Friday, October 14, 2016

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  Maybe that doesn’t work today, though Samsung argued that other parts of the statute were outdated.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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