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.

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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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