Vol 42 No 4 Summer 2016

Evidence Testing Your Evidence Before and Even During Trial Uses and Implications of Government Reports

The Legal Response to Mass Forensics Errors are being appealed in Apple v. Samsung? How are the companies that sue for pat­ ent infringement, and those that are sued iWitness regularly, reacting to this decision? What companies are vulnerable to design patent THE RISE OF DESIGN claims, and how can you prepare them in advance? PATENTS Section 171 of the U,S, Patent Act de­ fines a design patent as "any new, origi­ nal and ornamental design." 35 U.S.C, § 171(a) (2014), Examples of attributes protected by design patents include the ornamental appearance of a shoe upper, sunglasses frame, hoverboard—and even YURI M1KULKA ridges on potato chips. Because a design patent protects only "ornamental" design, The author is a partner at Manatt, Phelps & Phillips, LLP, Costa Mesa, California. the design cannot be functional. For in­ stance, if an article must be designed a certain way to function as intended, design patent protection is unavailable. The design itself, however, need not be complex or groundbreaking—and it often isn't—which leads to the question of why greater damages are permitted for design patent infringement. This is because section 289 of the Design or utility patents; Which one round-cornered front face curved edges" Patent Act, which applies only to design trumps in the world of patent infringe­ of a smartphone. It also overlooked the patent cases, provides for recovery of ment litigation? facts that the accused devices included "total profit[s]" of infringing articles of You may be surprised that in patent Samsung's investment in thousands of manufacture. 35 U.S.C. § 289 (2014). In infringement cases, design patents that other more complex patents and tech­ contrast, for infringement of utility pat­ cover the ornamental design of an article nological innovations, and that Samsung ents, section 284 of the Patent Act applies, can be more valuable than utility patents spent millions in marketing to generate which allows "damages adequate to com­ covering functional innovations to it. This sales. No such remedy exists for other pensate for the infringement." 35 U.S.C. is because potential damages are much, types of intellectual property. § 284 (2014). In other words, an award of much greater. For utility patent infringement, a pat­ actual damages (i.e., lost profits), which Based on the Federal Circuit's current entee may only recover damages "attrib­ is often difficult to prove, or a reasonable reading of the Patent Act, a patentee is utable to the infringing features," which royalty, which is typically a fraction of the entitled to the infringer's total profits in typically results in a fraction of the in­ total profits. The result? If you can prove cases of design patent infringement, with­ fringer's profit. VirnetX, Inc. v. Cisco design patent infringement, you may be out apportionment or proving causation Systems, Inc., 767 F.3d 1308, 1326 (Fed. able to recover multiples of what you may or intentional infringement. That was Cir. 2014). As of this writing, the Apple recover for utility patent infringement. what happened in Apple Inc. v. Samsung v. Samsung damages award is before the Why such a disparity? At the inception Electronics Co., in which Apple was Supreme Court, which decided to review of design patent law in 1842, the same awarded all of Samsung's total profit for the laws applicable to design patents for standards for damages applied to both design patent infringement. the first time in over 120 years. utility and design patents. This required Notably, Apple's damages award didn't What is the reason for allowing dispro­ apportioning the damages to the patented take into account that the patented de­ portionately greater damages for design design, as compared with the value of the sign covered only certain design elements patent infringement? What are the im­ underlying article. Because of case law il­ of the accused devices—"a rectangular plications of this disparity? What issues lustrating the difficulty of apportioning

VOL42 I NO 4 I SUMMER 2015 13 or Samsung's "total profit" from sales of the phones at issue. Apple was also awarded $382 million for trade-dress dilution and $149 million for Samsung's utility patent infringement. Apple's award broke the record as the largest for infringemeiiL of a design patent, and it made the list of the top five infringe­ ment awards of all time, Other billion-dol­ lar awards have involved utility patents covering complex pharmaceutical or bio­ technology innovation, including the heart valve patent asserted against Medtronics and a Roundup Ready technology patent asserted against DuPont, And while these patents were central to their product's functionality, the patentees didn't recover total profits; they were limited to actual lost profits or a reasonable royalty. By contrast, Samsung was ordered to fork over all of its profits on the accused devices, though it maintains Apple's de­ sign patents claimed only a "trivial" de­ the damages to a design patent, however, in 2011 in San Jose, its backyard, resulted sign of a "particular black rectangular Congress amended the Patent Act of 1887 in a record damages award. round-cornered front face, a substantially to permit recovery of total profit from the Specifically, Apple accused Samsung similar rectangular round-cornered front manufacture or sale of any accused ar­ of infringing its utility patents, design face plus the surrounding rim or 'bezel,' ticle, with a minimum liability of $250. patents, and trade dress for iPhones. and a particular colorful grid of sixteen The Patent Act of 1887 was later codified Samsung counterclaimed, asserting that icons." Petition for a Writ of Certiorari at in section 289. Apple infringed Samsung's utility patents. 1, 31, Samsung Elecs. Co., Ltd. v. Apple Inc. But Congress had no way of know­ In 2012, a jury awarded Apple $1.05 bil­ (2015) (No. 15-777), 2016 U.S. LEXIS 2024. ing—fast forward a hundred years—that lion in damages, later reduced by $450.5 On appeal, the Federal Circuit re­ a thriving cottage industry of nonprac- million by the court. In a follow-on trial, versed the $149 million trade-dress di­ ticing entities (NPEs) would be formed a jury awarded Apple an additional $290.5 lution damages but affirmed the $399 for the sole purpose of acquiring and million in damages, bringing the total to million in damages attributable to the asserting patents against companies to $930 million. The verdict and opinions in design patent infringement. Apple Inc. generate licensing fees. Nor did Congress these cases have been subject to exhaus­ v. Samsung Elecs. Co., 786 F.3d 983, 989 anticipate that design patents would be tive appeals. (Fed. Cir, 2015), While acknowledging ar­ asserted against technologically complex Apple v. Sa77-1suisn't most notable for guments that "an award of a defendant's en­ devices, rich with their own intellectual the record-breaking number of appeals, tire profits for design patent infringement property rights—as in Apple v. Samsung. the hundreds of millions in legal fees, or makes no sense in the modern world," the the relentless press coverage, which was Federal Circuit said that it was bound by rumored to have increased both compa­ what section 289 says. Id. at .1002 n.l. The Apple v. Samsung nies' sales. The real stars were the de­ court explained that because an "article In the smartphone war, rivals Apple and sign patents—a kind of patent unknown of manufacture" under section 289 con­ Samsung have accused each other of in­ to most people until this case. Although stitutes the entirety of the product as to fringing their respective patents. This Apple's patents covered only a portion which an infringer must pay total profits, has been litigated across the globe, with of the outer cover of Samsung's smart- no matter how little of that profit may be tribunals finding in each side's favor in phones, they resulted in the biggest por­ attributable to the actual infringement, it various cases. But the case filed by Apple tion of the damages award: $399 million, was precluded from adopting a causation or apportionment rule to limit damages. is much ado about nothing. The Federal thinks it can prove actual damages, will­ Id. at 1002. Circuit's decision isn't "cert worthy," it ful infringement, or an exceptional case, Samsung's certiorari petition points argued, because it "broke no new legal it is best to keep all options open. out that, as of 2012, the U.S. Patent and ground" and "simply applied the statute As applied in Apple v. Samsung, section Trademark Office had issued 250,000 and well-settled law to the extraordi­ 289 raises compelling questions about the smartphone patents, and any smart- nary record of infringement and copying assertion of design patents against in­ phone incorporates the vast majority of [by Samsung]." Brief in Opposition at 2, creasingly complex products. Consumer these. Therefore, allowing recovery of Samsung (2015) (No. 15-777). products companies shouldn't be sur­ total profit for a design patent covering The concern expressed by Samsung prised to receive a cease-and-desist let­ only a component of a product "greatly and other tech companies that we may ter or a complaint asserting design patent overprotects and overcompensates design now face an explosion of design patent infringement from NPEs or competitors. patents," resulting in "massive windfalls lawsuits has some merit. The ability to Here are some tips to help your clients be far exceeding the inventive value of. . . collect greater damages for infringement— prepared before they do: [such] patents." Petition for a Writ of without having to prove causation or ap­ Certiorari, supra, at 20, Samsung (No, 15­ portion damages—may prove irresistible • Conduct patent diligence. Recom­ 777). Samsung explained that this would to many patentees and can only attract mend that your client engage counsel produce "absurd and anomalous" results- NPEs. This is particularly true because to conduct patent clearance on both such as awarding "the entire profits on a the Supreme Court's decision in Alice utility and design patents before car (or even an eighteen-wheel tractor- Corp. Pty. Ltd. v. CLS Bank International, launching an important new product. trailer) that contains an infringing cup- 134 S. Ct. 2347 (2014), greatly limited the • Design around. If you find a prob­ holder" or "the entire profits on every pair patent eligibility of software and business lematic design patent, look for a of shoes that contains an infringing heel, methods and NPEs' ability to enforce and design-around. Because a design pat­ sole or lace." Id. at 26, 31. profit from those patents in their portfo­ ent covers only ornamental design, it Samsung isn't the only one challenging lios. Moreover, consumer products com­ is relatively easier to design around the disparity of design patent damages. A panies are now filing and asserting design than a utility patent. consortium of tech giants—including Dell, patents against competitors at an increas­ • Look for functionality. Analyze the Facebook, Google, and eBay—filed amici ing rate. From 2004 to 2014, there has function of the article subject to the briefs challenging the Federal Circuit's been a 32 percent increase in design pat­ design patent. If the protected design decision. This group argues that the ent applications, and from 2005 to 2015, or its elements are dictated by func­ Federal Circuit's decision will have "a there has been a 32 percent increase in tion, seek an early court determina­ devastating impact on companies, includ­ design patent infringement cases filed. tion of functionality. This can render ing amici, that spend billions of dollars Design patents can be powerful, but the patent invalid or impede a finding annually on research and development for there are disadvantages. For instance, to of infringement. complex technological products and their prove infringement, one must prove that • Play offense too. It doesn't take components." Brief for Dell Inc., et al. as the overall design of the accused item is decades of research or Apple's R&D Amici Curiae Supporting Petitioners at 3, "substantially the same" to the ordinary budget to develop a design patent. Samsung (2015) (No. 15-777). They warn observer. In contrast, utility patents may Encourage your clients to apply for that the decision has already "prompted be infringed even if the accused device design patent protection on novel, so-called 'patent trolls' to threaten de­ looks different, as long as the device falls ornamental designs of their products. sign-patent litigation against Samsung within the literal scope of a patent or is Keep in mind, however, that in the and its amici," and they conclude that equivalent to the claimed invention. United States, your client must seek "companies are applying for and obtaining Moreover, if a patentee elects dam­ patents within a year of public record numbers of design patents, which ages under section 289, it can't recover disclosure. are certain to be asserted at similarly enhanced damages or attorney fees even • Don't limit your options. If your cli­ growing rates." Id. at 5. They claim this if the infringement is found to be willful ent is the one asserting design patents, will undermine innovation and research or the case is deemed "exceptional" un­ seek damages under both sections and development efforts—"a particularly der 35 U.S.C. § 285 (i.e., the claims or de­ 289 and 284 and submit a verdict form troubling development in light of the spu­ fenses are objectively baseless and in bad requiring the jury to calculate both. rious quality of many design patents." Id. faith). It would also forgo recovery of ac­ Otherwise, the jury may elect the Not surprisingly, Apple claims this tual damages. Therefore, where a plaintiff mode of damages for you. •

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