WASHINGTON — In a unanimous decision last month, the U.S. Supreme Court took away Apple’s $400 million win in a lawsuit against Samsung, calling on the lower courts to reassess the damage award for violating a smartphone design patent.

And this decision could have broader implications for other cases involving design patents for phones and other products, said a Chicago intellectual property attorney.

Apple brought its legal battle against Samsung over its alleged use of Apple’s trademark rectangular shape with rounded edges and grid full of colorful apps on a black screen. After a jury found that several phones Samsung made infringed on Apple’s design patent,  the damages award included all of Samsung’s profits from the sales of those smartphones. Samsung appealed the federal district court ruling to the U.S. Court of Appeals for the Federal Circuit, asking the court to limit damages because only part of the phones allegedly infringed on the design patent.

A design patent covers a component that doesn’t have a useful function but is new or distinctive, from the stripes on a shoe to the shape of a smartphone. Federal patent law prohibits making and selling an “article of manufacture” whose design is patented. In the event that a person or company infringes on another’s design patent, the violator is “liable to the owner to the extent of his total profit,” according to section 289 of the Patent Act.

At issue was what constitutes an “article of manufacture” in a product with many components. The federal circuit determined that because smartphone components can’t be purchased individually, the entire phone counts as the “article of manufacture” that can be used to calculate damages. Thus, the court upheld the $400 million number.

But in a Dec. 6 ruling authored by Justice Sonia Sotomayor, the Supreme Court determined the federal circuit was too narrow in its decision regarding the award of damages. All eight justices agreed that, in a product with multiple components, such as a smartphone, the “article of manufacture” doesn’t automatically refer to the entire product. It could refer only to a component.

The case is far from settled. The court remanded the suit to the federal circuit and tasked it with fashioning a test to determine the “article of manufacture” in a design patent case. The lower court will have to pick up litigation from there to answer whether the entire smartphone or just a component is in violation of Apple’s patent.

The Supreme Court’s decision has some broader implications.

The ruling shows that “in some cases, the full amount of the profits from the design should not be awarded, if the design is not what’s solely driving the sales,” Martin S. Masar III, a patent attorney at Katchen, Muchin, Rosenman in Chicago, told the Cook County Record.

“Even after this decision, there may be cases where the design is so critical to the product that the size of this award may still happen," Masar said. "It may still happen in this case. The court didn’t decide that the design was insubstantial. It kicked it down to the lower courts to decide whether it is or is not.”

But the point is that the infringer’s total profit isn’t automatically at stake in these cases any more, he said. He thinks this is the point that united the Supreme Court.

“I think it was the fact that there was an automatic rule that you got all the damages when the statute didn’t necessarily require that,” he said.

Notably, this weakens the threat of massive awards and could alter accused infringers’ stance toward settlement, Masar added. Previously, “non-practicing entities” – otherwise known as patent trolls – could use the threat of the damages award as leverage. Now that may not be so set in stone.

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Katten Muchin Rosenman LLP
525 W Monroe St
Chicago, IL - 60661

U.S. Supreme Court
1 First St NE
Washington, DC - 20543

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