Apple Has Designs on Stifling Innovation
Change can sneak up on lawmakers and judges, rendering old laws obsolete. Often, that’s harmless. (When was the last time you ran afoul of Reno’s ban on benches in streets or Wyoming’s prohibition on fishing with firearms?) But sometimes, laws that once served a good purpose can get in the way of progress.
That’s what’s going on now in the world of design patents, where the U.S. Supreme Court has suddenly been forced to confront the fact that century-old laws governing ownership of shapes, contours and curlicues are far out of step with modern life. Unless modernized quickly, these outmoded rules could empower a wave of opportunistic lawsuits that would suppress innovation.
The case at issue is Samsung Electronics Co. v. Apple. In 2011, Apple brought a patent lawsuit against Samsung, asserting that Samsung’s smartphones infringed upon Apple’s patents on three design elements: rounded corners, a bezel on the rim and a colorful, 16-icon grid. Odd as it may sound that anybody could claim ownership of something as ubiquitous as rounded corners, designs like that are patentable, and Apple was awarded $399 million in damages. That’s a significant fraction of Samsung’s total profits from smartphone sales. 1
Why the big payoff? U.S. design-patent law dates to 1887, and was originally based on products like fonts, candlesticks and carpets, for which designs arguably create all of the value. Consequently, unlike owners of patents on physical inventions, design-patent holders are explicitly allowed to demand all the profits earned by infringers.
That might make sense for forks or objets d’art. But it’s inappropriate for products like smartphones, which combine design and subtle electronics, with the vast majority of the value coming from the latter. (As perhaps an ironic commentary on the value of design features alone, a decorative, phone-sized block with rounded corners and a bezel can be yours for $10, far below the typical smartphone’s $750 price tag.)
But presently, at least, U.S. law behaves as if all of a phone’s value comes from its physical design. That’s a big problem for Samsung, which sensibly argues that the damage award to Apple was too high. But it’s also a problem for startups and other small firms. If the Supreme Court affirms that total profits (or even large fractions of profits) can be awarded for complex products’ infringement on design features, then design patents will become a powerful weapon for opportunistic patent litigants, colloquially called “patent trolls” after an image of a troll sitting under a bridge, demanding money from all who want to cross.
Over the last decade, the volume of patent litigation has skyrocketed. That’s because of suits by firms that buy patents just for the sake of selling licenses and bringing infringement lawsuits.
A growing body of research, including some of my own work with Lauren Cohen of Harvard and Umit G. Gurun of the University of Texas at Dallas, has shown that these entities often act as patent trolls. They target cash-rich companies, small firms and startups, frequently asserting low-quality (or even invalid) patents. This is profitable because many firms can’t afford to fight back in court, and thus have to settle even spurious lawsuits. (Even those firms that successfully repel troll offensives often end up losing money.)
Now, let’s imagine that the Supreme Court finds that design patent holders can indeed claim 100 percent of an infringer’s profit on a complex technical product like a smartphone, no matter how little the design features contributed to the product’s value. This could potentially empower patent trolls to sue web-based startups, seeking all of those startups’ profits, because minor features of their website designs (like slider bars or rectangles) allegedly infringe upon the trolls’ patents.
That would be terrible for innovation. Patent-troll lawsuits are costly to targeted firms, and can hinder a target’s ability to obtain financing. Moreover, firms that lose in those lawsuits significantly diminish their research and development efforts going forward. (And even though stronger design-patent protection might encourage new experimentation in design, it’s hard to imagine that all the reduction in technological innovation would somehow be offset.)
So while design-patent law may seem esoteric, it has significant consequences for innovation. Every tech product has at least a few design features and there are many design patents in circulation. Thus, a Supreme Court ruling for Apple could put an innovation-obstructing target on virtually every tech product’s rounded, sloped or bezeled back.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Samsung’s IT & Mobile Communications segment made a total profit of roughly $8.9 billion in 2015.
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