Supreme Court Limits Damages Apple Can Claim From Profits of Samsung Phone Sales After Infringement of Smartphone Appearance

In a unanimous decision, the U.S. Supreme Court interpreted a damages provision of the Patent Act to lower the amount owed to Apple by Samsung.

Smart phones have become like a personal appendage for countless Americans. They rarely leave our hands in the constant flurry of emails, social media updates, and news alerts. These devices have upended much of business and social culture. And now, they are having dramatic effects on the ways in which U.S. intellectual property laws are interpreted and applied.

Because smart phones are highly technical devices, they are covered by literally hundreds of patents. Occasionally, competing manufacturers will accuse one another of infringing on one or more of these valuable patents, incorporating the technology into their own devices without permission.

For nearly seven years, two of the world’s most prominent smartphone makers, Apple and Samsung, have been locked in brutal litigation. That litigation began to come to an end on December 6, 2016, with a unanimous opinion from the U.S. Supreme Court, clarifying the calculation of damages that Samsung owed to Apple for infringing on patents incorporated into the iPhone. The Court’s decision in Samsung Electronics Co., LTD. v. Apple, Inc. stated that an award for damages for infringement can be limited to revenues attributable to the infringed component of a device, and not revenues for the entire product (in other words, sales of all iPhones).

Although the case is highly technical, involving a fairly narrow area of law, the opinion offers important insights into the proper method for damage calculation in an area of technology that will likely see many more blistering lawsuits.

Factual and Procedural Background of Samsung v. Apple Case

In 2011, Apple sued Samsung in the U.S. District Court for the Northern District of California. In August 2012, a jury found that that Samsung had infringed Apple’s design and utility patents and diluted Apple’s trade dresses.

While the specifics of the trial procedure are complicated, the jury ultimately awarded Apple over $1 billion in damages. Although that award was eventually lowered to about $400,000,000 after further argument before the trial court, Apple still had a strong victory.

The design patents at issue were U.S. Design Patent Nos. D618,677, D593,087 and D604,305, which claim certain design elements embodied in Apple’s iPhone. The infringed utility patents are U.S. Patent Nos. 7,469,381, 7,844,915, and 7,864,163, which claim certain features in the iPhone’s user interface.

On appeal, Samsung challenged the trial court’s calculation of the damages for infringement. Specifically, Samsung argued that Apple should be entitled only to the damages specifically attributable to the infringement of specific elements of the phone, not to the entire profits of the phone that included the infringed parts.

The case involves the proper interpretation of 35 U.S.C. § 289, the section of the Patent Act that controls damage awards in cases of design patent infringement. That section provides: “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.”

The U.S. Court of Appeal for the Federal Circuit (the court with jurisdiction over most patent appeals) rejected Samsung’s interpretation and affirmed the trial court’s finding of patent infringement damages in May 2015. (The Federal Circuit did reverse the jury’s findings that Apple’s asserted trade dresses were protectable, an unrelated legal issue).

The Federal Circuit essentially held that under the language of 35 U.S.C. § 289, the “article of manufacture” contemplated by the damages statute was the entire smartsphone, not just the individual components. After all, the court reasoned, a consumer could not realistically buy the phone’s individual parts (i.e., only those covered by the infringing patents). Consequently, damages should be calculated based upon the whole device.

Samsung sought review of the decision by the U.S. Supreme Court, and the Court agreed to hear the case.

The Supreme Court’s Decision

In a unanimous 8-0 decision issued on December 6, 2016, the U.S. Supreme Court held that the Federal Circuit has misinterpreted the language of the Patent Act.

The opinion by Justice Sonia Sotomayor begins with a useful parallel: “In the case of a design for a single component product, such as a dinner plate, the product is the “article of manufacture” to which the design has been applied. In the case of a design for a multicomponent product, such as a kitchen oven, identifying the “article of manufacture” to which the design has been applied is a more difficult task.

The Court noted that 35 U.S.C. § 289 required a two-step test to determine the proper damage award: “First, identify the ‘article of manufacture’ to which the infringed design has been applied. Second, calculate the infringer’s total profit made on that article of manufacture.” In a multicomponent device, such as a smart phone, the question was whether the relevant “article of manufacture” must always be the end product sold to the consumer or whether it could be a component of that product. In other words, is the damage calculation based upon the total number of infringing smart phones sold, or merely the percentage of those sales attributable to the specific component (for instance, the particular design or technical element at issue)?

Ultimately, the Supreme Court decided that the Federal Circuit’s reading of “article of manufacture” was too narrow. Even though the component parts of a smartphone are not sold to consumers, the text of 35 U.S.C. § 289 still did not indicate that the “article of manufacture” would somehow become the entire product, rather than the specific patent-controlled components. “[R]eading ‘article of manufacture’ in § 289 to cover only an end product sold to a consumer gives too narrow a meaning to the phrase,” the Court held.

Conclusion and Ramifications of Samsung v. Apple Case

While the long-term effects of any Supreme Court decision are difficult to predict, it is likely that in an increasingly “device-centric” world, litigation over smartphones, smart watches, and other such devices will only increase. The Court’s decision in Samsung will help patent holders (and potential infringers) to better understand the likely damages that could result following litigation.

Effective date: December 6, 2016