Apple v Samsung – Design Patents and ‘Damages’

In writing a few days ago about the $1.05 billion jury verdict in the US Apple v Samsung trial, we observed that there was a significant disparity between amounts awarded by the jury where it found design patent infringement and those awarded where only utility patent infringement was established.  (See Billion-Dollar Jury Verdict a Blow to Samsung – But How Bad Is It?)

We speculated that this may be due to the theory that consumers might be ‘tricked’ into buying Samsung devices which have been ‘slavishly copied’ from Apple products, resulting in greater loss of sales by Apple.

However, we have now learned that there is a very specific reason for the high awards for design patent infringement.  As explained in this article on the intellectualIP blog, written by Professor Thomas F. Cotter of the University of Minnesota Law School, there is a peculiar anomaly in the US law relating to the remedies available in cases of design patent infringement which justifies such high monetary compensation.

DAMAGES V ACCOUNT OF PROFITS

In many jurisdictions – Australia included – the plaintiff in an IP infringement matter (e.g. patent, trade mark, copyright or design) has a choice when pursuing financial compensation.  The first option is damages, which is an estimate of the amount lost by the rights-holder as a result of the infringing activity.  The second option is an account of profits, which is an estimate of the amount of additional profit the infringer made as a result of their infringement.  The plaintiff must elect one or other of these options before a court will determine any monetary award.  It cannot, for example, ask the court to determine both, and then pick the larger amount!

The main factors influencing the choice of compensation method are which one the plaintiff thinks will provide the greater award, and/or whether one can be calculated with greater accuracy or certainty than the other.

Outside the US, orders for monetary compensation are decided by judges, who are generally experienced in such calculations, or are able to obtain additional advice and/or expert evidence to assist in determining the appropriate award.  As Professor Cotter points out in his article, the calculation of an account of profits is typically non-trivial, because not all of the profit made by the infringer is necessarily due to the infringing activity.  Had the infringer chosen to use the best non-infringing alternative, it may have made fewer sales, but its sales would not necessarily have dropped to zero.

DIFFERENCES BETWEEN DESIGN AND UTILITY PATENT AWARDS

Because of this complexity, in 1946 the option of seeking an account of profits was dropped from the US patent law, leaving a patent-holder with a choice between damages and a ‘reasonable royalty’, i.e. the amount it would have made in licence fees if the infringer had in fact paid to exploit the patented invention at a reasonable market rate.  However, this change was made only in relation to utility patents.

For design patents, the option of an account of profits was retained, now in Section 289 of the US Patent Code:

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 [emphasis added].

The law therefore authorises the award of compensation equivalent to the total profit made by the infringer, regardless of the extent to which the infringement may have contributed to that profit.

JURY INSTRUCTIONS

The jury was clearly instructed that this was how it should calculate the award to Apple in any case where it found design patent infringement to have occurred.  Final Instruction No. 54 (on page 72 of the Jury Instructions [PDF, 890kB]) informed the jury that:

If you find infringement by any Samsung defendant and do not find Apple’s design patents are invalid, you may award Apple that Samsung defendant’s total profit attributable to the infringing products.

The “total profit” of Samsung Electronics Company, Samsung Electronics America and/or Samsung Telecommunications America means the entire profit on the sale of the article to which the patented design is applied, and not just the portion of profit attributable to the design or ornamental aspects covered by the patent [emphasis added].

With regard to utility patent damages, Final Jury Instruction No. 35 (page 49) stated:

The amount of those damages must be adequate to compensate the patent holder for the infringement. A damages award should put the patent holder in approximately the financial position it would have been in had the infringement not occurred, but in no event may the damages award be less than a reasonable royalty. You should keep in mind that the damages you award are meant to compensate the patent holder and not to punish an infringer [emphasis added].

CONCLUSION

According to our calculations, the award made in relation to the Fascinate smartphone, which infringed both design and utility patents, was around $100 per unit, or 23% of total sale price. The award for the Galaxy Tab 10.1, which infringed only the utility patents, amounted to just $1.42 per unit, or 0.4% of total sale price.

In recent days there has been much discussion of the extent to which the jury truly heeded the 108 pages of instructions with which it was burdened.  One might argue that a 23% profit margin on a Fascinate smartphone is a little high, while 0.4% is perhaps somewhat low for a reasonable royalty on three key Apple patents.  However, the specific amounts aside, the disparity strongly suggests that the jurors did indeed read and heed the instructions, at least in relation to monetary awards.

Tags: Account of profits, Apple-v-Samsung, Damages, Designs, Infringement, US