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A bite out of someone’s Apple: What’s at stake with Apple v. Samsung

Last month, for the first time in over one-hundred years, a design patent was front-and-center in a Supreme Court case. The world’s two top smartphone manufacturers, Apple and Samsung, have been battling since 2011 over design patents that cover essential features of their ubiquitous smartphones. ((Jeff J. Roberts, These 3 Apple Patents Go Before the Supreme Court on Tuesday, FORTUNE (Oct. 10, 2016, 9:01 PM), http://fortune.com/2016/10/10/apple-supreme-court-patents/.)) It started with late Apple CEO Steve Jobs’ vow to seek revenge for Samsung’s “slavish copying” of his company’s iPhone. ((Shara Tibken, Supreme Court steps into Apple v. Samsung fray, CNET (March 21, 2016, 7:30 AM), https://www.cnet.com/news/apple-vs-samsung-legal-patent-battle-supreme-court-steps-into-fray/.)) In the first case against Samsung, initiated in 2012, Apple accused its largest rival of infringing on three design patents: ((Id.))

1) US Patent D618677 for a black, round-cornered rectangular shape on the front of the iPhone ((https://www.google.com/patents/USD618677))
2) US Patent D593087 for a rectangular round-cornered front appearance of the iPhone, and surrounding bezel that affixes the glass screen to the rest of the device and the home button ((https://www.google.com/patents/USD593087))
3) US Patent D604305 for the display screen showing a colorful grid of sixteen icons representing “apps” ((Roberts, supra note 1.))

Apple successfully proved to a jury that Samsung infringed the design patents by applying the patented design to the manufacture of its Samsung Galaxy S phones and selling the phones in the United States. ((Apple Inc. v. Samsung Elecs. Co., No. 5:12-CV-00630-LHK, 2015 U.S. Dist. LEXIS 111276, at *82 (N.D. Cal. Aug. 20, 2015).)) The trial culminated in a jury award of $399 million in damages based on total profits earned from the sale of the phones that infringed on the patented design. ((Id. at *83.))

The case in front of the Supreme Court is focused on how much a design patent is worth, and how much Apple should pay up. ((Question Presented, Samsung Elecs. Co. v. Apple Inc., 786 F.3d 983 (Fed. Cir. 2015), petition for cert. filed, No. 15-777 (Sup. Ct. March 21, 2016).)) On October 11, 2016, the Supreme Court heard oral arguments from both sides on the matter. Samsung argued that the technologies in the phone are complex and not interchangeable, so it is not responsible for paying the total profits earned on the infringing products. ((Transcript of Oral Argument at 12, Samsung Elec. v. Apple, 127 S. Ct. 469 (2006) (No. 05-493).)) The infringing parts of the phone, according to Samsung’s attorneys, are just a small portion of the components that make the Samsung Galaxy S phone work, and don’t drive 100% of the profits of the phone. ((Id.)) Apple bases its response on federal jurisprudence and statutory definitions of damages to prove the opposite point: that the infringed patents are so essential to the product’s market appeal that they should not be considered separately from the rest of the phone when assessing damages. ((Id. at 40.)) Apple’s counsel asked the Supreme Court Justices to consider whether the substantially similar Samsung design based on Apple’s successful product would likely cause confused customers “to purchase the infringing product thinking it to be the patentee’s product”. ((Id.))

On either side of the case, there is more at stake than the rights to a patent. Samsung, like other Asian-based technology companies, has struggled to make inroads into the American and European markets. ((Daisuke Wakabayashi, Choe Sang-Hun & Vindu Goel, Samsung Halts Galaxy Note 7 Production as Battery Issues Linger, N.Y. TIMES (Oct. 10, 2016), http://www.nytimes.com/2016/10/11/business/samsung-galaxy-note-fires.html.)) They saw their chance for a big break when Apple released the iPhone. ((Id.)) Shortly afterward, the Samsung Galaxy phone was released to take Apple’s hit product head-on. ((Id.)) It was very successful in Western markets and amongst technology reviewers ((Om Malik, Apple, Samsung, and Good Design – Inside and Out, NEW YORKER (Oct. 18, 2016), http://www.newyorker.com/business/currency/apple-samsung-and-good-design-inside-and-out.)) The success was in part likely to be chalked up to its similarity to the iPhone. ((Id.)) Reviewers noted the “curved edges” of its display ((Joanna Stern, Samsung Galaxy Note 7 Review: Best New Android Phone, WALL ST. J. (Aug. 16, 2016), http://www.wsj.com/articles/samsung-galaxy-note-7-review-its-all-about-the-stylus-1471352401.)) and “gorgeous, symmetrical design that looks particularly stunning in coral blue.” ((Malik, supra note 14.)) Samsung has been suffering enormous setbacks the past couple of years, culminating in the most recent Galaxy Note 7 recalls and PR disaster. ((Id.)) Due to several documented cases of the phone overheating and exploding, “the South Korean giant has withdrawn millions of units from the market and ceased production of the device.” ((Id.))

Not only will the recall cost the company billions of dollars, it has also already served as a huge blow to the brand’s reputation as a market leader and, more importantly, a serious competitor to Apple. ((Id.)) The many legal troubles may halt the company’s steady encroachment on Apple in the smartphone market. Evidently, the battle for market share came at the cost of creating a phone that performs reliably: “In a race to surpass the iPhone, Samsung seems to have packed it with so much innovation that it became uncontrollable.” ((Brian X. Chen and Choe Sang-Hun, Why Samsung Abandoned its Galaxy Note 7 Flagship Phone, N.Y. TIMES (Oct. 11, 2016), http://www.nytimes.com/2016/10/12/business/international/samsung-galaxy-note7-terminated.html.))

At stake for Apple is the integrity of the company and its flagship product, as well as its leadership role in technological innovation. Most recently, Apple’s “long-celebrated and envied strength in hardware design” took a hit with the release of the iPhone 7. ((Malik, supra 14.)) The changes made to the phone’s original design were broadly unwelcome by tech enthusiasts. ((Id.)) As companies raced to imitate and emulate the iPhone, Apple itself slowed on innovation for that product, allowing some competitors to create products that surpass it in design and functionality. Consumers respond positively to such acts of (sometimes outright) imitation, which bodes well for competitors but doesn’t bode so well for Apple, whose ubiquitous phone looks more and more like many other phones on the market with each passing tech cycle.

The decision by the court could have a ripple effect across the intellectual-property-obsessed technology industry, as “[t]he first case exposed the inner workings of two notoriously secret companies, showing the lengths they’d go to protect their proprietary products, possibility paving the way for other companies to follow suit.” ((Tibken, supra note 2.))

On the positive side, the litigation can result in a better definition of existing patent law and damage assessment. In patent law’s early days (the late nineteenth century), the Supreme Court confirmed the rule of “total profit” damages in design patent cases. ((Bret Swanson, Apple v. Samsung and the Road to Patent Sanity, COMPUTERWORLD (Dec. 15, 2014, 4:34 AM), http://www.computerworld.com/article/2859555/apple-v-samsung-and-the-road-to-patent-sanity.html.)) However, the antiquated rule that worked for simple inventions is much less applicable in today’s world of extremely complex technology. ((Id.)) In making its decision, the Court will be balancing the risk of stifling innovation in the tech world or creating an avenue for “copycats” to walk the fine line of infringement versus inspiration. If Section 289 were to be reinterpreted to do away with the “total profits” approach, infringers may have more incentive to move forward with infringement risk and take their chances with litigation, perhaps only costing them a fraction of their potentially much larger total profits in damages. From a practical standpoint, the tech world has a schizophrenic relationship with innovation and intellectual property rights: while tech giants value and hold dear their patent portfolios, start-up tech companies have carved out a new industry for improving on products originally created by another Silicon Valley company. The latter’s approach spurs innovation by forcing the giants to compete, and inevitably gives consumers better (and more) products to choose from.

Several companies are getting involved by filing amicus briefs with the Supreme Court, taking up opposite sides in the argument. Facebook and Google are concerned that awarding total profits to Apple is a “flawed” reasoning disconnected from modern-day technology. ((Brief for Dell Inc., Ebay Inc., Facebook Inc., Google Inc., HP Inc., et. al. as Amici Curiae Supporting Petitioners at 3, Samsung Elec. Co. v. Apple Inc., No. 15-777 (Sup. Ct. Oct. 11, 2016).)) The tech giants argued that when there is infringement of a design patent in a complex product, damages should be awarded on a proportional basis to the value of the designs that were infringed. ((Id. at 13.)) On the other side, companies such as Adidas and Tiffany & Co. say allowing recovery of total profits will discourage “design pirates” by encouraging them to settle, with the knowledge that their total profits are at stake. ((Brief of Tiffany & Company, Adidas AG, and Jenny Yoo Collection, Inc. As Amici Curiae in Support of Respondent at 15, Samsung Elec. Co. v. Apple Inc., No. 15-777 (Sup. Ct. Oct. 11, 2016).)) The American Intellectual Property Law Association (AIPLA) argues that designs are easy to copy, and the incremental value added to purely utilitarian articles by new, original and ornamental designs, is often inextricably intertwined with market demand. ((Brief of American Intellectual Property Law Association as Amicus Curiae in Support of Respondent at 19, Samsung Elec. Co. v. Apple Inc., No. 15-777 (Sup. Ct. Oct. 11, 2016).)) This makes the cost of copying high for those whose designs are copied, so accordingly, the argument goes that the stakes should be high for infringement.

The stakes are high, and the outcome of the next case will be eagerly awaited by the technology industry and lawyers alike.