Tuesday, December 6, 2016

Another one bites the dust (design patent valuations expected to drop)

It never made sense to me that design patents -- patents that protect an ornamental design instead of a functional aspect of a device -- used a formula for determining damages that made them far more valuable than utility patents.  District courts have traditionally awarded damages equal to essentially all of the profits generated by the infringing item.  Such was the case in the Apple v. Samsung matter.

In that case, the design patent was literally for the ornamental design of rounded edges on a smartphone.  When Samsung made a phone with rounded edges, Apple sued seeing damages equal to all of Samsung's profits on the device.  While Samsung has had its own problems lately, and certainly wouldn't have a whole lot of profit to pay out on the Note 7, it did get hit with a huge verdict of $399 million.

The primary argument was that the "article of manufacture" that is used to measure damages was the end product -- the phone -- rather than simply the phone's integral case.  The Supreme Court half punted.  They first held that this was too narrow a read of the term "article of manufacture":

But, for the reasons given above, the term “article of manufacture”
is broad enough to embrace both a product sold
to a consumer and a component of that product, whether
sold separately or not. Thus, reading “article of manufacture”
in §289 to cover only an end product sold to a consumer
gives too narrow a meaning to the phrase.
However, rather than coming up with a proper test or formula to determine how damages should be calculated, the Supreme Court sent the case back to the lower courts with instructions for them to figure it out.  While it is complete speculation, it is possible that the Supreme Court agreed that the existing test was defective, but was split 4-4 on the appropriate replacement test.  By sending it back to the lower courts, the Supreme Court gives the senate (even more) time to do its job and get a ninth justice confirmed.  At that point, if the Supreme Court is unhappy with the lower court's implementation of its decision, it can take the case again on appeal (the lower in the lower court is pretty certain to appeal) and decide the proper test without having a 4-4 deadlock.

As a side note, I think Samsung's lawyers may have missed their strongest argument:  A beveled edge is not an ornamental design.  Rather, it is a functional design, reducing the risk of chipping the glass at the edges, reducing the amount of raw material required, reducing the phone's weight, and making the phone easier to grasp.  I would have argued that it was patent-ineligible as a design patent.  Regardless, Samsung's lawyers found a different path to victory, unless the lower courts pull the rug out from under them.

In the meantime, design patents continue to get favored treatment in several ways, including patent term calculation (14 years from issuance instead of 20 years from filing) and filing fees.

Case link is here https://www.supremecourt.gov/opinions/16pdf/15-777_7lho.pdf

Update:  Janice Mueller, who is the author of a fantastic book on patent law, has written an excellent article about the decision.  It is available at https://chisum-patent-academy.com/wp-content/uploads/SSRN-id2882765.pdf