Supreme Court Reverses Apple’s $399 Million Damages Award Calculated Based on Samsung’s Entire Profits on Infringing Smartphone Sales

Samsung Electronics Co., Ltd, et al. v. Apple Inc.Supreme Court of the United States: Decided December 6, 2016

The U.S. Supreme Court overturned a $399 million damages award to Apple for Samsung’s infringement of smartphone design patents, holding that the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) erred in its interpretation of Section 289 of the Patent Act in its determination of damages.

At the United States District Court for the Northern District of California, the jury awarded Apple $399 million for Samsung’s infringement of Apple’s design patents, which was affirmed by the Federal Circuit, and calculated based on Samsung’s entire profits on sales of the infringing smartphones, even though only components of the smartphones infringed upon Apple’s design patents.

The Federal Circuit held that, for purposes of calculating damages under Section 289 of the Patent Act, the entire smartphone was the only permissible “article of manufacture”.  Section 289 states that a person who manufactures or sells “any article of manufacture to which such [a patented] design or colorable imitation has been applied shall be liable to the owner [of the patent] to the extent of his total profit.”  35 U.S.C. §289.  The Federal Circuit rejected Samsung’s argument that the profits awarded to Apple should have been limited to the infringing “article of manufacture” which Samsung contended was the infringing component, not the entire the smartphone.  Citing Apple Inc. v. Samsung Electronics Co., Ltd, et al., 786 F.3d  1002 (2015).  The Federal Circuit reasoned that “limit[ing] the damages award was not required because the ‘innards of Samsung’s phones were not sold separately from their shells as distinct articles of manufacture to ordinary purchasers.’”  Id.  The U.S. Supreme Court disagreed with the Federal Circuit and held that “the term ‘article of manufacture’ is broad enough to embrace both a product sold to a consumer and a component of that product, whether sold separately or not.”

The U.S. Supreme Court noted that “[t]he Patent Office and the courts have understood [Section 171 of the Patent Act] to permit a design patent for design extending to only a component of a multicomponent product.”  Citing Ex parte Adams, 84 Off. Gaz. Pat. Office 311 (1898) (“The several articles of manufacture of peculiar shape which when combined produce a machine or structure having movable parts may each separately be patented as a design . . . ”); Application of Zahn, 617 F. 2d 261, 268 (CCPA 1980) (“Section 171 authorizes patents on ornamental designs for articles of manufacture.  While the design must be embodied in some articles, the statute is not limited to designs for complete articles, or ‘discrete’ articles, and certainly not to articles separately sold . . . ”).  The U.S. Supreme Court concluded that the term “article of manufacture” as used in Section 289 of the Patent Act “is broad enough to embrace both a product sold to a consumer and a component of that product.”

The U.S. Supreme Court further stated that arriving at a damages award under Section 289 involves two steps: “[f]irst, identify[ing] the ‘article of manufacture’ to which the infringed design has been applied.  Second, calculat[ing] the infringer’s total profit made on that article of manufacture.”  The U.S. Supreme Court however declined to resolve the question of whether the relevant “article of manufacture” as to the infringements at issue is the entire smartphone or a particular component of the smartphone.  It reasoned that “[d]oing so would require [it] to set out a test for identifying the relevant article of manufacture at the first step of the [Section 289] damages inquiry” which was unnecessary to resolve the question presented to the U.S. Supreme Court, and that the Federal Circuit could address those issues on remand.  The U.S. Supreme Court reversed the Federal Circuit’s judgment and remanded the case for further proceedings consistent with its opinion.

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