Business see increasing casualties of design patent wars

Business see increasing casualties of design patent wars
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Design patents — and the disproportionately high cost they pose to innovative companies — are back in the news as the “smartphone wars” enter their next chapter.

After eight of years of litigation, U.S. Northern District of California Court has another turn to litigate the design patent fight between Apple and Samsung. The result of the retrial will have an impact beyond Apple and Samsung and reach an array of entities from the smaller innovative startups to industry-leaders that build the tech products used by consumers every day.

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The case hinges on design patents that protect non-functional or “ornamental” individual elements of a design on a wide range of products. Apple’s infringement claims are based on three patented designs: a rectangular front face with rounded corners, a similar rectangle with a rim or "bezel," and a colorful grid of on-screen icons. However obvious the designs may seem, a jury initially awarded Apple over $1 billion in remedies in 2012 — the total profits from Samsung’s alleged infringing smartphones. In December 2016, the U.S. Supreme Court issued a unanimous decision to overturn what remained of that award.

The lawsuit has received significant attention for the staggering size of the damages award, but massive penalties are not unusual in design patent cases. In fact, Tesla was recently sued for $2 billion for allegedly infringing on design patents with the release of the Tesla Semi unveiled in November. The alleged infringement relates to portions of a truck’s fenders, doors, and windshield. Similarly, back in 2015, Microsoft sued Corel for infringing nine patents, four of them design patents covering display screen elements that some have suggested are questionable.

This influx of design patent lawsuits is not restricted to tech companies. In October 2017, Columbia Sportswear was awarded $3.4 million for a design patent claim against Seirus Innovative Accessories on a patent covering ornamental design of a heat reflective material. Notably, this was the first ruling to award remedies stemming from design patent-infringing products following the Supreme Court’s December 2016 decision. In fact, the Columbia remedy was determined by adopting a test originally proposed in the Supreme Court’s review and rejection of the $1 billion remedies in the Apple case.

That Supreme Court decision offered much-needed guidance on how damages are determined for design patents when they cover only a component of a product, not the whole product.

The Supreme Court unanimously held that the relevant “article of manufacture” for determining remedies does not have to be the end product sold to the consumer but can be a component of that product. In the smartphone context, the Court’s decision meant that Samsung shouldn’t necessarily incur penalties equivalent to the value of all iPhones simply because it infringed the iPhone’s rounded corners; it’s certainly more sensible to assign damages equivalent to the value of just the rounded corners themselves.

Prior to that landmark ruling, total profit damages for design patent infringement — a legal concept that dates back to the nineteenth century — were awarded for design patents covering much simpler products. Today, however, many consumer products are far more complex. For example, estimates show that there are more than 250,000 patents integrated into a singular smartphone.

Now it will be up to the Northern District Court of California and Judge Lucy Koh take a fresh look at design patent infringement remedies in light of the Supreme Court ruling. The biggest priority will be establishing a test to determine the appropriate articles of manufacture to which the infringed designs were applied.

However, Judge Koh has also embraced the flawed four-factor test that the Supreme Court's justices ultimately snubbed in their 2016 ruling. This test is too broad and it would be challenging for courts to interpret. The subjective nature of the four factors would hinder startups’ ability to secure investment capital. That would impact startups in emerging technologies most acutely because disruptive innovation is always a high-risk venture.

The establishment of a new test is a pivotal opportunity to aid startups and entrepreneurs by protecting those who are subject to a frivolous claim from a patent troll or perhaps larger competitor hoping to maintain their market sector lead. A sensible test would also aid innovators who want to protect their tremendous investments in research and seed their growth which, in turn, fuel the broader technology economy.

In the coming weeks, startups, innovators, and everyone else at risk of entering the crosshairs of design infringement claims will look to a California court to provide the critical guidance on the construction of an appropriate test for determining future awards. Though patents must be enforced vigilantly, it is time to give up the nukes and establish a logical conventional approach for future design patent cases.  

Evan Engstrom is executive director of Engine, a policy, advocacy and research organization that supports startups as an engine for economic growth.