Monday, May 18, 2015

Appeals court finds third trial necessary in first Apple-Samsung case: $380 million in damages vacated

In early December, the United States Court of Appeals for the Federal Circuit held a hearing on Samsung's appeal of the final district court judgment awarding Apple $929 million in damages (but no injunction) in the first California case between these two parties. At the time the possibility of a third trial in this case (the original one took place in 2012 but a portion of the original damages award had to be redetermined, which was done at a 2013 retrial; this is separate from the second California Apple-Samsung case, in which a trial was held in 2014) already loomed large. And indeed, today's appellate opinion reverses the trade dress-related part of the district court ruling and, on that basis, remands the case for a new trial. A new jury will have to determine damages for all products the first jury found to have infringed an Apple trade dress: the Fascinate, Galaxy S (i9000), Galaxy S 4G, Galaxy S II Showcase (i500), Mesmerize, and Vibrant phones. The total amount of damages (these were only at issue in the 2012 retrial, not the 2013) retrial was over $380 million.

The original jury verdict only specified damages by product, but not by product and intellectual property right. That's why the total damages amount for those products must be redetermined. There's no way to simply subtract the part that related to trade dress.

The Federal Circuit agreed with Samsung that it would have been entitled to judgment as a matter of law (JMOL) on the functionality of the trade dresses on which Apple prevailed. In all other regards, such as invalidity of design and software patents, the Federal Circuit sided with Apple. This includes the controversial issue of whether even the infringement of a single design patent by a multifunctional product implementing numerous design and utility (technical) patents could entitle the right holder to a disgorgement of entire infringer's profits. 27 law professors as well as the CCIA had argued in their amicus curiae briefs that this should not be the case. The Federal Circuit dignified the law professors' submission with only a footnote:

"Amici 27 Law Professors argues that an award of a defendant's entire profits for design patent infringement makes no sense in the modern world. Those are policy arguments that should be directed to Congress. We are bound by what the statute says, irrespective of policy arguments that may be made against it."

The CCIA argument, however, was not merely based on policy. It was about the application of the term "article of manufacture" (the complete phone or just the casing) to the products at issue. That one is not addressed specifically in the appellate opinion. Interestingly, Apple's primary issue in the Ericsson patent dispute is about the proper royalty base for standard-essential patents, which Apple wants to defined narrowly in that case.

I'm not sure the law is as clearly on Apple's side with respect to design patent damages as the Federal Circuit describes it in today's decision. Samsung has two options now:

  • It can accept this opinion, in which case Apple would soon be allowed to collect approximately $547 million (the portion of the damages that the Federal Circuit affirmed) and then try to mitigate the damage at a retrial. Theoretically the third jury could award even more than the original $380+ million, but the basis for that award will be narrower (just design and software patent infringements, no trade dress), so all other things being equal (which they won't be because each jury comes up with its own approach) that portion would be reduced.

  • Samsung can further appeal this matter, at least the part on design patent damages. It can request a Federal Circuit rehearing (panel rehearing or full-court review), which would likely not change anything in this case. So Samsung might directly proceed to the filing of a petition for writ of certiorari with the Supreme Court. I don't know whether this will happen, but if Samsung did it, it would do the industry (and in the long run-as odd as it may sound--even Apple itself) a favor. I for my part hope that Samsung will try to bring this to the attention of the Supreme Court, and the Supreme Court may indeed find a way to bring the statutory rule on design patent damages in line with today's reality.

Even in the best case for Apple (in which today's appellate opinion would stand, either because there is no further appeal or because a further appeal fails), the outcome of Apple's patent enforcement efforts against Google's Android mobile operating system is a disappointment--after more than five years of trying. A few hundred millions more or less changing hands between Apple and Samsung--two companies that have over the years already done business for many billions of dollars (because of Apple purchasing various components from its Korean partner and rival--won't affect anyone's market share. By now some other Android device makers would also be interesting targets for Apple to sue if it held patents with which it could really have an impact, and what has happened so far in court suggests that it doesn't have arrows in its quiver that would really scare its rivals. At the same time Apple continues to do unbelievably well in the market, thanks to the iPhone 6.

The Federal Circuit has a couple of other Apple-Samsung appeals pending. Those two appeals relate to the second California case, in which Apple was awarded only $119 million in damages last year. Decisions have yet to issue in those cases. Apple appealed the denial of a permanent injunction in that second California case, and the Federal Circuit did not appear to be inclined to reverse Judge Lucy Koh on that one. (Apple previously lost a couple of other injunction-related appeals and withdrew the related part of the appeal adjudicated today.) In another appellate case, Samsung is challenging the liability findings in that second case, while Apple primarily wants a new trial on damages. Apple filed its opening brief last week. Samsung will then respond to that one, and Apple will get to reply to certain parts; then a hearing will be scheduled.

If you'd like to be updated on the smartphone patent disputes and other intellectual property matters I cover, please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents and Google+.

Share with other professionals via LinkedIn: