather old. Samsung's business in Germany won't be disrupted no matter what happens. But Apple could be entitled to a substantial amount of damages if the court's final ruling is consistent with the preliminary inclination indicated today.

Very importantly, a win in this unfair competition case involving Galaxy smartphones in a "neutral" country (where neither of the parties is headquartered) would buttress Apple's story of reckless copying by Samsung. In the public perception game and in psychological terms this would really benefit Apple.

In connection with the Galaxy Tab 10.1 Apple ultimately also fared better under German unfair competition law than on the basis of (European) Community designs. The August 2011 preliminary injunction was upheld by the appeals court (Düsseldorf Higher Regional Court) on a right-for-the-wrong-reasons basis: a Community design infringement was denied (due to Samsung's identification of additional, outcome-determinative prior art), but Apple's second claim, which the lower court had not reached at the preliminary injunction stage, succeeded in the appeals court. And that one was also based on German unfair competition law.

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