Photographer: David Paul Morris/Bloomberg

Top Court Orders New Look at Apple’s $399 Million Award From Samsung

  • Court says Apple may not be entitled to full Samsung profit
  • Lower court said Samsung copied Apple’s design of iPhone

The U.S. Supreme Court told a lower court to take another look at a $399 million award won by Apple Inc. from rival Samsung Electronics Co. for copying the design of the iPhone.

The unanimous decision extends a legal battle that dates back to 2011 and at one point spanned the globe and engulfed every major maker of smartphones.

Writing for the court, Justice Sonia Sotomayor said Apple might not be entitled to Samsung’s entire profit on 11 infringing smartphones. She told a federal appeals court to consider whether Apple should be able to recoup profits attributable only to particular components. The high court stopped short of deciding that question itself.

Sotomayor said the lower court’s approach "cannot be squared with the text" of the federal patent statute.

“The term ‘article of manufacture’ is broad enough to encompass both a product sold to a consumer as well as a component of that product,” Sotomayor said in the opinion.

Design patents, which cover the ornamental look of an object rather than any functional aspect, are increasingly used by tech companies and makers of consumer products to differentiate their merchandise from competitors. The Supreme Court hadn’t considered design patents since disputes involving spoon handles in the 1870s and carpets in the 1890s.

Components of Products

The legal issues in the case narrowed after the high court accepted it in March. Apple said it accepted that in some cases the patent holder can collect only the profit attributable to a particular component, and not the earnings from the entire product.

Apple argued, however, that Samsung failed to show that the patented designs applied only to part of its phones. Samsung contended that it was Apple’s burden to show that the infringement gave Samsung any increased profits. A federal appeals court, using a strict reading of the law, said Apple could collect Samsung’s entire profit.

“Our case has always been about Samsung’s blatant copying of our ideas, and that was never in dispute,” said Josh Rosenstock, an Apple spokesman. “We will continue to protect the years of hard work that has made iPhone the world’s most innovative and beloved product. We remain optimistic that the lower courts will again send a powerful signal that stealing isn’t right.”

Samsung has wired the $399 million to Apple already, along with money for other parts of the first case. Should a court agree that Apple isn’t entitled to all of Samsung’s profit, the Korean handset maker can seek reimbursement. An official with the company had no immediate comment on the ruling.

Unfair Rewards

Google, Facebook Inc., EBay Inc. and Hewlett Packard Enterprise Co. said in filings that a victory for Apple would allow owners of design patents to extract unfair rewards on products that can have hundreds or even thousands of features.

Matt Levy, patent counsel for the Computer & Communications Industry Association, said the decision will help “bring the design patent statute into the modern electronic age.”

“This was a pivotal court case for the technology industry and it is encouraging to see the law interpreted and applied in a way that makes sense in a modern era and protects both inventors and innovation,” Levy said in a statement.

The U.S. Court of Appeals for the Federal Circuit, which handles all patent appeals, will have to develop some sort of legal standard on when a patent owner can get all profits or just a portion. While the Obama administration suggested a test, neither Apple nor Samsung submitted legal arguments on that issue and so it has to be addressed by the Federal Circuit, Sotomayor said.

‘World of Turmoil’

“We’re probably entering a world of turmoil where there’s no clarity of where the test is,” said lawyer Rick McKenna, head of the design rights group at Foley & Lardner in Milwaukee, Wisconsin. “It’s going to be quite a while before we have a clear understanding of what we should be doing.”

Apple introduced the iPhone in 2007, revolutionizing an industry that before then had received limited interest from consumers. Apple said that Samsung copied the look of the iPhone to avoid a loss of market share.

Phones by both companies have evolved beyond the look that sparked the global fight, and all that’s left of the legal battle is how much Samsung must pay over those earlier models. In a second case, Samsung was ordered to pay $119.6 million for infringing patents on smartphone features.

Even with a rise in the number of design patents, there aren’t many lawsuits over them compared with fights over inventions, and they rarely involve products worth billions of dollars. That means the Apple and Samsung fight is the best chance to resolve the question left open by the Supreme Court on how to value patented designs, McKenna said.

The case is Samsung Electronics v. Apple, 15-777.

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE