Wednesday, February 8, 2017

Federal Circuit sends Apple v. Samsung design patent damages back to where things started

Apple and Samsung have now been embroiled in litigation for almost 70 months--the dispute's sixth anniversary is just about two months away. Many issues have been resolved over the years (at least to the extent that the parties stopped pursuing certain claims), but unless there is a surprise settlement, it could take several more years for the part relating to design patent damages to reach the point of a final ruling where all appeals have been exhausted.

Yesterday, the United States Court of Appeals for the Federal Circuit remanded (PDF) the matter to the United States District Court for the Northern District of California. A week before I had written that I was "fairly optimistic" about that direction.

The Federal Circuit stresses in the remand opinion that it technically hasn't agreed with either party's proposed course of action. Apple wanted the appeals court to determine that the record didn't support Samsung's theory regarding the appropriate article of manufacture. Samsung wanted a remand for the purpose of a retrial. The Federal Circuit just wants the district court to "parse the record" and determine whether any further proceedings are needed, which could be the retrial Samsung is seeking but could also be the kind of finding of evidentiary failure that Apple is hoping for.

Since the Federal Circuit initially affirmed the original ruling by the district court, Samsung has had to surmount three hurdles, at any one of which it could have faced final defeat but didn't:

  1. The first hurdle was Samsung's cert petition. Getting the Supreme Court to hear a case is statistically a long shot, but I was very optimistic about that one from the beginning. The statistical odds are long against a cert petition if one looks at the totality of all petitions, even including pro se litigants. In this case, the importance of the matter was easy to figure out and the Supreme Court hadn't looked at a design patent case in well over a century.

  2. At the outset of the Supreme Court proceedings it still wasn't a given that the original Federal Circuit opinion (according to which there was no room for any other interpretation than considering an entire phone the article of manufacture with respect to which Samsung owed Apple a disgorgement of infringer's profit) would be overturned. The tipping point was probably when the Department of Justice filed an amicus curiae brief that formally supported neither party, still backed Samsung's key point about the Federal Circuit having made a mistake. Apple subsequently stopped short of defending the original Federal Circuit opinion. But even with the parties and the DoJ agreeing on a particular question of law, the Supreme Court could still have reached a different conclusion. The Supreme Court could still have said that the law is what it is and any policy concerns would have to be directed to Congress. It didn't say that, but it didn't pronounce a new rule either.

  3. After the court of third instance remanded the case to the court of second instance, Apple already had a better chance of prevailing on its "unsupported by the record" argument. But it makes sense for the appeals court to say that this kind of discussion belongs into the trial court. There must be millions of documents in the record and the devil could be in the detail, with the case potentially hinging on whether some testimony in connection with some passage from an expert report is or is not sufficient to support a particular "article of manufacture" theory.

Some of the experts who participated in a media briefing conference call last month (organized and moderated by Carl Cecere, an appellate attorney who filed amicus curiae briefs in support of Samsung's position for non-governmental organizations) talked about how likely it was that the case would be decided on the basis of the record not supporting Samsung's article-of-manufacture argument, and while they agreed that one would actually have to see the whole record (which isn't possible), it didn't seem to be the most likely way in which the case would be resolved. What also came up on that call was the question of who has the burden of proof for the "article of manufacture": plaintiff or defendant? The parties disagree on that one. I consider yesterday's Federal Circuit decision the most efficient way forward for this dispute with only one exception: I think it would have been (even) better if the appeals court could have given guidance to the district court with respect to the burden of proof. It didn't have to, and it might have been a bit unusual to do so, but it would have helped because otherwise the burden of proof alone could give rise to another sequence of appeals...

The district court will, unless the case is decided on the basis of the alleged evidentiary failure, have to pronounce a rule for identifying the relevant article of manufacture. As I wrote last month, I believe the Federal Circuit would have been in a great position to do it, and that panel in particular. But it's understandable that the Federal Circuit wouldn't want to pronounce a rule that may not even be relevant in the further proceedings here (though it may be forced to do just that in connection with some other case, such as Nordock v. Systems).

In my opinion, rule-setting benefits greatly from a multi-judge panel, or (even better) a full-court review. Judge Lucy Koh, who would be a Ninth Circuit judge by now or even a nominee for the Supreme Court if not for the outcome of the presidential election, will have to do it all alone. Over the years of this Apple v. Samsung litigation, she has proven that she can manage a complex, high-stakes case very well. In connection with the standard for injunctive relief, I felt sorry for her because she had to deal with a constantly-moving target--even worse than that, a target that would almost always adjust its position in such a way that she got overruled. No matter what rule for the "article of manufacture" she pronounces, one party will believe to have been prejudiced by her decision and appeal, and then this could even go back all the way to the Supreme Court. On the aforementioned conference call, Carl Cecere asked Rothwell Figg's Derek Dahlgren whether there was "a decent change it'll boomerang right back to the Supreme Court as to the design, whatever the test they fashion?" Mr. Dahlgren replied:

"I think that it's possible. I would suspect that if there were issues in the implementation of the test after [unintelligible] on remand, for example, if that was necessary, that then depending on the outcome, if it was something that the Supreme Court disagreed with, I think that you look at the massive damage adjustment that that will receive in this case and I think that just the [unintelligible] of it certainly lent itself to getting scrutiny from the Supreme Court.

So if there's something that happens after, like some sort of [unintelligible] test, they kind of present the same type of [unintelligible], something that says 'This isn't right, this is out of balance,' then I think there's a pretty reasonable chance that the Supreme Court may want to take this issue on."

In that hypothetical scenario, the case might go all the way back to the district court for yet another trial...

So much for the worst-case time frame. What about the stakes?

For the parties, it's still about enough money and to some degree also a reputational concern that it makes sense for them to keep going. The worst case for Samsung would have been that Apple's judgment gets affirmed and that the industry at large, with Samsung being (besides Apple) the main target of patent assertions by non-practicing entities, would have had to deal with the consequences. That very worst case has been avoided thanks to the Supreme Court opinion. Samsung still faces some remaining uncertainty as to whether it will have the burden of proof for the "article of manufacture" and, if so, what the district court's findings related to the record are going to be. For Apple, it's now a nothing-to-lose-something-big-to-gain situation. Apple itself would have been a target of extortionate design patent assertions if the original Federal Circuit opinion had been affirmed, but that's not going to happen and future defendants like Apple will present tons of evidence regarding the article of manufacture. Apple can still try to get the most out of this litigation. I understand that desire but I would consider it unfortunate because no matter on what basis Apple would get an outsized design patent damages award, it would encourage more litigation of that kind and could lead courts and (to the extent they hear about it) juries to award excessive amounts.

Judge Koh is a hard-working judge. No doubt she will soon provide a roadmap.

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