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Valuation & Litigation Advisor - September 2018

 

The Evolving Landscape of Patent Litigation Damages

Contributor: William Scally, Partner-in-Charge, Litigation Services - Boston

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In the last 18 months, we have seen numerous decisions which will likely have a dramatic impact on the landscape of patent litigation damages. Two of the most impactful decisions, Apple v. Samsung [1] and WesternGeco v. Ion Geophysical [2], made their way to the United States Supreme Court. However, we likely will not see the true practical outcome of either of these hallmark decisions for many years. This article provides an overview of these two cases and discusses their potential impact on the landscape of patent litigation damages.

Apple v. Samsung

Apple and Samsung have spent the last six years battling over the total amount Samsung owes Apple for violating Apple’s design patents with Android devices sold between 2010 and 2011. From a damages perspective, the heart of the issue relates to how to interpret design patent damages guidance found within Title 35, Section 289 of the U.S. Code, which states: “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...

Consistent with historical interpretation, Apple sought as a damages remedy 100% of Samsung’s profits generated through the sale of infringing mobile phone units, with no consideration for an apportionment of value between allegedly infringing and non-infringing features. Samsung, by comparison, argued that it should only be required to pay damages for the copied portion of the phone’s design.

As Apple’s interpretation of damages prevailed at both the district court and the federal circuit, Samsung appealed to the United States Supreme Court, asking: Under the design patent statute, is an “article of manufacture” for which “total profits” are awarded always the entire end product? Or could such article of manufacture be individual components of the end product?

The Supreme Court ultimately ruled that design patent statute term “article of manufacture” may be an end product or component thereof and remanded to the district court. Justice Sotomayor’s opinion did not resolve key issues affecting appropriate damages calculus in the dispute. Specifically:

  • The decision did not address how to determine whether the relevant “article of manufacture” is the end product or component; and
  • The decision did not address whether the design patent statute remedy is (a) an award of all total profits or (b) an award limited to only total profits made because of the infringement.

On remand from the Supreme Court, the district court held a new trial on damages in which Judge Lucy H. Koh suggested consideration of the following four-part test:

  1. The scope of the design claimed, including the drawing and written description;
  2. The relative prominence of the design within the product as a whole;
  3. Whether the design is conceptually distinct from the product as a whole; and
  4. The physical relationship between the patented design and the rest of the product, including whether the design pertains to a component that a user or seller can physically separate from the product as a whole, and whether the design is embodied in a component that is manufactured separately from the rest of the product, or if the component can be sold separately.

Despite the Supreme Court’s new guidance and the four-part test suggested by Judge Koh, the jury again sided with Apple, this time ordering Samsung to pay $539 million (an amount in excess of the original $399 million post-appeal verdict and significantly more than the $28 million Samsung had argued was appropriate). The parties ultimately settled their seven-year dispute in June of 2018; the terms of the settlement were not disclosed.

Though this matter paved the way for the guidance that an “article of manufacture” may be an end product or component thereof, this case has not provided practical guidance for application. The one thing that is clear is that we will continue to see parties battle over appropriate methods of apportionment for design patent breaches for years to come.

WesternGeco v. Ion Geophysical

Related to its dispute with Ion Geophysical over reservoir monitoring and imaging services to help perform seismic surveys, WesternGeco filed a petition for certiorari on February 17, 2017, which presented the following question: Did the Court of Appeals err in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C. § 271(f)?

Historically, U.S. courts have applied the presumption against extraterritoriality to exclude foreign sales from lost profits calculations in patent infringement matters. 35 U.S.C. § 271(f) was enacted in 1984 in an attempt to prevent circumventing infringement by manufacturing in the U.S., but assembling abroad. Specifically, it expands the definition of what qualifies as infringement to encompass the supplying of a patented invention’s components from within the U.S. if the component is not considered to be a “staple article or commodity of commerce suitable for substantial non-infringing use” and the supplier knows that the component supplied from within the U.S. is made or adapted that “such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the U.S.”

In June 2018, the Supreme Court ruled that the presumption against extraterritoriality does not apply to bar foreign lost profits, a major shift from prior federal circuit and Supreme Court decisions. Specifically, the Supreme Court held that Ion’s export of components caused WesternGeco a domestic injury under 35 U.S.C. § 271(f) AND lost profits WesternGeco suffered overseas were the damages flowing from that injury.

Though this is broadly considered a “win” for patent holders, it is clear that the courts are still wary of extraterritoriality. We may likely see plaintiffs argue that this guidance suggests more generally that a patent owner can recover damages of any form under § 284 based on foreign activities arising from infringement of any form under § 271. Whether under § 271 or § 271(f), courts will likely require the patentee to carefully tie its damages theory to domestic acts of infringement in order to recover foreign lost profits. Additionally, to the extent those domestic acts caused foreign harm, plaintiffs will likely need to present compelling evidence to demonstrate that foreign harm was foreseeable and proximately caused by the domestic act of infringement.

SOURCES

1. Samsung Electronics Co. v. Apple Inc., No. 15-777 (S. Ct. December 6, 2016)
2. WesternGeco LLC v. ION Geophysical Corp., No. 16-1011 (S. Ct. June 22, 2018)

 
Contributor
Meredith Angjeli, Director, Advisory Services

Director
Advisory Services
Boston, MA
William Scally, Partner-in-Charge, Valuation & Litigation Support

Partner-in-Charge
Litigation Services - Boston
Valuation & Litigation Support
Boston, MA
 





 
 
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