Timothy Maier

Supreme Court Says Components Can Be “Articles of Manufacture” For Calculating Total Profits

In Samsung Electronics Co., Ltd. v. Apple Inc., 580 U. S. ____ (2016), the Supreme Court reversed a damages award of approximately $399 million that had been granted to Apple by the trial court based on a “Total Profits” theory, and remanded the case to the Federal Circuit for reconsideration under its new standard.

In this case, Apple Inc. (“Apple”) had sued Samsung Electronics Co. (“Samsung”) for infringement of various utility and design patents covering its mobile phone technology. A jury found that Samsung infringed Apple’s design and utility patents and diluted Apple’s trade dresses. With regard to the design patent issues, the jury in the lower court case had based their award on a “total profits” calculation as called for by the statute, and awarded Apple approximately $399 million, representing Samsung’s entire profit from the sales of the smartphones that were found to be infringing.

With regard to the design patent issue, the relevant statute governing design patent damages (35 U.S.C. §289) provides that:

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.

Nothing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement.

Samsung appealed the verdict, including the findings of design patent infringement, utility patent infringement, and trade dress dilution, to the Federal Circuit. The Federal Circuit affirmed the award. In relevant part, it concluded that §289 was applicable to the “total profit” of any infringing product incorporating the design feature, because the infringing product (and not just the infringing component) was what would be considered the “article of manufacture.”

However, today, the Supreme Court reversed this decision. Writing for a unanimous Court, Justice Sotomayor stated that “the relevant ‘article of manufacture’ for arriving at a §289 damages award need not be the end product sold to the consumer but may be only a component of that product.” An “article of manufacture,” said the Court, was simply something that was made by hand or by machine, which encompassed both products sold to consumers and components of products sold to consumers.

The Supreme Court justified this decision as consistent with section 171(a) of the Patent Act, which permits “design[s] for an article of manufacture,” and which has long been interpreted by the US Patent and Trademark Office to be applicable to designs for features or components of products as well as complete products. Similarly, section 101 of the Patent Act authorizes patent protection for “any new and useful . . . manufacture,” and has likewise been interpreted to be applicable to features or components of products.

The Supreme Court did not elect to determine whether the “articles of manufacture” at issue in this case were the infringing smartphones or the infringing components or features of the smartphones. Instead, the Supreme Court left it for the Federal Circuit to craft a test for determining whether an “article of manufacture” in a particular case refers to a product sold to a consumer or to a particular component of that product, and to apply that test to determine whether the smartphones or smartphone components were the “article of manufacture.”

While a full analysis of the case’s effects on design patent law will depend on what test the Federal Circuit crafts to determine what is or is not an “article of manufacture,” the Court did strike down the broadest definition of an article of manufacture as necessarily being “the entire infringing product.” This means that, in a design patent litigation, a litigant can no longer automatically expect an award of “total profits” for the end product sold to consumers, and will have to prove entitlement to such an award. Meanwhile, defendants will have more ammunition that they can use in order to reduce the size of a design patent award.

Category: Firm News