In December, Samsung appealed to the Supreme Court to resolve a distinct and particularly interesting question. The immediate concern is whether Samsung, under an 1887 law, must give Apple the “total profits” from sales of smartphones that contained a couple of minor contested patents. The larger import, however, could be to head off a new strategy of patent trolls, who are always searching for ways to exploit our complex intellectual property system.
Recall that among several parallel lawsuits, Apple was suing for infringement of three “design” patents, which protect a product’s appearance. Utility patents, on the other hand, cover functionality. Apple said Samsung had copied, for example, the rounded edges of the iPhone and the look of its app icons. Although the validity of the patents was questionable, a jury agreed, and after several years and multiple appeals, Samsung agreed on Dec. 14 to hand over $548 million to Apple. But it also reserved the right to reclaim the money depending on the resolution of further appeals at both the U.S. Patent and Trademark Office and, possibly, the Supreme Court.
Why Because both the facts and law of the case are highly problematic. It turns out that at least two of the patents in question have, subsequent to the original suit, been judged invalid. Apple is appealing the USPTO’s new invalidity ruling but is unlikely to prevail. Even so, Apple could retain $548 million because it got lucky and sued before the patent’s low quality was exposed.
Compounding the error of invalid patents is the antiquated law, which says the only available remedy is the collection of “total profits” from the infringer. In the 1870s, a design patent might have covered the look of a doorknob or a carpet. Today’s products contain hundreds of thousands of components and lines of software code, and nearly as many patents. Some patents are far more important than others. Without some common-sense interpretation from judges and juries, the “total profits” penalty produces wildly disproportionate awards. To most observers, changing facts and the misapplication of an outdated law yielded the wrong result in this case.
But why is this case so important After all, $548 million is a lot of money but not make-or-break for huge firms like Samsung and Apple. No, Samsung has appealed to the Supreme Court because the combination of a very old law and very modern technology that yielded such an absurd result here could spread. It could make America’s patent litigation problem even worse by serving as a template strategy for a new wave of paralyzing litigation across the vast array of modern, complex technologies and products.
If Samsung is forced to hand over the total profits from smartphones that contained a (non-infringing, as it turns out) app icon, what is to protect Ford, GM or Tesla from forfeiting its “total profits” because of an infringing floor mat, cup holder, or graphical icon on its dashboard
Absurd Yes. That’s the point.
In today’s world of complex and overlapping technologies, where more and more intellectual property and know-how are integrated and connected, the outcome of this case is dangerous. With so many low-quality design patents floating around after several decades of vast over-issuance, this case, if allowed to stand, will encourage a new wave of design patent trolls to find and collect ornamental designs that are small components of larger products and unload the lawsuit shotgun on all sorts of industries.
Over the last five years, the Supreme Court reined in many of the worst abuses and abusers of what had become a hyper-litigious and anti-innovation patent system. In addition, many technology firms exercised good judgment in de-escalating the smartphone patent wars with cross-licensing agreements and other common-sense arrangements. After this progress, we do not need new blueprints and incentives for another flurry of litigation.
The Supreme Court can rely on plenty of its own precedents, and those of the appeals courts, to more reasonably construe the total profit penalty. And one would think the Court could bolster the common-sense notion that invalid patents should not garner damage awards. If not, don’t be surprised to see design patent trolls coming soon to a courtroom near you.
Bret Swanson is president of Entropy Economics LLC and a visiting fellow at the American Enterprise Institute’s Center for Internet, Communications, and Technology Policy.