Buying a Smartphone for Its Curves Is Like Buying a Car for Its Cup Holders

Design patents cover how products look – but how much does appearance contribute to profits?

How much did Samsung’s phone sales depend on it looking like an iPhone?
How much did Samsung’s phone sales depend on it looking like an iPhone?

On Oct. 7, Samsung found itself facing an unpleasant result in one of the many patent lawsuits it’s a part of: A federal appellate court reinstated a jury verdict of US$119 million against Samsung in favor of Apple.

In that case, Samsung was found to have infringed three Apple utility patents on how smartphones function. The first related to a smartphone’s ability to create links automatically to webpages and phone numbers, so the user need only press the link to jump to the webpage or call someone. Another covered the “slide to unlock” screen function. The third related to the phone providing autocorrect recommendations when the user was typing. Samsung’s smartphones all incorporated these features, without Apple’s permission.

But not all of the patent law news was bad for Samsung. In a different chapter of the Apple v. Samsung smartphone patent saga, the U.S. Supreme Court on Oct. 11 heard arguments over a $400 million verdict against Samsung for infringing several Apple iPhone design patents. Aside from the enormous amount of money at stake, this is the first time the Supreme Court has addressed design patents in more than a century. This generally sleepy area of intellectual property has awoken. And, reading the tea leaves from the oral argument, it seems that Samsung will likely win at the Supreme Court.

The key to this case, as contrasted with the other loss, is that the Supreme Court case is about design patents, not utility patents. What is the difference? Utility patents, like the “slide to unlock” patent, cover new inventions that have some sort of practical use – like the proverbial “better mousetrap.” Design patents, like those at issue in the Supreme Court case, protect the “ornamental design” of an item rather than the way a product works.

Understanding design patents

Design patents typically cover how things look, like shoes or furniture. The three design patents at the Supreme Court cover different aspects of the appearance of smartphones: the rectangular front face with rounded corners, the surrounding rim and the colorful grid arrangement of 16 icons on the screen. None of these has any effect on how the phones work.

What is fascinating – and seemingly troubling for the Supreme Court – is exactly what happens when someone infringes a design patent. A design patent holder is entitled to get the profits made by the infringer. Specifically, an infringer of a design patent must pay to the patent’s owner “the extent of his total profit” of the “article of manufacture” found to be infringing. The lower courts interpreted this to mean that Samsung should be required to pay Apple all of the profits Samsung made from selling its infringing phones, a whopping $400 million.

But, is that the right outcome? Why should Apple get all of Samsung’s profits just because the phones look the same? Surely Samsung customers bought the company’s devices not only because of how they looked, but also, to some degree, because of what they can do, like making telephone calls, surfing the internet and playing “Pokemon Go.” Those functions are not at issue in this patent case.

I personally think making Samsung give up all its profits is not the correct outcome, which is why I joined a brief at the Supreme Court arguing for a different outcome. Based on how the oral argument went, I’d wager the Supreme Court thinks that outcome was wrong, too.

Finding useful parallels

To the lay reader, the design patent statute may seem clear: The owner of the design patent gets the infringer’s profits from what it made. It may seem harsh for Samsung, but what is the problem?

Here is where the lawyers step in. The question is about what constitutes the “article of manufacture” on which the patented design is applied. Is it the entire phone, or just part of it?

Think about wallpaper. The primary reason a consumer wants the wallpaper is how it looks, its design. In that context, the design and the article are basically the same thing. Infringement in this context likely would require payment of the profits for selling the wallpaper.

At the other extreme, think about a patented design for a cup holder used in a car. If a car company built a vehicle with that cup holder design, without permission, what should be the remedy?

The lower court’s decision in this design patent case suggests the owner of the cup holder patent should get the car company’s total profits from selling the entire car. But the product being sold – on which the profits are being calculated – is much more than a cup holder: It’s a car.

How much is design worth?

Those two examples are extreme, easy ones. In the argument at the Supreme Court, the justices used a somewhat more complex hypothetical about the Volkswagen Beetle. The design of the Beetle is ornamental: It does not have to be shaped that way to operate as a car. The shape has nothing to do with the engine or the interior of the car.

Some people may buy the Beetle because of the body design, but others may be more interested in its fuel efficiency, or the power of the engine. Would someone copying the Beetle’s shape be liable for the entire profits from selling the car?

The answer isn’t entirely clear. Nor is it in the context of the the smartphone designs at the Supreme Court. All of the parties – even Apple – agree that what’s in dispute here is not the entire phone. What, then, is the appropriate article of manufacture?

Most likely the Supreme Court will send the case back to the lower courts to sort that out. We legal scholars can hope the court will give some specific guidance about how to draw the line. Once the line is drawn – once the article of manufacture is identified – the courts will have to determine the second question: How much of Samsung’s profits from the phones is a result of that part of the phone?

It seems likely that Samsung will not have to pay the entire $400 million original judgment. But it is also clear that this case is far from over. And of course, Apple and Samsung could settle, as they have done before in their multiyear, multicountry battle.

These disputes are not even the largest problems facing Samsung at the moment. The patent cases are about hundreds of millions of dollars, but the company is reeling from having to end production of its Galaxy Note 7 on Oct. 11 because the phone’s battery had a tendency to burst into flames. That move, including recalling devices already sold, is projected to cost the company as much as $10 billion.The Conversation

Timothy Holbrook is a Professor of Law at Emory University. This article was originally published on The Conversation. Read the original article. Buying a Smartphone for Its Curves Is Like Buying a Car for Its Cup Holders