Supreme Court Chisels Away Damages for Design Patents

Yesterday the Supreme Court tossed out a $400 million award that Apple had won against its smartphone rival Samsung.  The decision was the Court’s first unanimous ruling on design patents in more than a century, and will have broad implications for litigation involving design patents.

Prior to this ruling, infringers of a design patent were required to fork over their “total profit” from the sale of an “article of manufacture” that incorporates a patented design.  And the “article of manufacture” was long held to be the entire product sold to consumers, even if the patented design element was only a portion of the product.  In Samsung’s case, that meant it was required to hand over every dollar it made from sales of the infringing phone, even though only a few subcomponents of those phones actually infringed Apple’s patents.

The Supreme Court overturned that standard yesterday, declaring that the “article” recited in the patent statute could be limited to only components of the final product.  The ruling, though light on specifics, is almost certain to reduce the amount of damages that can be awarded for design patent infringement. Now, an award of “total profits” will likely be limited to only those profits attributable to the infringing design components, instead of from the entire finished product.

Different industries in the United States have different opinions on the outcome.  Design-dependent companies (such as fashion and jewelry companies) had urged the Court to uphold the prior standard, saying the threat of large damage awards was necessary to fight counterfeit goods in the United States.  But critics, including the U.S. government and some tech giants, argued that the prior standard was unfair because the damages were grossly disproportionate to the actual wrongdoing.  Damages for utility patents, by comparison, are calculated more proportionally; and this decision reshapes design patent damages to be in line with that approach.

Although the Supreme Court held that courts should not necessarily limit their definition of “article of manufacture” to the entire finished product, it left several issues unresolved.  For example, it offered no guidance for how courts should decide whether a subcomponent of a larger product is in fact the “article” for which profits must be paid.  Nor did it discuss how to calculate the amount of damages attributable to only a subpart of a larger product.  Thus, application of the new standard will likely take years to resolve.