As several of my fellow Dallas Patent lawyers have been discussing, the Federal Circuit’s ruling in Apple Inc. v. Samsung Electronics Co. Ltd. et al., No. 2014-1335, 2015-1029 (Fed. Cir. May 18, 2015) potentially opens a quagmire for consumer businesses, and collapses another for patent monetization.
In 2012, a California jury awarded Apple over $1 billion in damages against Samsung on the basis that Samsung’s smartphones infringed Apple’s design patents and violated Apple’s trade dress protection under the Lanham Act. A partial retrial on damages reduced the judgment to $930 million–$548 million for the design patents, and $382 million for the trade dress violation. Samsung’s appeal of the patent verdict gave the federal circuit jurisdiction over the entire appeal under 28 U.S.C. 1295(a)(1) *Had it only been a trade dress case, the appeal would have gone to the Ninth Circuit.
The Federal Circuit first reversed the verdict and damages on trade dress violation. The trade dress claim arose under the Lanham Act and is derivative of a company’s trademark protection. “The essential purpose of a trade dress is the same as that of a trademarked word: to identify the source of the product.” As a friend of mine–another Dallas patent lawyer–noted, “trade dress is about being pretty, not useful.” However, as the court itself observed, when you have a trade dress protection, the protected design must be non-functional. That’s because functionality must be available to competitors in the market–unlike a patent which expires after twenty years (after which everyone can use the design for free), a trade dress right doesn’t expire ever. So the threshold question in any trade dress case is whether the design is functional-e.g., whether it is necessary to “the use or purpose of the article or if it effects the cost or utility of the article.” Apple’s unregistered trade dress claims stemmed from the configuration of their i-Phones–the rounded corners, placement of buttons, size, arrangement of the bezel, the arrangment of icons, the dots to let you know you have more stuff on another page etc. But the court found that based upon the record that Apple’s design was absolutely functional because it optimized the user experience and made the phone more durable. The court found the same for Apple’s registered trade dress. Anyone with an i-Phone who has tried to switch and switched back many times despite themselves would tend to intuitively agree, I think (I’m just saying).
The Court, however, upheld Apple’s design patent infringement verdict and damages award. Apple’s design patents contained many of the functional aspects as well as non-functional, or ornamental features as well. IT does not appear that Samsung attack the patents’ validity–Samsung’s primary attack was claim construction, arguing that the patent’s construction should have excluded any of the functional or structural features of the phone–which the Court held it would not based upon prior precedent. The Court was also unwilling to overturn the jury’s weighing of the evidence of prior art and potential for deception.
Finally, the Court rejected Samsung’s contention that only the profits gained by the infringement, as opposed to the profits from sale of the infringing phones in their totality, should be awarded and that the However court erred in not apportioning the damages. But the Federal Circuit observed that patent damages allow for disgorgement of entire profits, and does not require any apportionment.
This is a highly instructive case for anyone seeking a Dallas patent lawyer given the prevalence of patent disputes still in our neck of the woods.