Smartphone Wars NorCal Homecoming - High Stakes for Tech

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We just passed the six-year mark in the seemingly endless “Smartphone Wars” between Apple and Samsung, which started in the Northern District of California in April of 2011. While this roller coast ride continues to make its way through various courts across the country, we are very close to an answer on the most hotly contested issue of this dispute: what is the penalty for infringing on the look and/or feel of a patented design?

Now the case arrives home where it all started in 2011, the Northern District of California Court, which has been asked to clarify how to properly calculate design patent infringement remedies based on the article of manufacture instead of the entire product. Arguments in this phase of the case kicked off on Monday June 26, before Judge Lucy Koh, the same judge who heard the case in 2011.

For those not familiar with the particulars, Apple accused Samsung of infringing a handful of its iPhone design patents – including the outer edge, the way icons are arranged, and how the screen looks (but not the actual screen). Apple argued – based in part on a 19th century law about carpets – that they should receive all of Samsung’s profits from the infringing smartphones even though the patents in question represent a tiny fraction of the hundreds of thousands of patents contained in smartphones.

Last December, the Supreme Court unanimously ruled that a product (i.e. smartphone) can be made of multiple “articles of manufacture” (i.e. the different components in a certain product such as computer chips, screen, camera, etc.) and that Apple was not automatically entitled to all of Samsung’s profits from smartphones that contained a few infringing designs. This seems pretty transparent – after all, Apple took issue with multiple patents covering different components of the same smartphone, not the entire smartphone. But prior to the Supreme Court’s decision, lower courts sided with Apple’s argument for total profits based on a controversial interpretation of an outdated law.

Fortunately, the Supreme Court restored coherent logic to this process – which startups, large companies, legal experts and many others have been advocating for because of the potential negative impact to innovation.

Some have called this next phase overly complicated, but it’s not. In fact, here are the questions that will be asked: Why do people buy a smartphone? Is it because they make calls? Or is it their ability to connect to the Internet? How much does the look of a smartphone factor into a consumer’s purchasing decision? What does it cost to manufacture the infringing portions of the phone? Answers to those questions – based on consumer purchasing surveys, market analysis from economists and expert testimony – will determine the appropriate remedy owed by an infringer.

The process is currently used to determine utility patent remedies and can be duplicated for products where design patents are in play. Instead of a smartphone, suppose someone was guilty of infringing the design of a car spoiler. In this new era, you would apply similar questions to determine the appropriate remedy. Why does someone buy a specific car? Because it drives? Has a powerful engine? The spoiler looks cool? How much does the spoiler cost to manufacture? And despite concerns from the design community, if in fact the spoiler was the primary driver of the sale, it’s fair that a significant amount of the profits should be awarded to the design patent holder of the spoiler.

While it’s possible that people buy smartphones because they have a rounded rectangular edge and cars because of a cool looking spoiler, it’s unlikely that everyone who bought the same product did so for the same reason. Here’s another way to look at it. Two smartphones from the same manufacturer look exactly the same and have all of the same features except for one difference: one has 64gbs of memory and the other has 128gbs. The smartphone with more storage capacity costs $100 more. Would a consumer with a need for additional memory be willing to pay $100 more for a smartphone because it looks cool or has more memory space? The same line of thinking applies for a consumer who chooses to pay more for a car with a bigger engine. Given the varied reasons why people make purchasing decisions, it’s illogical to indiscriminately award total profits of a product based on only a few of its hundreds of thousands of parts, designs and components.

The Supreme Court has done its part, and now it’s up to Judge Koh to establish a fair and balanced test to calculate design patent infringement remedies on multi-faceted products moving forward. Bringing some much-needed certainty to this issue will ensure that innovation continues to flourish across the tech sector.

Matt Weinberg is a former White House appointee with the U.S. Small Business Administration, where he served as a senior adviser in the Office of Investment and Innovation.