As forensic accountants and damages experts, we often provide assistance to attorneys and expert testimony regarding infringer profits in design patent infringement cases. In my July 2017 article published by IP Watchdog, we discussed (1) the issue of the article of manufacture, as it was the subject of the December 2016 Apple/Samsung Supreme Court decision, and (2) the calculation of design patent infringer profits. Since Apple/Samsung, there have been no substantive changes in the methodology for calculating profits. (My previous article contains a more in-depth discussion of the calculation of profits once the article of manufacture has been determined.)
A primary focus of cases involving design patent infringer profits since the publication of my article has been on the definition of the article of manufacture. As I noted in 2017, the Supreme Court stated in the December 2016 decision that determination of “…a damages award under §289 thus involves two steps. First, identify the ‘article of manufacture’ to which the infringed design has been applied. Second, calculate the infringer’s total profit made on that article of manufacture…”
The Court concluded that the article of manufacture could be the entire infringing product or only a portion of the product, but did not provide any guidance or criteria as to how it should be defined. The question of the definition was ultimately remanded by the Federal Circuit back to the District Court in the Apple/Samsung case, “to set forth a test for identifying the relevant article of manufacture for purposes of §289, and to apply that test…”
In the retrial of the Apple/Samsung case, the Court ultimately determined that the definition of the article of manufacture was to be based on the following four factors:
- The scope of the design claimed in Apple’s patent, including drawings and written descriptions;
- The relative prominence of the design within the product as a whole;
- Whether the design is conceptually distinct from the product as a whole; and
- The physical relationship between the patented design and the rest of the product, including whether the design pertains to a component that a user or seller can physically separate from the product as a whole, and whether the design is embodied in a component that is manufactured separately from the rest of the product, or if the component can be sold separately.
This four-factor test was also used by the courts in two other cases (Nordock Inc. v. Systems Inc. in the Eastern District of Wisconsin and Columbia Sportswear v. Seirius Innovations in the Southern District of California). The Nordock case settled, and the jury came back with an award of just over $3 million in the Columbia Sportswear case, which is currently on appeal before the Federal Circuit.
In the retrial of the Apple/Samsung case, the jury awarded $533 million in Samsung profits to Apple, which exceeds the jury’s award of $399 million in the previous trial. Apple had sought roughly $1 billion in damages based on the smartphones as a whole, while Samsung argued that the damages should only be about $28 million based on components of the smartphones.
The jury’s verdict did not specify what they determined the article of manufacture was, but it is clear that they concluded that it was either the entire smartphone or a substantial portion of the smartphone. This case will undoubtedly be appealed and we will have to wait and see if the Federal Circuit disturbs the verdict or provides more clarification.
Given the significant impact that the definition of the article of manufacture has on the amount of total profits, and therefore damages, future case decisions regarding this issue will be worth following. Either way, it is clear that infringer profits in design patent infringement cases still have the potential to be significant.