Friday, December 5, 2014

Appeal of first Apple-Samsung case could lead to 3rd California trial in that case (4th in total)

For a few years, Apple and Samsung used to meet in court very frequently when they were embroiled in cross-jurisdictional, intercontinental litigation. Those showdowns have become relatively rare thanks to a mutual withdrawal of their lawsuits pending outside the United States. But they still haven't put the U.S. part of the dispute behind them.

Yesterday the United States Court of Appeals for the Federal Circuit heard Samsung's appeal of the district court ruling in the first Apple v. Samsung case originating from the Northern District of California. The $929 million damages award (after a 2012 trial and a 2013 retrial) could be a significant part of the reason for why it's taking them so long to settle despite the fact that this litigation stopped serving a strategic purpose a while ago.

This appeal used to be a two-way street but Apple dropped its cross-appeal and decided to just focus on defending the jury verdict.

Yesterday's hearing took place precisely a year after the same appeals court heard Oracle's appeal of a non-copyrightability ruling (also from the Northern District of California). A year back the outcome was very predictable based on how the hearing went. It's much harder, but not entirely impossible, to draw conclusions from the official recording of yesterday's Apple v. Samsung hearing.

The hearing lasted about an hour and a half, which it most likely wouldn't have (despite the high profile that this case has, or at least had until the ex-U.S. second-class settlement greatly reduced the perceived imporatnce of the overall dispute) if wholesale affirmance was a given.

It would be a somewhat risky bet to predict complete affirmance given that Samsung has raised a number of issues, a couple of which are very fundamental. Interestingly, Samsung's challenges to the validity of the patents-in-suit (particularly the '915 pinch-to-zoom API patent) weren't really discussed yesterday. The '915 patent was rejected by the USPTO's reexamination division (further to an anonymous request). Apple appealed (this is still a USPTO-internal appeal, not yet a Federal Circuit appeal). The examiner still stands by the rejection decision. A hearing was held on November 19, and a decision by the Patent Trial and Appeal Board will come down in the weeks or months ahead. The PTAB decision will most likely be rendered before the Federal Circuit decision. If the USPTO affirms the rejection decision and the Federal Circuit agrees with Samsung that the district court should have held the '915 patent invalid, then that outcome all by itself -- and again, this is something that wasn't even discussed yesterday because there was so much on the agenda -- would make another California trial between these parties necessary. They already had a trial and a retrial in this case; another retrial would be the third trial just in that first case, and they also had a trial in a second case earlier this year (where Apple is actually seeking a retrial).

The issues that the hearing was all about were related to trade dress matters and design patent damages. Again, it has been easier in some other cases to predict the outcome based on a hearing. Still, based on how yesterday's hearing went, it seems reasonable to say the relatively most likely outcome is that at least one of those issues will lead to a partial retrial. Affirmance on both issues is least likely, and the probability of a reversal/remand concerning both may be a little higher than that of complete affirmance but seems far lower than that of a mixed ruling.

Another question that I routinely think about after an appellate hearing like this is whether there is a likelihood of the matter being appealed to the Supreme Court. In Oracle v. Google it was unsurprising that Google would try everything. In Apple v. Samsung I, the question of design patent damages looks most certworthy. The key question here is whether a design patent holder is really entitled to an unapportioned disgorgement of the infringer's profits even if other design elements and, especially, numerous non-infringing technical features are responsible for the largest part of those profits. As Samsung's counsel noted yesterday, those design patents didn't even relate to some of the most iconic design elements, such as the iPhone's Home button. And design is just a limited part of the equation when we're talking about a high-tech product. While I don't want to read too much into that remark by a judge at yesterday's hearing, it was basically said that the statute is what it is even if Samsung was right that an unapportioned disgorgement was "absurd". This seems to me to be an extremely interesting question of statutory construction, and should the Federal Circuit interpret the statute rather literally, then the Supreme Court would be reasonably likely to be interested in looking for a way to interpret and apply the statute in ways that reflect the reality of today's highly multi-functional gadgets. The Supreme Court wouldn't want to legislate from the bench either, but there are potential solutions to the problem of absurdity that can be reconciled with the statutes. If the Federal Circuit took an extremely patentee-friendly position on this one, the Supreme Court might reverse, as it did in some other patent cases.

But in order for the Supreme Court to even look at the case, it has to grant certiorari, and someone first has to request that. There's a significant amount of money involved, so I believe whichever party loses on design patents, a cert petition will be given serious thought.

but a settlement would resolve the whole issue. This leads to another question: is the issue of design patent damages important enough to one or both parties that their interest in potentially getting a Supreme Court decision is a strong disincentive for settling beforehand?

If Samsung lost on design patents in the Federal Circuit and brought a cert petition, countless companies in the tech industry and various other industries would be very grateful, but I don't think this matter is so critical to Samsung in the long run that it wouldn't settle with Apple on reasonable terms. For Apple, protecting its designs is very key, but if it prevailed in the Federal Circuit on this issue, there would be more to lose than to gain in the event the Supreme Court decides to review the matter. So for Apple the ideal exit strategy would probably be to settle before. If it settled before the Federal Circuit ruling, the hearing transcript could still be used as a deterrent for anyone to copy Apple's designs in the U.S. (outside the U.S., Apple's related assertions failed in some jurisdictions and had very limited, temporary impact only in Germany). So it would actually also make a lot of sense to Apple to settle before or, otherwise, shortly after the Federal Circuit ruling. Also, Apple never knows whether one day it may find itself on the receiving end of a design patent infringement case, and then Apple would definitely fight very hard against a disgorgement of unapportioned infringer's profits. If I were Apple, I would try to settle before the Federal Circuit ruling, but of course this depends on the terms Samsung would agree to. And no one knows what the parties' positions are.

This is just my thinking and the parties may view it very differently. So maybe the design patent disgorgement question will go all the way up to the Supreme Court. Meanwhile, the Federal Circuit appeal of the second California case would unfold.

It will take a few months before the Federal Circuit decision comes down. That's a lot of time for both parties to think hard about the benefit of moving on. This case is about really old products by the standards of this industry. If we were talking about intellectual property rights that still matter to newer products, then the list of accused products in the case would be secondary because a ruling could affect more recent and even future products in one way or another. In this first Apple-Samsung case, we're mostly talking about design-related issues that haven't resurfaced in years.

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