Tuesday, May 31, 2016

Filing deadline tomorrow: Samsung to make its case against total-profit disgorgement over design patent infringement

More than two months ago, the Supreme Court of the United States granted Samsung's petition for writ of certiorari (request for top-court review) regarding design patent damages, which was supported by Google, Facebook and other tech giants. Tomorrow, Samsung has to file its opening brief. At this level of proceeding the parties' positions, theories and arguments are largely known, but it will be very interesting to see what priorities they set, what case law they can find in support of their positions, and which amici curiae ("friends of the court") will support them.

In terms of potential impact on the economy, this case is about a lot more than the roughly $500 million (just for an order of magnitude) in play between the two parties. Based on Apple's position that a disgorgement of infringer's profits over a design patent shouldn't be apportioned, it would be theoretically possible that the owner of a design patent covering the shape of an icon or a screen layout could claim infringement by a single pre-installed iPhone app and sue Apple for (if the alleged infringement has been ongoing for many years) an amount like $100 billion. And under Apple's standard, the court would have to instruct the jury that the $100 billion amount is, at a minimum, the proper starting point. Yes, no company in the world potentially stands to lose nearly as much from affirmance as the very party that is pushing for it: Apple. That fact is no less an absurdity than an inflexible interpretation of the statute in question.

But in two respects, Apple has already won. No matter what the damages award will ultimately be, Apple's design patent enforcement, which began about five years ago, has presumably contributed to Samsung now making its products more distinguishable from Apple's products. It may also have influenced others. The second respect in which Apple has won is that the Supreme Court granted only one of the two parts of Samsung's petition, but that didn't come as a huge surprise since the part on design patent damages had way more momentum (also in terms of amicus briefs) than the part on claim construction. Theoretically, claim construction could have had a devastating impact on Apple's design patent case (because it could have resulted in findings of invalidity and/or non-infringement). But let's stay focused on what actually is before the Supreme Court now.

Unless Samsung's legal strategy surprisingly changes with tomorrow's filing, it's foreseeable that the key parts to analyze will be two meta-level arguments and two key terms in the relevant statute:

Background principles of causation and equity

If the Federal Circuit's interpretation of the statute was affirmed, design patent damages would be a total outlier in the context of remedies for intellectual property infringement. An unapportioned disgorgement of infringer's profits is not available for utility (i.e., technical) patent or copyright infringement, to name but two examples. And that is so because a strong causal nexus between an infringement and a related monetary award is really a cornerstone of U.S. intellectual property law (and even of tort law in general).

In its cert petition Samsung already told the Supreme Court that "Congress could not have intended design-patent damages, alone among all forms of intellectual-property remedies, to be exempt from ordinary principles of causation and proportionality."

Absurd results must be avoided

Samsung's cert petition mentioned the "absurd" result of an unapportioned disgorgement of infringer's profits several times, such as in the following passage:

"As noted, the Federal Circuit's contrary interpretation of Section 289 produces absurd and anomalous results. The Federal Circuit's holding would require awarding Apple all of Samsung's profits for sales of a smartphone containing any Apple design patent, even a trivial one. And under this holding, profits on an entire car--or even an eighteen-wheel tractor trailer--must be awarded based on an undetachable infringing cup holder."

Neither the Federal Circuit nor Judge Koh ever said that the result was not absurd. Those courts basically just said: "Whether it's absurd doesn't matter, it's the law of the land." Apple just tries to distinguish examples of absurd results (like the cup holder mentioned above) from its Samsung case, but it doesn't explain how absurd outcomes could be avoided if its proposed interpretation was affirmed.

At this stage I guess the question of lawmakers' intent is going to be very important. Samsung's cert petition already quoted from Congressional deliberations. In a dispute over statutory interpretation, it can tip the scales in favor of a common-sense interpretation if there is an indication that today's common sense and the common sense at the time the law was made are consistent. Apple's message is going to be: "Even if you philosophically agree with Samsung, you have to legislate from the bench to reverse the Federal Circuit." Samsung will then benefit from being able to say: "You would simply interpret the law the way Congress intended."

Lawmakers have always been aware of the potential use of their statements in statutory-interpretation disputes and sometimes make certain statements on the record with a view to this. In fact, Eva Lichtenberger, a Member of the European Parliament, told me in 2005 about a carefully-crafted statement she made in the final Legal Affairs Committee debate on software patents because it might help in the event of an ambiguous outcome.

Article of manufacture

Two years ago I agreed with the Computer & Communications Industry Association (CCIA), an industry body I don't always agree with, on the term "article of manufacture" being potentially key to a reasonable interpretation of 35 U.S.C. § 289, the design patents disgorgement paragraph. Here's the first sentence from that paragraph (emphasis added):

Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250, recoverable in any United States district court having jurisdiction of the parties.

Apple says, and the Federal Circuit and Judge Koh said, that the relevant "articles of manufacture" in this case were various Samsung phones. But the whole problem would go away if "article of manufacture" was interpreted more narrowly, given that two of the design patents in question relate to only the outer cases of smartphones.

This argument reminds me of the "smallest salable unit" argument in the FRAND (fair, reasonable and non-discriminatory) licensing context. Oddly, Apple and Samsung/Google were standing on just the other foot at the time. Samsung and Google's Motorola demanded percentages of the entire price of an iPhone, but Apple (and with respect to the Xbox, Windows and other products, Microsoft) disagreed. I was on Apple's side then, I'm on Samsung's side this time around, but that's because I'm consistent, which those guys aren't (large corporations just have too many disputes to be consistent).

In connection with standard-essential patents, Motorola demanded 2.25% of the "price of the end product" and specifically clarified that this meant "e.g., each Xbox 360 product, each PC/laptop, each smartphone, etc." as opposed to "component software (e.g., Xbox 360 system software, Windows 7 software, Windows Phone 7 software, etc.)." It was outrageous, but at least it was clear. If Motorola could have just said "article of manufacture" to send out the same message, it would have done so. But "article of manufacture" doesn't mean the maximum royalty base imaginable. It doesn't mean "end product from consumer point of view" or anything like that.

Profits made from the infringement

The second part of the statute also contains a term that can be interpreted in a certain way to achieve a reasonable result (emphasis added):

Nothing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement.

While this is just the passage on double recovery, the highlighted term can nevertheless be understood to be a description of the recovery the first sentence allows. (How could it not be?)

A "profit made from [an] infringement" is a narrower definition than "profit indirectly related in part to an infringement." It also suggests that the question of causation cannot simply be kept out of the design patent damages analysis the way the Federal Circuit and Judge Koh did.

In summary, there are ways in which the Supreme Court can restore sanity if it wants to, and that's the case Samsung is going to have to make in its opening brief tomorrow, in its reply brief a few months later, and at the Supreme Court hearing in the fall or winter. Apple's first-rate lawyers are going to give Samsung a run for the money, of course.

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