A Sandiganbayan anti-graft court sheriff adjusts chairs inside a courtroom in Quezon city northeast of Manila, Philippines, Tuesday Sept. 11, 2007, where a verdict in ousted Philippine President Joseph Estrada's corruption trial will be announced on Wednesday. (AP Photo/Bullit Marquez) ((AP Photo/Bullit Marquez))
In 2011, Apple sued Samsung, alleging that Samsung infringed several design patents for smartphone devices, particularly the shape of the iPhone.
A jury in Northern California’s U.S. District Court awarded Apple nearly $1 billion in damages.
After an appeal to and decision by the U.S. Court of Appeals for the Federal Circuit, this lawsuit is back on the radar.
Although at first glance this appears to be a private dispute among huge companies, the fight over design patents represents an important threat to consumers.
Last July the Hispanic Leadership Fund (HLF) filed an amicus brief with the U.S. Court of Appeals for the Federal Circuit on the $930 million in damages awarded to Apple.
Last Monday, the court issued its ruling on the design patents that Samsung allegedly infringed.
HLF has repeatedly stated its concerns for consumers if the ruling on design patents were to be upheld.
Potentially tens of millions of consumers would be impacted as 64 percent of American adults own a smartphone.
The effect on typically underserved communities presents challenges as well.
For example, in the Latino community, the Pew Research Center has shown that the rate of smartphone ownership among Latino adults has grown faster than any other demographic, as more than three out of four use a mobile device to access the Internet.
The court had the option to rule sensibly, once and for all, on design patents and the proper interpretation of USC 289.
But it failed to even consider these questions at all.
Instead of analyzing how form and function inform consumer decision making and basing damages on this, the court completely ignored this crucial question.
Despite the fact that research and common sense tells us that features, functions, reliability, and cost are far more important factors for consumers than the shape of a product in most instances, the court ignored this reasoning in its decision.
Earlier this month we noted a piece by Gary Griswold, an intellectual property expert, which explained one logical approach to remedying outdated design patent laws.
He explains that design patents have long been overlooked and are far less transparent than utility patents. Had the court heeded advice along the lines of Griswold’s recommendations, design patent laws would be on track for more transparency rather than continuing to be outdated and doing more harm than good for consumers and businesses.
Current design patent law dictates that a design patent holder can be sued for infringement and, if found to have infringed, can be forced to pay up to total profits on the product.
This is different from utility patents where an accused infringer pays a reasonable royalty for a part of the sales attributed to the patent.
Reasonable royalties make logical sense. Most products contain dozens, or even hundreds or thousands, of patents.
It is not likely that one design patent solely drives the sale of a product.
The court’s decision is an irresponsible ruling to the design patent dispute, but even more so, it is the wrong approach to creating a more transparent patent system in this country.
There is no cause that design patents should have special treatment when utility patents have reasonable royalties.
As Griswold writes, “if the patented design is not substantially the basis for the customer demand for the entire article, then the patentee would be left with the same remedies available to utility patents […], lost profits and/or reasonable royalty (pp. 4-5).”
But the damage to businesses and consumers does not stop there.
Patent trolls have made headlines over the last year as current and previous Congresses have proposed patent troll legislation.
A patent troll is a non-practicing entity that does not manufacture or create products, but holds patents that it uses to sue alleged infringers and collect licensing fees in court.
To date, the trolls in question have been aggressive on utility patents.
But the court’s decision opens the floodgates for a new wave of trolling design patents. With total profits at stake, design patent trolling could become the newest cash cow in the trolling world. With the potential reward of total profits, trial lawyers will be lining up to garner significant contingency fees based on large damages.
This is bad for companies and consumers that rely on competitive and affordable products. As companies pay more and more for damages, consumers will likely be hurt by increasing prices and limited options. The consequences of this decision will impact more than just electronics.
Just as utility patent trolls strike across all corners of the economy, design patent trolls will do the same. Any industry or product where design is relevant will likely soon face new threats from trolls.
The Apple v. Samsung lawsuit and the court’s recent decision should put design patents on everyone’s radar.
As Congress continues to debate patent reform, HLF urges policymakers and regulators to also consider design patents as vulnerable territory in the patent system. Design plays a critical role in technological advancements, and if the courts continue to make the interpretation of design patent law unreasonable, consumers will ultimately pay the price.
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