Design Law at GW Law: Design Patent Damages

Design Law 2016, GW Law
MORNING SESSION 1: Design Patent Damages
Moderator: Robert Katz, Banner & Witcoff: Recap of the
patents in suit and damage award. Text of 289: whoever applies the patented
design or colorable imitation thereof to any article of manufacture for the
purpose of sale etc. shall be liable to the extent of his total profit.  Can’t twice recover profits.  $250 floor for damages, back to the 1890s,
closer to $9000 today.  Maybe that doesn’t
work today, though Samsung argued that other parts of the statute were
outdated.
Christopher Burrell, Director & Senior Counsel, Samsung
Electronics: Quoting Giles Rich, “the name of the game is the claim.” That’s
the core of our position.  You can
potentially get a design patent on the entire article/product being sold or
smaller articles/components. W/the PTO allowing design patents on increasingly
smaller components/tiny components that go into a larger product, to stay
commensurate w/the scope of the rights and the statute, that needs to be the
focus for the question “what are you getting total profits on?”  A multicomponent device can be comprised of
many articles of manufacture; look at the patent claims to figure what
components the design is applied to. From our perspective, that still provides
a windfall in the sense that you get the total profits on that article, for
example a scratch resistant touchscreen also subject to a design patent where
the design only contributes some of the value—more than a reasonable royalty.  Another thing to keep in mind: the rulings
about which infringed which patents are hard to understand; Apple got total
profits on one phone and nothing for one highly similar phone; we think that
cautions in favor of a more careful approach to design patents.
Jeff Myers, Lead Patent Counsel, Apple: Not going to
relitigate the case.  The Justices talked
about the VW Beetle example.  Instructive
example: when you hear VW Beetle, you think of the iconic image, rather than
about what’s in it.  Design drives a lot
of what’s in the vehicle.  Shell has a
peculiar value. Same thing for the iPhone. We think the statute is super clear.
Infringer’s profits should be awarded as a whole. Congress had good reasons to
do that: difficult to disentangle design from the overall value of the product;
functionality is easier to separate.  If
the patented design gives infringer’s product its peculiar/distinctive
appearance, total profit should be awarded.
Three things that could occur: Justices might just say “law
is law”; might say we need more facts; might say we need a new standard. If
they do, what would that mean?  Design
patents are about deterrent value. Big companies like Samsung and Apple can
survive, but small/moderate companies w/o resources to bring massive survey
evidence could have problem. Don’t want a situation where people don’t even
bother with design patents, given their increasing use in fashion where there
hasn’t been protection in the past. 
Congress is the better place for questions.
Brian Racilla, USPTO, Office of the Solicitor: Historical
context.  Article of manufacture as a
signpost—Justices seemed amenable to using that.  The objective was to figure out what the article
of manufacture is. Always construed broadly—factfinder should identify what
most fairly may be said to embody the D’s appropriation of the P’s design. Factors:
Scope of the claimed design in drawing/written description; relative prominence
of design in product as whole; whether design conceptually distinct from
product as a whole; physical relationship b/t claimed design and product as
whole—separability, separate manufacture, whether there’s a market for
replacement parts.  We’re focusing on the
accused infringer’s product here.
Burdens that US suggested: plaintiff to show overall,
defendant to show article of manufacture.
Mark S. Davies, Orrick: Designers’ brief.  This isn’t a big case for the SCt.  Challenge for amicus: why should anyone read
it? Our strategy: prominent names from the design community, over 100 great
names.  Design sells the product; Samsung
sales went up 20% after copying Apple’s product.  Second point: the design becomes the
product.  The point of Coke example: the
design becomes so famous that the taste doesn’t matter.  [This is an argument for functionality and
indicates part of why design patent functionality is so screwed up.]
Mark Janis, Maurer School of Law: Themes distilled by
reading group of amicus briefs, not including his.  Plain meaning/briefs focused on “total
profits,” which seemed to be what the case was about until Tuesday’s
argument.  Deterrence: purpose of 289 is
not merely compensatory, but deterrent of counterfeiting/induce
settlement.  Troll behavior: responsive
arguments were that troll concerns were unfounded: there isn’t a design patent
market b/c they protect brand identity; hard to use design patents to threaten
entire mkt b/c designing around is easy; to the extent we think troll behavior
is from nuisance suits from end users, they don’t have much profits to give, so
disgorgement isn’t any worse for them. 
Lots of pages on the general argument that design patents are important
in a variety of ways to a variety of industries—brand maintenance; small
businesses getting leverage v. large businesses; particular industries. 
Eclecticism: when you interpret 289, you have to understand
that design patent law isn’t utility patent law + different modifier. It’s a
mishmash of English law, utility patent, copyright, unique concepts. One should
not take it as a given that just b/c apportionment works in utility patent for
multicomponent innovation it is necessarily workable in design patent.  Congress certainly thought it wasn’t workable
for designs.  Text/structure/history: “total
profits” focus; article of manufacture issues—look at the statutory text.
Clearly referring to the infringer’s article of manufacture.  Statute also says that it imposes liability
on applying design to any article of
manufacture. Have to conclude this calls into question the proposition that the
name of the game is the claim for 289—it says “any” article of manufacture—at least
needs to debate that. We think that the proposed test on article of manufacture
is an invitation for courts to engage in the equivalent of apportionment. What
I find strange about that is that under the guise of interpreting the statute,
we’re going to say that Congress slammed the door on apportionment by using “total
profits” but opened the door wide by incorporating “article of manufacture,” allowing
the same thing through a different analytical route, which seems policy-driven
result.
You could say it’s still good policy to rely on article of
manufacture b/c avoids absurd results, such as the cupholder on the car.  We argue that the policy consequences might
be more mixed than that.  History:
Congress was focused on another type of result that it deemed absurd, which is
the carpet manufacturer who proves infringement and gets nothing.  Congress makes a choice between risks of
absurd results.  Choice is a legislative
matter.
Rebecca Tushnet, Georgetown Law: Concerns of those
supporting Samsung: Now that the seal on mentioning trolls has been
broken.  Design patent trolls are a real
threat: one example that surfaced for me quite by accident was someone who has
a relatively recent design patent for novelty sunglasses with plastic slats
across the opening for the lenses, which I seem to recall being a thing for
Devo in the 1980s—and yet the patentee was extracting licensing fees from and even
suing retailers around the country. 
Compare to the concern for small designers: the US fashion industry as
an industry has been pretty innovative for a while without historical reliance
on design patents—Chris Sprigman and Kal Raustiala have a book about this.
History has already mentioned: historically, no protection
for small parts of an overall design; now that’s patentable, and there is a
strong equitable and logical argument that patentees shouldn’t be able to have their
cake and eat it too: that is, claim rights in just the corners of a design,
which is only a small part of the overall appearance, but profits from the
whole product sold to the consumer.  Design
patent for a logo: carpet mfgr gets a design patent on the logo it puts on the
label, on the underside. Then what?
Another possibility, of course, would be to go back to the
historical practice of not granting design patents except on an entire
design.  That would also require
difficult decisions about what the protected design is, but the damages
discussion clearly demonstrates that difficult decisions are inescapable.
IP professors: use causation to create awards only for
profits attributable to the infringement—the reference in the statute to not
allowing double recovery for profits attributable to the infringement indicates
a causation requirement.  Constitutional
basis for this idea in ideas of due process as well as the Patent &
Copyright Clauses.  Not much interest in
that at oral argument, but an understandable definition of article of
manufacture could accomplish much of the same goal in many cases where design
patents are for small elements of an overall product.
A few other points about article of manufacture: figuring
out the defendant’s article of
manufacture as the measure of total profits might theoretically differ from the
plaintiff’s article of manufacture;
in most cases, though, they should be the same, although this is also tied into
the question of whether the design must relate to a particular article of
manufacture. For example, look at Janis’ “any article of manufacture” argument:
could I get a design patent for a USB drive in the shape of a rubber duck
because no one had ever applied the rubber duck to a USB drive?  If that’s the case because prior art
inquiries should be limited to the general area of the article claimed,
presumably only another USB drive could infringe my design patent and not a bar
of soap in the shape of a rubber duck. 
This is another way for me to say that while damages issues may seem
separable from scope and validity, they aren’t really.
Question for discussion: what might the article of manufacture
be where the infringing design is the icon for an app that doesn’t ship with
the device but is downloaded from the app store?  Does the defendant even have an article of
manufacture in that case?  Does the
plaintiff?
Q: anything surprising at oral argument?
Davies: that the Justices weren’t particularly interested in
the details of this particular case. 
Apple argued that article of manufacture had not been raised below, but
the Justices didn’t seem to care.  4-5
Justices embraced design as in itself valuable.
Burrell: encouraging that Justices grappled w/practice of
granting partial design patents in tension w/historical practice.  There’s no dispute here that both parties
think design is valuable.  Samsung’s #1
US holder of design patents; 1700 designers around the world. The question is
the appropriate measure of damages, and Justices were rightly focused on that.
Janis: had hoped for some question about whether this was an
exercise in statutory interpretation or trying to amend the statute.  I didn’t know that Samsung would go just to
article of manufacture, though not terribly surprised given the gov’t’s
advocacy of that as middle ground was very effective advocacy. 
Q for Davies: facts of the case—last design patent case?
Davies: 1880s.
Q: that’s what they do, ignore the facts of the case.
Davies: as a process matter, if you’re going to make
complaints about suitability for review, it’s too late after cert is
granted.  DIG is a possibility and a
nonzero chance that they could decide they’re mistaken, but it’s not what he
would predict.
RT: Push back against Janis’ statutory amendment argument.
It’s perfectly normal for certain elements to overlap as between different
possible tests.  Lexmark/Lanham Act: a lot of what was rejected in the prudential
standing test comes back as causation, which Scalia heartily approves.  So the fact that you’d get some overlapping
deductions from apportionment and from article of manufacture—but not identical—doesn’t
make this anything other than an exercise in standard statutory interpretation.
Janis: there was partial claiming/design patents on logos at
the time. Was Congress thinking about that? I doubt it.  We’ve asked that question; a lot of the
design patents are on carpets, wallpapers, silverware, so when they say design
drives demand, that’s what they’re thinking about. But again, if we say today
their baseline assumption was incorrect, we should go back to Congress.
RT: But you don’t need to say Congress’ baseline assumption
was incorrect if you focus on article of manufacture!  If it was just the logo on the label of the
carpet that was infringed, you can look at the label to award total profits.
And that is perfectly consistent w/what we think Congress was thinking—about a
design patent covering the whole carpet—when it made the total profits rule.
Burrell: Gov’t’s brief did a nice job on the historical
context.  Waiver etc. of issues raised
below is also addressed in Samsung’s briefing.
Katz: we don’t like the idea of apportioning design—take burden
from patentee to prove how much the design contributed.  Patentee has burden to prove total sales, but
infringer has burden to prove deductions. 
Gov’t suggests a similar rule w/r/t article of manufacture: is it
unreasonable to shift the burdens to show what the infringer’s article of
manufacture is?
Racilla: burden of proving infringement and damages falls to
patentee.  Preponderance of evidence:
total profits of defendant; most patentees will go for the full product sold to
the market.  Maybe different if it’s just
a cupholder.  Burden of production shifts
to infringer w/superior knowledge of why they chose certain components.
Davies: experts’ reports all assumed that the article of
manufacture was the phone; Samsung’s position was that it hadn’t been allowed
to present evidence of anything else.
Burrell: There is some disagreement among the parties about
how burdens would play out. Our view: correct rule is that article of
manufacture would be first determined. Consistent w/patent cases, burdens
largely on P both for establishing infringement and predicates for determining
damages—proving up quantum of profits and article of manufacture.  Our view, esp. in our reply brief, is that
burdens rest on P. Not fundamentally different than for utility patents.
Katz: but this was a special provision for design patent
damages to remedy the inadequacy of utility patent damages.
Burrell: We don’t disagree that the statute was enacted in
the wake of Dobson.  But unlike in ©, where there is explicit
burden shifting, there is no such thing in the patent statute, which speaks to
congressional intent given ordinary rules of litigation.
Davies: risk is that we parse SCt’s 100-year statements for
every little nuance. The SCt will say something very high level and the Fed.
Cir/dist. cts will have to work out the practicalities.
Katz: both sides can afford big teams of lawyers. Enforcing
against small infringers, the Qs are different. Proving article of manufacture
w/survey evidence or expert testimony as mentioned at oral argument=over
$100,000. Would Ps ever get relief under this type of test?  If you’ve disclaimed part of the design, you
could have difficulty defining the article and would have to take that into
account before sending a C&D.
RT: Same as other issues you think about—asserting rights in
an unregistered trade dress even though proving it up at trial might be
expensive.
Myers: it depends on the product/its importance to the
company.  Other companies would struggle
with that b/c they are smaller.
Burrell: types of considerations: we would largely view it
the same way. Refrigerator latch case, the piano case cases—the damages statute
was applied in ways consistent w/ the rule we’re arguing for. Will this change
the incentives? No, b/c we think this is where we’re already at fundamentally
as the statute reads.
Katz: Refrigerator latch involved de minimis
infringement.  [?]  In rare circumstances, there could be some de
minimis approach where we keep enforcement as it is but a de minimis exception—is
that workable, compared to the gov’t’s proposed 2-part test each of which has 4
subparts and may require accountants as well as survey evidence to define the
article of manufacture?
Racilla: Kennedy floated de minimis idea and it didn’t seem
to work.
Myers: it could be that in some situations a small part does
make the product distinctive, so that would cause questions of its own.
Katz: we’re seeing more copies of car designs.  Recent Range Rover Evoque/compare Chinese Landwind
E32.  Is the article of manufacture the
shell of the auto body?  How would the
gov’t’s test work with that?
Davies: have to show that someone was induced to purchase
the product b/c of the design—have to prove deception.  [I think this is a misdescription as
reflected by the jury verdict, and I think he might agree if I understand him
correctly; can’t really be asking the jury that if we also have lots of design
patents on parts—we’re asking “deceptive in isolation,” or whatever that means.]  Don’t know how the gov’t’s test applies with
that standard.
Racilla: we’d look at what’s actually claimed—the wheels?  Whether it’s a prominent factor—the shell of
the body of a car lends a lot to the visual appearance overall.
Katz: why does that matter as to whether it’s the article of
manufacture?  If I make an ugly car
w/great innards, and someone copies the appearance, why should the relationship
matter to what the article of manufacture is?
Racilla: test is prominence in overall appearance, not
driving sale. We look back to Gorham:
the design is what gives distinctive appearance overall. [Which forces us to
ask why if at all the PTO should be granting patents on small
portions/logos/etc.  If that’s the design, then anything that
doesn’t give the article its distinctive appearance overall should not be
patentable!]
Burrell: By definition, if directed to entire exterior of
car, then the article of manufacture is the entire exterior of the car. Not
very hard to prove.  Profit calculation—we
don’t necessarily think the statute proscribes any particular methodology. 
Katz: isn’t that just a forced royalty?
Burrell: No.  Key
distinction is that under article of manufacture test, it’s the total profits
on that article, including those that relate to contributions to its value
coming from utility/function.  Front
glass of phone as example: shape, scratch resistance, etc. Quite different from
reasonable royalty which is focused on incremental value of patent.
Katz: Gorham patent covers handle, but not the entire
flatware—spoons, forks not claimed. How would that work out in the gov’t’s
test?  Is the article of manufacture the
spoon or the spoon back?  [I can’t figure
out what the argument for making it less than the spoon would be under the gov’t’s
test.]
What about a Fendi bag? 
The whole bag even if it’s got a nice interior?  [The panel isn’t willing to commit; this is
my point about the lack of fit b/t granting patents on partial designs and then
trying to figure out damages using a standard that assumes, with Gorham, that the design is that which
gives the article its distinctive
appearance.] [And this is why abandoning point of novelty, while understandable
on its own, is messing with the overall design patent scheme—we need point of
novelty in order to make design patents on a whole article possible in many
cases.]
Perry Saidman: Small/medium clients: Wrote amicus on their
behalf.  If the SCt adopts something like
the four-factor analysis, it will break the system for these small/medium
clients in the real world. Some say that their only ability to bring Wal-Mart to
the table in $40,000 infringement case is the total profit rule.  They say: if you start slicing and dicing and
giving retailers ammunition to slice and dice; we won’t even be able to get
them to the table, and we’ll stop getting design patents and copying will become
rampant.  Gov’t wrote: no
apportionment.  That’s right. Second
part: but, we can slice and dice the article of manufacture can be less than
that to which the patented design is applied/the accused infringer is selling.
That sounds like apportionment.  Justice
Kennedy also asked that. How does the gov’t reconcile that?
Racilla: the definition of article of manufacture is how we
reconcile that.  It may be a component of
a larger product that’s sold. Or it may not be. There’s a fundamental
difference b/t looking at the amount of design that drives sale v. looking at
total profits of an article of manufacture, which is a component of a product,
to which a design has been applied.
Q: interesting point from oral argument: residual
effect/windfall; then we get to claim on entire article—there seems to be
agreement that you’d get more than exoskeleton of the car itself, the
functional aspects. No one would ever claim the car w/ the undercarriage.  Dishwasher: you never claim the back
housing.  That’s the reality—it’s the
appearance for the consuming public. There will always be dotted lines.  [For certain classes of goods; not so much
carpets and wallpaper.] In reality, how will this work?
Burrell: point of clarification: our view: functional
aspects whose contributions is ignored in our scheme would be the functional
aspects of the article, which is VW’s body—the fact that the door opens &
closes, not the functional aspects of the engine. Our view is that it depends
on the claim—all the exterior portions to which the design is applied. If it
turned out that the Beetle was basically just things for selling the shell, you
could probably show that the profits from the exterior are very high. Our rule
is commensurate w/article of manufacture that PTO is allowing the person to
claim.

Katz: maybe we could craft a system where innocent
infringement/infringement that didn’t drive sale would get lesser damages; we
could think about alternatives in the statute.

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