A tale of two smartphones

The ultimate smartphone battle that is Samsung v Apple had its first oral hearing at the US Supreme Court recently, but it may have left more questions than answers

The beleaguered return of Apple and Samsung to the courts was only exacerbated with the first Supreme Court hearing, which didn’t seem to find its footing on either side of the argument. Both Samsung and Apple’s quarrels thrust toward whether or not the court should break a product down into individual “articles of manufacture” and award total profits on each part that is found to be infringing, something that the justices found difficult to comprehend within the confines of the current legislation.

Supreme Court justices took the case up in March and are considering whether the Court of Appeals for Federal Circuit should have backed the original jury in awarding $399 million in damages to Apple, based on Samsung’s entire profits from the sale of smartphones found to contain three patented designs, as outlined in the statute.

Going into the hearing, the hope for many was that the case would set a precedent on this argument, but as the statute does not seem to offer any movability on the case, it is becoming increasingly unlikely that the court will rule in Samsung’s favour, and more likely that it will defer the case to Congress.

Ewan Grist, associate at Bird & Bird, said: “The Supreme Court’s decision will be particularly interesting because it could have a profound effect on the extent of an infringer’s ‘punishment’ if it is found to have infringed another party’s US design patent.”

“In a world of increasingly complex technological products which may each embody many different IP rights at once, the prospect of having to turn over all profits made, simply because a potentially minor or unimportant feature of the overall product infringes, is perceived by many to be draconian.”

Kathleen Sullivan of Quinn Emanuel, who is representing Samsung before the Supreme Court, said during the hearing: “A smartphone is smart because it contains hundreds of thousands of the technologies that make it work. But the Federal Circuit held that Section 289 of the Patent Act entitles the holder of a single design patent on a portion of the appearance of the phone to total profit on the entire phone.”

“That result makes no sense. A single design patent on the portion of the appearance of a phone should not entitle the design patent holder to all the profit on the entire phone.”

But Justice Anthony Kennedy of the Supreme Court said that there was an issue with instructing the jury on that point. He said: “If I were the juror, I simply wouldn’t know what to do under your test.”

“My preference is we’d have market studies to see the extent to which the design affected the consumer, and then the jury would have something to do that. But that’s apportionment, which runs headlong into the statute.”

Sullivan responded by telling Justice Kennedy that Samsung did not propose a test that leaves the jury without argument. Instead, she said: “We would have told the jury that the article of manufacture to which a design has been applied is the part or portion of the product as sold that incorporates or embodies the subject matter of the patent.”

Justice Kennedy maintained, however, that this was still difficult to understand for a juror, stating: “If I’m the juror, I just don’t know what to do. I’d have the iPhone in the jury room; I’d look at it. I just wouldn’t know.”

Justice Sonia Sotomayer, siding with Justice Kennedy, stated: “I am like Justice Kennedy, which is, how do we announce the right test for that? Because the phone could be seen by a public—a purchasing consumer as being just that rounded edge, slim outer shell. That might be what drives the sale. I don’t know.”

Justice Ruth Bader Ginsberg then posed Sullivan the question: “How would you determine the profit attributable to the relevant article of manufacture?” Which Sullivan preparedly answered with two suggestions.

The first would be to look through ordinary accounting, assessing the cost of goods sold in relation to revenues for the relevant component.

The second could be consumer demand evidence. Sullivan said that Apple could have proved the total profit from the relevant article through a customer survey to show that customers liked the patented design more than any of the other parts of the phone.

In his comments, Seth Waxman of WilmerHale on behalf of Apple said: “You may determine that the article of manufacture is the entire product or a distinct component of that product.”

“In making that determination, you may consider, and this would depend on the evidence in the case.”

He added: “For example, most importantly the identity of what it is that is typically consumed by purchasers.”
“Whether the patented design is likely to cause consumers to purchase the infringing product thinking it to be the patentee’s product.”

Seemingly agreeing with Samsung, Chief Justice John Roberts said in response to Waxman: “It seems to be that the design is applied to the exterior case of the phone. It’s not applied to all the chips and wires, so there shouldn’t be profits awarded based on the entire phone.”

But Waxman rebutted, stating in accordance with the statute that “the profits are awarded on the article of manufacture to which the design is applied”.

“It’s important to understand that design is not a component and the patented design is not the article of manufacture. The patented design is something that’s applied to an article of manufacture.”

Chief Justice Roberts asked Waxman how the design of the case was applied to the chips and wires, to which Waxman replied: “A design is not a component. A design is applied to a thing.”

After the hearing, Grist offered more comment, saying: “Whilst the Supreme Court recognises the flaws of the total profits rule, [the] hearing showed the problems the court will face in overcoming this century-old law.”

“For example, how does one assess the profits directly attributable to, say, the layout of the icons on a graphics user interface? One senses that the Supreme Court has considerable sympathy with Samsung’s predicament, but whether it can find a creative way to justify some kind of apportionment (even if it doesn’t call it that) without contravening the statute is another matter.”

Michael Sandonato, partner at Fitzpatrick, Cella, Harper & Scinto and chair of the firm’s electronic and computer technologies practice group, believes that the Supreme Court may end up siding with the US Department of Justice (DoJ), which filed a brief in the case.

He explains: “The Federal Circuit based its decision to affirm the award of the totality of Samsung’s profits upon what it found to be ‘clear statutory language’, even while acknowledging the policy arguments against such a rule. The DoJ’s brief wisely treats the issue as one of statutory interpretation as well, but focuses on the question of what the relevant ‘article of manufacture’ is, and argues that it sometimes may be a component of the finished product.”

“The DoJ would have the fact finder identify the ‘article of manufacture’, and in that sense eschews the Federal Circuit’s more categorical rule.”

“It is difficult to predict what the Supreme Court will do, but to the extent that they view the case as a choice between a more flexible rule on the one hand and a more rigid rule on the other, I think that they will land somewhere closer to the DoJ.”

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