Innovation Review

On December 14, 2016, the Supreme Court granted cert in TC Heartland v. Kraft Foods.  This widely anticipated case brings to the front the question of patent venue and the problem of “Forum selling,” the alleged practice of some jurisdictions creating a favorable environment for litigation and its benefits for the local bar and community.

Krafft, an Illinois company, filed a patent infringement suit against TC Heartland, an Indiana company, in district court in Illinois. TC Heartland filed a mandamus motion arguing that the Illinois court lacked personal jurisdiction and venue should be changed to Indiana. The district court denied the motion, and the Federal Circuit affirmed. The Supreme Court granted cert on the question: “Whether the patent venue statute, 28 U.S.C. § 1400(b), which provides that patent infringement actions ‘may be brought in the judicial district where the defendant resides[,]’ is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by the statute governing ‘[v]enue generally,’ 28 U.S.C. § 1391, which has long contained a subsection (c) that, where applicable, deems a corporate entity to reside in multiple judicial districts.”

In 1957, in its decision in Fourco Glass v. Transmirra Products, the Supreme Court ruled that the patent venue provision was independent of the general venue provision of the Federal Rules of Civil Procedure. Therefore,  a corporate patent defendant can be sued only where it is incorporated. However, in 1990, the Federal Circuit ruled that the Fourco decision had been implicitly overruled in 1988 when Congress amended 1391 to apply “for purposes of venue under this chapter” and defined corporate residence to include any place where there is personal jurisdiction over the defendant. TC Heartland is arguing that the 1990 Federal Circuit opinion, V. E Holding v. Johnson Gas, was wrongly decided.

Complicating the matter is Congressional amendments to 1391(c) in 2011, as part of the America Invents Act.  These amendments altered language in 1391(c) to make it applicable “for all venue purposes” and amended 1391(a) to apply to “all civil actions.” The Federal Circuit in TC Heartland’s appeal held that Congress made these amendments recognizing that the appeals court was correct in V.E. Holding that Congress has overruled FourCo in 1988.  Now the Supreme Court will decide whether it was in fact overruled by Congress.

Confronting the Court is a murky question of determining what Congress did based on what it legislated. Legislative history is generally disfavored, but will certainly play some role in the argument and perhaps in the final decision. But that history is also hazy. Ultimately, the Court may fall back on policy and the concern over forum selling in patent litigation. Will the Eastern District of Texas, an original and continuing haven for patent litigation, be checked or vindicated in this case from the Mid-West?

The answer to this question may rest on the ongoing struggle between the Federal Circuit and the Supreme Court over the appropriateness of special rules for patent law. However, in this case, the positions are reversed. Typically, the Federal Circuit seeks special rules for patents, such as in the case of injunctive relief with the Supreme Court reversing. Here, the Federal Circuit reasons that the general rules of civil procedure apply contrary to the specialized rule for patent venue that the Supreme Court recognized in FourCo.  Surprisingly, the Federal Circuit and the Supreme Court might agree in this case. That now leaves Congress to make another round of amendments to prevent the alleged practice of forum selling.

On December 6, 2016, the Supreme Court ruled in favor of Samsung in its ongoing litigation with Apple over infringement of four design patents covering the iPhone.  A jury found in favor of Apple and awarded $ 399 million in damages for the infringement of the patents on the design for the iPhone by the Samsung Galaxy. Samsung appealed this judgment to the Federal Circuit on the grounds that damages should not be calculated on the value of the entire iPhone but should be limited to the features of the iPhone cover that was the subject of the design patents. The Federal Circuit upheld the verdict on the grounds that the cover was not sold separately from the iPhone. Therefore, the entire phone was the relevant article of manufacture for calculating damages.

The Supreme Court reversed the Federal Circuit, holding that for “a multi-component product, the relevant article of manufacture for arriving at … a damage award need not be the end product sold to the consumer, but may be only a component of that product.” The Court remanded the case to the Federal Circuit for review of the damage award under this new standard.

In a brief opinion, the Court rested its conclusion on the statutory language. The Patent Act uses the terms article of manufacture to include both an end product and components of the product. Grants of design patents have been limited to components of an end product. The Federal Circuit erred in limiting the phrase “article of manufacture” to the end product and not recognizing that the design patent may apply only to a component. Upon remand, the Federal Circuit now has to determine what components of the end product are the article of manufacture.

While the Supreme Court resolves the narrow question of whether design patent damages can be limited to a component of an end product, the Court’s ruling leaves open how to determine what components a design patent covers and how to value them. Since the parties did not adequately brief that question, the Court states, that threshold question of identifying the relevant components is left for a future case. In the Samsung litigation, the Federal Circuit, and very likely the district court, will have to confront the question of identifying what components are the article of manufacture for calculating damages.

The Samsung decision is a landmark decision in design patent law, not only because of the prominence of the dispute between two smart phone giants, but also because of the Court’s addressing a basic question of design patent damages. The last time the Court considered a design patent case was in 1886 in Dobson v Dornan, a case involving infringement of a protected pattern on a rug. One hundred thirty years later, with its Samsung decision, the Court brings design patent law into the new age of complex electronic and information technology. We may not have to wait over a century for the Court’s next pronouncement on the state of design patent law.

On October 11, the United States Supreme Court heard oral arguments in Samsung v. Apple, a closely watched case involving how to calculate damages for infringement of a design patent. The result of this case will undoubtedly affect design patent litigation and jump start discussion of design patent law.

In 2011, Apple sued Samsung, claiming that the company’s Galaxy phone infringed design patents, utility patents, and trademarks in Apple’s iPhone. A year later a jury found in favor of Apple, awarding nearly $ 300 million in damages for infringement of all three types of intellectual property rights. The Federal Circuit in 2015 upheld the trial court judgment on all counts except for the trademark claims, which were found to be barred by the functionality defense. The Supreme Court subsequently granted Samsung’s certiori petition on the question of how to calculate damages for the design patent claims.

Apple asserted three design patents against Samsung. One design patent covered the rectangular, round-cornered front face of the iPhone. The second and third covered the round-cornered face with certain aspect ratio and corner radii and the display screen for the graphic user interface, respectively. Under section 289 of the Patent Act, someone who applies, without permission from the owner, the patented design to any “article of manufacture” for sale “shall be liable to the owner to extent of his total profit.” The district court, affirmed by the Federal Circuit, awarded Apple damages based on the full profits from all the iPhones Apple sold during the period of infringement.

Samsung contends that basing damages on the profits from the entire product overcompensates Apple. Instead, damages should be connected to the value of the design covered by the patent. The Supreme Court, by granting cert, seems to agree that there is a problem with interpreting the statute so broadly. A recurring hypothetical at the oral argument was a design patent covering a cup holder that is included in a Rolls Royce. Awarding the owner the full value of the Rolls Royce against an infringer of the cup holder is obviously excessive. But how to create general rule consistent with the statute that avoids excessive compensation?

During oral argument, Apple and Samsung agreed that recovery should be limited to the value of the “article of manufacture” to which the design is applied. That “article of manufacture” would be a part of the total product, such as the front face and display screen for the iPhone. Most of the debate during oral argument involved identifying a test that would assist the court in identifying the article of manufacture and calculating the profits to the design patent owner from this article. Samsung would leave it to the jury to determine the relevant article of manufacture with assistance from experts on how to calculate the profits attributable to this article. The Government, participating in the oral argument, urged a multifactor test for determining what constitutes the article of manufacture and detailed jury instructions on how to calculate profits, with assistance from a relevant accounting expert. Apple suggests a more abbreviated multi-part test to guide the trial court in determining damages.

The surprising aspect of the oral argument was the broad agreement among the parties that recovery for the entire product is inappropriate. What was frustrating is coming to some agreement about the proper test. The Court very likely will propose some multi-purpose test. A future article will explain the details of whatever test the Court prescribes.

On December 14, 2016, the Supreme Court granted cert in TC Heartland v. Kraft Foods.  This widely anticipated case brings to the front the question of patent venue and the problem of “Forum selling,” the alleged practice of some jurisdictions creating a favorable environment for litigation and its benefits for the local bar and community.

Krafft, an Illinois company, filed a patent infringement suit against TC Heartland, an Indiana company, in district court in Illinois. TC Heartland filed a mandamus motion arguing that the Illinois court lacked personal jurisdiction and venue should be changed to Indiana. The district court denied the motion, and the Federal Circuit affirmed. The Supreme Court granted cert on the question: “Whether the patent venue statute, 28 U.S.C. § 1400(b), which provides that patent infringement actions ‘may be brought in the judicial district where the defendant resides[,]’ is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by the statute governing ‘[v]enue generally,’ 28 U.S.C. § 1391, which has long contained a subsection (c) that, where applicable, deems a corporate entity to reside in multiple judicial districts.”

In 1957, in its decision in Fourco Glass v. Transmirra Products, the Supreme Court ruled that the patent venue provision was independent of the general venue provision of the Federal Rules of Civil Procedure. Therefore,  a corporate patent defendant can be sued only where it is incorporated. However, in 1990, the Federal Circuit ruled that the Fourco decision had been implicitly overruled in 1988 when Congress amended 1391 to apply “for purposes of venue under this chapter” and defined corporate residence to include any place where there is personal jurisdiction over the defendant. TC Heartland is arguing that the 1990 Federal Circuit opinion, V. E Holding v. Johnson Gas, was wrongly decided.

Complicating the matter is Congressional amendments to 1391(c) in 2011, as part of the America Invents Act.  These amendments altered language in 1391(c) to make it applicable “for all venue purposes” and amended 1391(a) to apply to “all civil actions.” The Federal Circuit in TC Heartland’s appeal held that Congress made these amendments recognizing that the appeals court was correct in V.E. Holding that Congress has overruled FourCo in 1988.  Now the Supreme Court will decide whether it was in fact overruled by Congress.

Confronting the Court is a murky question of determining what Congress did based on what it legislated. Legislative history is generally disfavored, but will certainly play some role in the argument and perhaps in the final decision. But that history is also hazy. Ultimately, the Court may fall back on policy and the concern over forum selling in patent litigation. Will the Eastern District of Texas, an original and continuing haven for patent litigation, be checked or vindicated in this case from the Mid-West?

The answer to this question may rest on the ongoing struggle between the Federal Circuit and the Supreme Court over the appropriateness of special rules for patent law. However, in this case, the positions are reversed. Typically, the Federal Circuit seeks special rules for patents, such as in the case of injunctive relief with the Supreme Court reversing. Here, the Federal Circuit reasons that the general rules of civil procedure apply contrary to the specialized rule for patent venue that the Supreme Court recognized in FourCo.  Surprisingly, the Federal Circuit and the Supreme Court might agree in this case. That now leaves Congress to make another round of amendments to prevent the alleged practice of forum selling.

On December 6, 2016, the Supreme Court ruled in favor of Samsung in its ongoing litigation with Apple over infringement of four design patents covering the iPhone.  A jury found in favor of Apple and awarded $ 399 million in damages for the infringement of the patents on the design for the iPhone by the Samsung Galaxy. Samsung appealed this judgment to the Federal Circuit on the grounds that damages should not be calculated on the value of the entire iPhone but should be limited to the features of the iPhone cover that was the subject of the design patents. The Federal Circuit upheld the verdict on the grounds that the cover was not sold separately from the iPhone. Therefore, the entire phone was the relevant article of manufacture for calculating damages.

The Supreme Court reversed the Federal Circuit, holding that for “a multi-component product, the relevant article of manufacture for arriving at … a damage award need not be the end product sold to the consumer, but may be only a component of that product.” The Court remanded the case to the Federal Circuit for review of the damage award under this new standard.

In a brief opinion, the Court rested its conclusion on the statutory language. The Patent Act uses the terms article of manufacture to include both an end product and components of the product. Grants of design patents have been limited to components of an end product. The Federal Circuit erred in limiting the phrase “article of manufacture” to the end product and not recognizing that the design patent may apply only to a component. Upon remand, the Federal Circuit now has to determine what components of the end product are the article of manufacture.

While the Supreme Court resolves the narrow question of whether design patent damages can be limited to a component of an end product, the Court’s ruling leaves open how to determine what components a design patent covers and how to value them. Since the parties did not adequately brief that question, the Court states, that threshold question of identifying the relevant components is left for a future case. In the Samsung litigation, the Federal Circuit, and very likely the district court, will have to confront the question of identifying what components are the article of manufacture for calculating damages.

The Samsung decision is a landmark decision in design patent law, not only because of the prominence of the dispute between two smart phone giants, but also because of the Court’s addressing a basic question of design patent damages. The last time the Court considered a design patent case was in 1886 in Dobson v Dornan, a case involving infringement of a protected pattern on a rug. One hundred thirty years later, with its Samsung decision, the Court brings design patent law into the new age of complex electronic and information technology. We may not have to wait over a century for the Court’s next pronouncement on the state of design patent law.

On October 11, the United States Supreme Court heard oral arguments in Samsung v. Apple, a closely watched case involving how to calculate damages for infringement of a design patent. The result of this case will undoubtedly affect design patent litigation and jump start discussion of design patent law.

In 2011, Apple sued Samsung, claiming that the company’s Galaxy phone infringed design patents, utility patents, and trademarks in Apple’s iPhone. A year later a jury found in favor of Apple, awarding nearly $ 300 million in damages for infringement of all three types of intellectual property rights. The Federal Circuit in 2015 upheld the trial court judgment on all counts except for the trademark claims, which were found to be barred by the functionality defense. The Supreme Court subsequently granted Samsung’s certiori petition on the question of how to calculate damages for the design patent claims.

Apple asserted three design patents against Samsung. One design patent covered the rectangular, round-cornered front face of the iPhone. The second and third covered the round-cornered face with certain aspect ratio and corner radii and the display screen for the graphic user interface, respectively. Under section 289 of the Patent Act, someone who applies, without permission from the owner, the patented design to any “article of manufacture” for sale “shall be liable to the owner to extent of his total profit.” The district court, affirmed by the Federal Circuit, awarded Apple damages based on the full profits from all the iPhones Apple sold during the period of infringement.

Samsung contends that basing damages on the profits from the entire product overcompensates Apple. Instead, damages should be connected to the value of the design covered by the patent. The Supreme Court, by granting cert, seems to agree that there is a problem with interpreting the statute so broadly. A recurring hypothetical at the oral argument was a design patent covering a cup holder that is included in a Rolls Royce. Awarding the owner the full value of the Rolls Royce against an infringer of the cup holder is obviously excessive. But how to create general rule consistent with the statute that avoids excessive compensation?

During oral argument, Apple and Samsung agreed that recovery should be limited to the value of the “article of manufacture” to which the design is applied. That “article of manufacture” would be a part of the total product, such as the front face and display screen for the iPhone. Most of the debate during oral argument involved identifying a test that would assist the court in identifying the article of manufacture and calculating the profits to the design patent owner from this article. Samsung would leave it to the jury to determine the relevant article of manufacture with assistance from experts on how to calculate the profits attributable to this article. The Government, participating in the oral argument, urged a multifactor test for determining what constitutes the article of manufacture and detailed jury instructions on how to calculate profits, with assistance from a relevant accounting expert. Apple suggests a more abbreviated multi-part test to guide the trial court in determining damages.

The surprising aspect of the oral argument was the broad agreement among the parties that recovery for the entire product is inappropriate. What was frustrating is coming to some agreement about the proper test. The Court very likely will propose some multi-purpose test. A future article will explain the details of whatever test the Court prescribes.