Lost Profit in Design Patent Litigation to be Based on Damages Apportionment
- If, as Apple argued on remand to Federal Circuit, Samsung did not present evidence on apportionment at trial, was the legal issue of apportionment even appropriate for appellate review?
- Samsung accusation of trial judge error in failing to include multi-component into instructions could open door to a retrial on the damages issue of apportionment
- When outside comfort zone, Federal Circuit will punt back to the trial court
- Likely a pyrrhic victory for Samsung since Apple still likely to get lion’s share of lost profits, even after apportionment, with a few trial and appellate errors made by both parties along the way
In Apple v. Samsung, a patent litigation case decided on December 6, 2016, a unanimous Supreme Court reversed the Federal Circuit’s judgment awarding Apple $399 million damages for design patent infringement because the Federal Circuit erred in its interpretation of design patent damages pursuant to 35 U.S.C. § 289. (S. Ct. Op. 7). On February 7, 2017, a humbled Federal Circuit, in a nonprecedential decision, reinstated the case and remanded to the district court as “better positioned to parse the record to evaluate the parties’ competing arguments.” Fed. Remand Op. 4.
What is a patent practitioner to make of these developments?
The first take-away from Apple v. Samsung is that things can and often do go awry in patent litigation. Take for instance the fact that the legal question of damages apportionment was heard by the appellate court in the first place. As patent litigators know, appeals begin and are often won and lost at trial. Failure to object or preserve for appeal an issue at trial can make or break the appeal. If, as Apple argued on remand to the Federal Circuit, “[t]the design patent damages award can be affirmed without additional briefing or argument because Samsung never asserted that the relevant article of manufacture was anything other than Samsung’s entire phones” (Fed. Remand Op. 4.), then why was the issue of damages apportionment even heard on appeal?
It is black letter law that a court will not render advisory opinions. If there was no evidence on the relevant article of manufacture being anything other than Samsung’s entire phones presented at trial (e.g., no evidence on the damages apportionment between design and components), and no objection or preservation of this issue during trial, then as an issue not before the trial court, the issue may not have been appropriate for appeal.
The panel circuit decision of the Federal Circuit appears to be based on the contentions of Samsung that the court erred in allowing the jury to award Samsung’s entire profits, the damages should have been limited because of “basic causation principles,” and that Apple failed to establish that causation. Fed. Panel Decision Op. 25. Yet Apple appears to have lodged no objections with the panel circuit of the Federal Circuit to these appellate contentions on the basis that Samsung never asserted that the relevant article of manufacture was anything other than Samsung’s entire phones (e.g., no evidence on the allocation of damages between design and components).
Apple further appears to have lodged no objection with the Supreme Court to a legal issue that not Samsung but the panel circuit of the Federal Circuit may have raised for the first time during the appeal to Samsung’s benefit (“Samsung’s “causation” arguments “advocate the same ‘apportionment’ requirement that Congress rejected.”) Fed. Panel Decision Op. 26. It may be that every one of the appellate decisions on this damages apportionment issue would not have been rendered but for the failure of Apple to make some timely objections.
The second take-away from Apple v. Samsung is that some litigators have no shame in pointing the finger at anyone to get a win – even the judge. Take for instance Samsung’s argument on remand to the Federal Circuit that the court is to blame for not having said more on multicomponent products at the trial level, as though it was the role of the judge to advocate this point for the parties. “Samsung did not dispute that the trial court’s recitation of the statutory language from § 289 was accurate. Rather, it argued that the court should have said something more to account for the fact that, in a multicomponent product, there might be more than one article of manufacture within the meaning of § 289.” Fed. Remand Op. 4.
This is about as polite a statement a patent litigator can make about a judge without saying the judge got it wrong. But all is fair in love and war. Where, as here, the lawyers themselves could be held accountable by Samsung for malpractice for failure to put in evidence on apportionment at trial, accusing the judge may have given the lawyers their only “out” since even the appearance of an injustice to Samsung may cause the judge to err on the side of granting a retrial on damages apportionment.
The third take-away is that, when the Federal Circuit is outside its comfort zone on deciding an issue, plainly it has no hesitation about punting the case back to the trial court. This is especially true in this case, where the Federal Circuit is as much accountable as is the Supreme Court for having decided a question of law that, for the reasons given above, may not have been appropriate for appeal in the first place.
The Federal Circuit decision was hastily rendered in a little over two months after the Supreme Court decision and is premised on what appears to be faulty logic that the parties’ arguments are predicated on “jury instructions the current trial record supports” when Apple’s arguments appear to be based on evidentiary support for apportionment damages and not on jury instructions. Fed. Remand Op. 4. The Federal Circuit opinion was rendered per curium. With such apparently hasty and faulty logic, it is not surprising the opinion has been labeled “nonprecedential.”
The fourth take-away is that Samsung likely will have its day in court on the damages apportionment question. The law may be on Samsung’s side on this since courts will hear new issues if there has been a change in law. See, for example, Patterson v. Alabama, 294 U.S. 600, 607 (1935). Given that three appellate decisions have breathed life into the issue (i.e., panel circuit of the Federal Circuit, the Supreme Court, and panel circuit of the Federal Circuit on remand) and the likely waiver by Apple of not raising timely objections to the appeal, it is not likely that Apple can turn back the clock now to keep damages apportionment out of the case. It is likely Samsung will have its day in court.
The fifth and final take-away from Apple v. Samsung is that Apple is still likely to get a lion’s share of damages when this is done and over with because it is highly likely Samsung copied a design it knew consumers wanted.
In deciding the lost profit damages, the court will look to precedent on lost profit in making that decision. For precedent, the court will find that at the inception of design patent law, the same standards for damages applied to infringement of both utility and design patents. Subsequent legislation caused damages for utility and design patents to diverge. In particular, in utility patent infringement, a patent holder may recover a reasonable royalty or lost profits. 35 U.S.C. § 284. A reasonable royalty analysis usually involves a hypothetical negotiation between the patent holder and the infringer. Georgia Pacific factor 15 typically even allows the infringer to make a reasonable profit.
The court will note that under a lost profits analysis in utility patent infringement, it is the patentee’s lost profits that can be claimed and not the infringer’s potentially higher profit. Arguments like price erosion due to infringer’s entering into the market may be used to bolster lost profits; but the reality is they may be difficult to prove. In contrast, in Section 289 applicable to design patent infringement, the infringer is forced to disgorge all of the infringer’s profits without consideration of the different factors that contributed to that profit. The infringer’s profits can be higher than patent holder’s profit since the infringer is without costs, such as R&D.
The court will likely look to jurisprudence on allocation of damages in utility patent cases for guidance on determining allocation of lost profits in design cases and then apply that jurisprudence to the infringer’s profits as required in design infringement as opposed to the profits of the patent holder as done in utility infringement cases.
Under lost profits in the utility infringement paradigm, the smallest salable practicing unit is the basis for determining lost profits, but the basis can be broadened to include a larger product if the entire market value rule is met as to the larger product. LaserDynamics v. Quanta Computer, Inc., 694 F.3d 51, 68 (Fed. Cir. 2012).
In other words, as this teaching may be applied to Apple’s design infringement damages calculation, if the Apple patented feature drives the basis for consumer demand for the Samsung product, then under the entire market value rule, Apple could get all or a lion’s share of the Samsung profit. As explained in Lucent where the patented invention is “but one part or feature among many,” royalties may be assessed against the total value of the accused product if the patented functionality “is the basis for consumer demand” for the accused product. Lucent Techs. Inc. v. Gateway Inc., 580 F.3d 1301, 1337 (Fed. Cir. 2009).
It is true that many consumers like the Samsung mobile device because of its display and certain other features. Samsung should be able to reduce the profit damage some amount for the contribution of those features to the profits. But at the end of the day, it is highly likely Samsung copied Apple’s design because it knew that is what customers wanted. As the Apple design is likely a key driver for consumer demand for the Samsung product, when all is said and done Samsung is likely to pay the lion’s share of its $399 million profits to Apple.
For patent practitioners, the lessons from these Apple v. Samsung decisions is this:
- Be sure to preserve all issues at trial for appeal.
- Remember that an issue is not appropriate for appeal if it is not preserved at trial. Raise an objection to an issue on appeal not properly preserved at trial if appropriate or that issue can come back to bite you on a trial remand as it appears may have happened to Apple in the Apple v. Samsung litigation.
- The new law on damages in design patent infringement is apportionment.
In fairness, the Apple v. Samsung case is a huge case with many wheels turning. So it is not surprising that the Apple “mobile” had a flat tire. All cars have one at some point. But the good news for Apple and bad for Samsung is that it is likely to be just that, a flat tire. Once the apportionment issue gets heard at the trial court, the parties and patent community will likely look back at these latest court decisions as nothing more than a pyrrhic victory for Samsung with a few trial and appellate errors made by both parties along the way. Given the likelihood that Samsung copied Apple’s design because it knew that is what customers wanted, Apple is likely to walk away with a lion’s share of Samsung’s profits even after apportionment of damages.