Welcome Fallout from the Smartphone Wars: Federal Circuit embraces strong protection of design patents

Friday, July 17, 2015 - 11:41

Yet another battle in the long-running war over smartphones between industry and cultural titans, Apple and Samsung, has been decided, with Apple once again getting the better of its nemesis. This particular battle, however, has also given rise to an important decision clarifying and reinforcing the new paradigm of invigorated design patents, which traces its roots to the 2008 en banc Federal Circuit Court of Appeals Egyptian Goddess, Inc. v. Swisa, Inc. decision.

Egyptian Goddess v. Swisa: A Game Changer

In the Egyptian Goddess decision, the Federal Circuit overturned a decades-long era of weak design patents governed by the now-defunct point-of-novelty test, ostensibly returning to the original ordinary-observer test of the 1871 Supreme Court Gorham Co. v. White decision. Egyptian Goddess represented a fundamental sea change, the effects of which are still being settled, both from a legal and a business perspective. After many years of generally being considered of limited practical value, design patents, seemingly overnight, have become important devices for protecting intellectual property. The value of, and attention to, design patents skyrocketed with the 2012 billion dollar jury verdict in the Apple v. Samsung smartphone infringement case, a significant portion of which was due to infringement of Apple’s design patents.

On May 18, 2015, in one of several appeals relating to that case, a panel of the Federal Circuit issued a ruling that confirmed an award of hundreds of millions of dollars for Apple relating to the design patent infringement. At the same time, it also strengthened broad design patent protection by settling a number of burgeoning disputes in the post-Egyptian Goddess era, including how to handle functional elements in a design patent. The design patents at issue related to designs for Apple’s iPhone front face, iPhone bezel and iPhone graphical user interface. Samsung appealed the jury verdict in Apple’s favor to the Federal Circuit, arguing that the similarities between Apple’s and Samsung’s products were limited to functional elements of the design patents, that there was no evidence of actual deception of consumers, and that the Samsung products and Apple’s design patents were distinct from one another when considered in light of the prior art. Samsung also argued that the price of the entire phone should not be considered in calculating damages, but rather an apportionment based on the value attributable to the designs in comparison to the remainder of the product.

Clarity on Design Patent Analysis

It is well established that design patents only protect ornamental, not functional, aspects of a design. However, in many cases, the design of an article of manufacture implicates both ornamental and functional aspects. Until now, the case law lacked clarity about how to analyze design patents that include both ornamental and functional aspects. Samsung advocated an analysis that sought to literally cut apart the design and excise all functional portions. Samsung’s position was supported by the Federal Circuit’s 2010 decision in Richardson v. Stanley Works, Inc., which suggested factoring out functional elements. That decision, however, was in tension with another 2010 Federal Circuit decision, Crocs, Inc. v. International Trade Commission, which focused on overall design rather than ornamental features in isolation.

The Federal Circuit rejected Samsung’s proposal unambiguously, stating there is no need to eliminate elements from the scope of a valid patent in analyzing infringement; rather, a jury instruction that non-functional design aspects are the pertinent aspects for determining infringement is sufficient. To accomplish this resolution between Crocs and Stanley Works, the Federal Circuit heavily reframed its Stanley Works decision, recasting much of the relevant discussion as merely being a factual summation rather than a legal analysis. The creative reinterpretation of Stanley Works may perhaps be understood with the context that the design in Stanley Works was a multi-tool that appeared to consist principally of a collection of functional tools joined to a single handle, with very little that could be interpreted as truly ornamental characteristics. Thus, the specific facts of Stanley Works represented an outlier on the functional/ornamental spectrum, rather than a more typical mixture of functional and ornamental characteristics.

Mixed Design Patents Hold Promise

Forgoing dissection of designs is critical to the practical strength of design patents that cover ornamental designs, but also, as a necessity, include some functional features. Such mixed ornamental/functional design patents are strengthened because courts will not disassemble them to the point where the designs themselves might become unrecognizable. This is of particular importance for the many design patents in which the visual appearance of functional aspects is integrally incorporated in an encompassing design, such that deleting the functional portions would significantly alter the visual impression of the overall design. As a result, this decision increases the breadth of designs that may receive practical protection from a design patent and further makes it more likely that a jury will appreciate the overall scope of the design.

Importantly, the decision highlights a distinction between the functionality analysis of design patents compared to trade dress, another way in which protection for product design is often sought. This distinction further emphasizes the importance of maintaining robust design patent protection for the ornamental aspects of a product. While the Federal Circuit emphasized the need to look at the overall design without completely excising features that may be functional in some way, it did much the opposite in dismissing Apple’s trade dress claims. In contrast to its discussion on design patents, the Federal Circuit found that Apple failed to meet the high bar of non-functionality required to establish its trade dress claim under an established four-part test (applying Ninth Circuit law, not its own, since the trade dress claims were not patent-related) assessing utilitarian advantage, availability of alternative designs, any advertising focus on the design’s utility, and whether the design affects the cost or quality of the device. While many of these same questions may seem relevant to the functionality of a design patent, the broader overall impression inquiry in design patent analysis means the outcome is less likely to turn on such specific issues.

Ordinary Observer Test

The Federal Circuit also dealt with a long-running debate whether evidence of actual deception of consumers is necessary to find infringement, which stems from an old, and potentially misleading, phrasing of the ordinary observer test in Gorham. Gorham established the standard for infringement of a design patent as whether an ordinary observer would have been deceived (“giving such attention as a purchaser usually gives”). This has led many commentators, and even some courts, to believe that the ordinary observer test is somewhat akin to likelihood of confusion used in trademarks, and that incidents of consumer confusion, actual or predicted, should be the hallmark of infringement. The Federal Circuit has now clarified that the consumer confusion standard should be interpreted as more of a hypothetical query, and that no actual deception of an ordinary observer is required for infringement.

Damages for Design Patent Infringement

The final major clarification of Apple v. Samsung relates to damages for infringement. In contrast to utility patents, design patents have a unique statutory option for damages that permits the patent holder to recover the infringer’s profit. Samsung argued that awarding all of the profits for a phone infringing only the ornamental design was unfair and not what the statute was intended to capture. The Federal Circuit flatly rejected Samsung’s argument that damages should be limited to the portion of profit attributable to the infringed design given the unambiguous statutory language.  The Federal Circuit noted that any disagreements with the policy behind the damages provision must be raised with Congress, not the courts. This holding has the potential to dramatically alter design patent infringement litigation and settlement negotiation, as, under this rubric, a relatively small design component in an expensive article of manufacture would result in damages far in excess of the actual value-contribution of the design. This potential design overvaluation may be expected to significantly increase pressure on potential infringers and shift the balance of power in litigation or negotiations toward the patentee. However, although it was not an issue in Apple v. Samsung due to the particular facts of the case, the courts may yet limit the scope of “entire profit” damages for design patents at least for those cases where a portion of the article of manufacture bearing the infringed design is a sub-component of the article that is sold separately and thus has a distinct valuation.

Design Patents a Valuable Tool

Thus, this important decision confirms that design patents need not be dissected until unrecognizable because some functionality is encompassed by the ornamental design, that there is no need for evidence of actual deception of consumers to prove infringement, and that infringement of a design patent can result in a damages award of the total profits for the infringing articles, not merely some portion – even in cases where the value of the design patent is much less than the value of the entire article. Together, these clarifications significantly strengthen design patents and give design patent holders more leverage over infringers in litigation and settlement negotiations. Given the relative ease, speed and lower costs with which a design patent may be secured in comparison to a utility patent, design patents are an increasingly valuable and powerful tool in protecting product design, particularly when considered in light of the decreased strength of trade dress protection where functionality may be present.

David M. Marcus, an associate in the Intellectual Property group of McNees Wallace & Nurick LLC, located in the firm's Columbus, Ohio office. Shawn K. Leppo, a member in the Intellectual Property group, is located in the Harrisburg, PA office. They can be reached at dmarcus@mwn.com and sleppo@mwn.com.