Apple Inc. v. Samsung Elecs. Co.

• Decision Date: 22 October 2017
• Docket Number: Case No. 11-CV-01846-LHK
• Court: U.S. District Court — Northern District of California
• Parties: APPLE INC., Plaintiff, v. SAMSUNG ELECTRONICS CO. LTD., et al., Defendants.

APPLE INC., Plaintiff, v. SAMSUNG ELECTRONICS CO. LTD., et al., Defendants.

Case No. 11-CV-01846-LHK

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION

October 22, 2017

ORDER REQUIRING NEW TRIAL ON DESIGN PATENT DAMAGES

Re: Dkt. Nos. 3521-24

After two jury trials and decisions by both the Federal Circuit and the United States Supreme Court, the instant case has been remanded for a determination of whether the jury's $399 million award in favor of Apple for design patent infringement should stand or whether a new damages trial is required. At the center of the U.S. Supreme Court's decision and the question now before this Court is 35 U.S.C. § 289, which is a damages provision specific to design patents. Section 289 reads, in relevant part:

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.

Apple and Samsung¹ dispute whether the relevant article of manufacture for the purpose of calculating damages under § 289 for the design patent infringement in the instant case is the entire smartphone or a part thereof. In Samsung Electronics Co. v. Apple Inc., 137 S. Ct. 429 (2016) ("Supreme Court Decision"), the U.S. Supreme Court interpreted § 289 for the first time. It explained that "[a]rriving at a damages award under § 289 . . . 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." Id. at 434. The U.S. Supreme Court then held that "[t]he term 'article of manufacture,' as used in § 289, encompasses both a product sold to a consumer and a component of that product." Id. However, the U.S. Supreme Court declined to establish the test for identifying the article of manufacture for the purpose of § 289. Id. After remand to the Federal Circuit, the Federal Circuit held that "the trial court should consider the parties' arguments in light of the trial record and determine what additional proceedings, if any, are needed. If the court determines that a new damages trial is necessary, it will have the opportunity to set forth a test for identifying the relevant article of manufacture for purpose of § 289, and to apply that test to this case." Apple Inc. v. Samsung Elecs. Co., 678 F. App'x 1012, 1014 (Fed. Cir. 2017) (unpublished) ("Federal Circuit Remand Decision").

Accordingly, the Court must now set forth the method for determining the relevant article of manufacture for the purpose of § 289. Taking into consideration that test and the trial proceedings in the instant case, the Court must then decide whether a new damages trial for design patent infringement is warranted.

I. BACKGROUND

A. History of § 289

"Section 289 of the Patent Act provides a damages remedy specific to design patent infringement." Supreme Court Decision, 137 S. Ct. at 432. The history of § 289 provides important context for understanding the progression of the litigation in the instant case, as well as the competing policy considerations implicated by the formulation of a test for determining the relevant article of manufacture under § 289. As the U.S. Supreme Court has explained, Congress enacted the predecessor to § 289 in 1887 in response to the U.S. Supreme Court's decisions in what are known as the Dobson cases. Supreme Court Decision, 137 S. Ct. at 432-33 (citing Dobson v. Dornan, 118 U.S. 10 (1886); Dobson v. Hartford Carpet Co., 114 U.S. 439 (1885)). "The cases involved the Dobson brothers, who were found to have infringed patented designs for carpets." Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1441 (Fed. Cir. 1998). "In Dobson v. Hartford Carpet Co., the lower courts had awarded the holders of design patents on carpets damages in the amount of 'the entire profit to the [patent holders], per yard, in the manufacture and sale of carpets of the patented designs, and not merely the value which the designs contributed to the carpets.'" Supreme Court Decision, 137 S. Ct. at 432-33 (internal citation omitted) (quoting Dobson v. Hartford Carpet Co., 114 U.S. at 443). The U.S. Supreme Court "construed the statute [in effect at the time] to require proof that the profits were 'due to' the design rather than other aspects of the carpets." Id. at 433 (quoting Dobson v. Hartford Carpet Co., 114 U.S. at 444). "[B]ecause the patentees could not show what portion of the [damages] was due to the patented design and what portion was due to the unpatented carpet," the U.S. Supreme Court reversed. Nike, 138 F.3d at 1441 (citing Dobson v. Dornan, 118 U.S. 10; Dobson v. Hartford Carpet Co., 114 U.S. 439). The U.S. Supreme Court awarded nominal damages of six cents to each plaintiff. Dobson v. Dornan, 118 U.S. at 18; Dobson v. Hartford Carpet Co., 114 U.S. at 447.

Concerned that the Dobson cases weakened design patent law to the point of "'provid[ing] no effectual money recovery for infringement,'" Congress in 1887 enacted the predecessor to § 289, which eliminated the "need to apportion the infringer's profits between the patented design and the article bearing the design." Nike, 138 F.3d at 1441-42 (quoting H.R. REP. NO. 1966, 49th Cong. 1st Sess., 1 (1886)); see also Supreme Court Decision, 137 S. Ct. at 433 (citing S. REP. NO. 206, 49th Cong., 1st Sess., 1-2 (1886)). Instead of requiring proof that profits were attributable to the patented design, the predecessor to § 289 allowed the patentee to recover "the total profit" made by the infringer from the "manufacture or sale . . . of the article or articles to which the design, or colorable imitation thereof, has been applied." Supreme Court Decision, 137 S. Ct. at 433 (quoting 24 Stat. 387). The Patent Act of 1952 codified that "total profit" remedy for design patent infringement in § 289, see id., and the Federal Circuit in Nike affirmed that § 289 did not require apportionment, see 138 F.3d at 1441-43. With this background established, the Court now recounts the history of the instant case.

B. The Design Patents and Trial Proceedings in the Instant Case

After releasing the iPhone in 2007, Apple obtained design patents on a number of phone design features. As relevant here, Apple obtained the following three design patents: (1) the D618,677 patent (the "D'677 patent"), which covers a black rectangular front face of a phone with rounded corners; (2) the D593,087 patent (the "D'087 patent"), which covers a rectangular front face of a phone with rounded corners and a raised rim; and (3) the D604,305 patent (the "D'305 patent"), which covers a grid of 16 colorful icons on a black screen. See Supreme Court Decision, 137 S. Ct. at 432-33.

On April 15, 2011, Apple sued Samsung for, among other things, design patent infringement, utility patent infringement, and trade dress infringement. ECF No. 1. Throughout the proceedings, Samsung argued for apportionment. Samsung only raised its article of manufacture theory days before trial. Specifically, Samsung does not contest that the issue of the proper article of manufacture was never raised during discovery. In fact, Samsung resisted attempts by Apple to obtain data about the costs of components of Samsung's infringing phones. See ECF No. 673 at 15 (order by Magistrate Judge Paul Grewal holding that Samsung has previously withheld relevant information on the "selling price per accused product, gross margin, expenses and operating profit"); ECF No. 880 at 10-14 (Magistrate Judge Grewal imposing sanctions for Samsung's delay in providing documents including the "'costed bills of materials' for the accused products"). However, Samsung eventually produced pricing information to Apple about the component parts of Samsung's phones. See ECF No. 2607-5 at 16 (Apple's damages expert noting that he relied on "a file that reflects detailed information on [Samsung's] material costs for the Accused Products").

One of Samsung's expert reports written by Michael Wagner, which Samsung filed as part of its motion for summary judgment, included a damages theory that would have awarded Apple less profit than the entire profit on Samsung's infringing phones. See ECF No. 3198 ¶ 340 (using consumer survey information to indicate a split between the profit attributable to the design of Samsung's phones and its technology). However, in response to Apple's motion to exclude the damages theory from this expert report, Samsung solely argued that the expert report was admissible based on its apportionment theory of damages, and did not mention the article of manufacture theory. ECF Nos. 1057, 1157 ("Samsung's opposition cites no legal basis for Mr. Wagner's apportionment of damages, in clear contravention of 35 U.S.C. § 289, instead appealing only to procedural and policy arguments for allowing apportionment in this case."). The Court excluded Michael Wagner's expert report as to those damages because § 289 and Federal Circuit case law clearly exclude an apportionment theory of design patent damages. See ECF No. 1157 (citing Nike, 138 F.3d at 1442-43 (noting that Congress removed "the need to apportion the infringer's profits between the patented design and the article bearing the design" when it passed the Act of 1887, which was subsequently codified under § 289)).

The first time Samsung raised its article of manufacture theory was in a trial brief filed on July 24, 2012, 6 days before the 2012 trial, which began on July 30, 2012. In that trial brief, Samsung argued in its trial brief that § 289 "require[s] that profits disgorgement be limited to the 'article of manufacture' to which a...