Supreme Court October Term 2016 Preview – Patent Cases

As the Supreme Court kicked off October Term 2016, it continues to show a strong interest in patent law, granting three petitions so far with more petitions to be considered.

Samsung v. Apple – Design Patents Damages

The first is Samsung’s petition challenging the damages award for infringing Apple’s design patents that cover the iPhone’s curved corner and the grid of the display screen.[1] The jury awarded Apple nearly $400 million, which represents Samsung’s entire profits from the sales of the infringing phones.[2] The Federal Circuit affirmed that portion of the award.[3] The Federal Circuit concluded that Section 289[4] allows a design patent owner to recover the infringer’s “total profit,” even though the patented design may only cover a minor feature of the infringing product.[5]

The Court granted the petition to determine whether, where a design patent is applied to only a component of a product, an award of infringer’s profits should be limited to those profits attributable to the component.[6] Samsung argued, in essence, that design patent damages should be limited to non-functional and ornamental aspects of a product and be apportioned according to the patented feature. Apple maintained that the language and history of the statute support awarding the “total profit” of the article of manufacture, which is the entire product at issue.

During the oral argument on October 11, 2016, the justices appeared to be doubtful about awarding the entire profits of the infringing phones and interested in establishing a workable test for design patents so the jury can be properly instructed. Both sides focused on how to determine the “article of manufacture.”[7] Samsung argued that the “article of manufacture” is “the part or portion of the product as sold that incorporates or embodies the subject matter of the [design] patent” and the total profit should be the “profit derived from the article of manufacture to which the design has been applied.”[8] Under Samsung’s test, damages would be automatically limited to the patented feature. Apple countered that the “article of manufacture is the thing to which the design is applied for purposes of sale, and to which it gives distinctive and pleasing, attractive appearance.”[9] Under Apple’s test, the “article of manufacture” could be the entire product.

If the Court agrees with Samsung, it will significantly change the scope of damages awards in suits involving design patents, and can substantially limit the liability of potential infringers. If the Court agrees with Apple, it will provide design patent owners a potent tool to seek large damages awards and may spur more design patent lawsuits. The Court may also pick a middle ground without actually deciding the issue presented, such as remanding to the Federal Circuit to determine the proper test for the “article of manufacture.”

SCA Hygiene v. First Quality – Laches Defense in Patent Cases

The second petition, SCA Hygiene v. First Quality, concerns the scope of the laches defense in patent infringement actions.[10] Two years ago, the Supreme Court held in Petrella v. Metro-Goldwyn-Maye that laches cannot bar the claim for copyright damages brought within the three-year limitations period established by 17 U.S.C. § 507(b).[11] Section 286 of the Patent Act, like Section 507(b) of the Copyright Act, provides a similar limitations period of six years.[12] Despite the Petrella holding and the lack of substantive distinction between Section 507(b) and Section 286, a fractioned Federal Circuit held, en banc 6-5, that laches remains a defense and may bar legal remedies in patent infringement cases.[13] The Federal Circuit majority concluded that the Congress had codified a laches defense in 35 U.S.C. § 282(b)(1), and thus laches operates as a defense to both legal and equitable relief. The dissent argued that the majority adopted a patent-specific approach that contradicts Congressional intent and the Petrella analysis.

Many believe that the Supreme Court took the case to correct patent law exceptionalism embraced by the Federal Circuit majority. In the last ten years, the Supreme Court has repeatedly reversed the Federal Circuit where the appellate court set up rules that are unique to patent law. For example, in eBay Inc. v. MercExchange, L.L.C., the Supreme Court held that the general four-factor test for permanent injunction applies to disputes arising under the Patent Act, overruling the Federal Circuit’s rule that courts will grant permanent injunctions against patent infringement absent exceptional circumstances.[14] In Teva Pharm. USA, Inc. v. Sandoz, Inc., the Supreme Court held that the appellate court must apply a clear error, not a de novo, standard of review in evaluating factual findings by a district court during claim construction, as a deviation to the general rule is not warranted in patent cases.[15]

Respondent First Quality argues that the Petrella holding should not be extended to patent law because the statutory text, history, and the purpose of the Patent Act all distinguish the instant petition from Petrella. In particular, the laches defense is codified in the Patent Act but only a judicial creation in the copyright context.

If the Court confirms the availability of the laches defense, it can limit damages exposures to the accused infringers as they could have early notices of alleged infringement and may switch to noninfringing alternatives. If the Court abolishes the laches defense, it will provide predictability and may avoid some unnecessary patent litigations as the patent owners would have more time to discover and evaluate potential infringement and engage in settlement discussion.

Life Technology v. Promega – Infringement under Section 271(f)(1)

The patent-at-issue in Life Tech. v. Promega claims a genetic testing kit comprising (1) a primer mix, (2) a DNA polymerase, (3) a nucleotides mix, (4) a buffer, and (5) a control.[16] Life Technology’s genetic testing kits comprise all five components. However, Life Technology only manufactures one component – the DNA polymerase – in the United States, which it ships to its facility in the United Kingdom. [17] The oversea facility assembles and then sells the kits worldwide.[18]

The jury awarded Promega lost profits based on the worldwide sales of Life Technology’s kits under Section 271(f)(1).[19] The district court vacated the jury’s award for two reasons: (1) Section 271(f)(1) requires a third party to be induced by the infringer, and (2) supplying only one component cannot meet the “substantial portion” requirement under Section 271(f)(1).[20] The Federal Circuit found the district court erred on both.[21] It first concluded, based on the statutory language, the legislative history, the Congressional intent, and the plain meaning of the word “induce,” that no third party is required.[22] On the second issue, the Federal Circuit found that “[n]othing in the ordinary meaning of ‘portion’ suggests that it necessarily requires a certain quantity” and “the ordinary meaning of ‘substantial portion’ suggests that a single important or essential component can be a ‘substantial portion’” under Section 271(f)(1).[23] A single component, such as the DNA polymerase at issue, could be the substantial component of the infringing kits because without it, the kits would be “inoperable.”[24]

Only the second issue will be reviewed by the Supreme Court. [25] Life Technology argues that “all or substantial portion” must be determined by quantity. It interprets the Federal Circuit as only requiring the “substantial portion of the components” to be a component that is necessary for the invention to work. Such reading, Life Technology contends, would render the “substantial portion” limitation meaningless because virtually every component of a patented invention would meet the “substantial portion” requirement. Life Technology also argues that a broad reading of Section 271(f)(1) would contradict the general rule against applying patent law extraterritorially and the purpose of the statue. Promega’s brief is due on October 24, 2016.

It is hard to predict how the Court is going to rule on this issue. On the one hand, the Court has generally favored flexible tests, considering the totality of the circumstances, and rejected bright-line rules previously adopted by the Federal Circuit. This may support the Federal Circuit decision where a case-by-case analysis would be necessary to determine whether a single component may meet the “substantial portion” requirement. On the other hand, the Court is also cautious about the extraterritorial reach of patent law. There is no doubt that the ruling would be important for companies that conduct cross-border business activities.


 

[1] Petition for a Writ of Certiorari by Samsung, at 1-3. Docket No. 15-777.
[2] Id. at 2.
[3] Apple Inc. v. Samsung Elecs. Co., 786 F.3d 983, 1002 (Fed. Cir. 2015), cert. granted in part, 136 S. Ct. 1453 (2016).
[4] Section 289 provides:
Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250, recoverable in any United States district court having jurisdiction of the parties.
Nothing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement.
35 U.S.C. § 289.
[5] Apple, 786 F.3d at 1002. The Federal Circuit, however, acknowledged that the amicus’ argument that “an award of a defendant’s entire profits for design patent infringement makes no sense in the modern world” should be addressed to Congress and the court is bound by what the statute says. Id. fn. 1.
[6] Petition Granted, dated March 21, 2016. Docket No. 15-777.
[7] The parties also disputed whether Samsung had raised its article of manufacture argument below but the justices seemed to be more interested in how to determine the “article of manufacture.” See id. Argument Transcripts, at 38, available at https://www.supremecourt.gov/oral_arguments/argument_transcripts/2016/15-777_1b82.pdf.
[8] Id. at 5-6. Samsung conceded its other arguments during the hearing. Id. at 6.
[9] Id. at 51.
[10] Docket No. 15-927.
[11] 134 S. Ct. 1962 (2014).
[12] 35 U.S.C. Section 286 provides: Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.
17 U.S.C. Section 507(b) provides: No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.
[13] SCA Hygiene Prod. Aktiebolag v. First Quality Baby Prod., LLC, 807 F.3d 1311, 1315 (Fed. Cir. 2015), cert. granted, 136 S. Ct. 1824, 194 L. Ed. 2d 829 (2016).
[14] 547 U.S. 388, 390 (2006).
[15] 135 S. Ct. 831, 835-837 (2015).
[16] Promega Corp. v. Life Techs. Corp., 773 F.3d 1338, 1343 (Fed. Cir. 2014), cert. granted in part, 136 S. Ct. 2505 (2016).
[17] Id. at 1344.
[18] Id.
[19] Id. at 1351. Section 271(f)(1) provides: Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.
35 U.S. C. § 271.
[20] Promega, 773 F.3d at 1351.
[21] Id. at 1351-56.
[22] Id. at 1351-53.
[23] Id. at 1353.
[24] Id. at 1356.
[25] The issue presented is whether supplying a single, commodity component of a multi-component invention from the United States is an infringing act under 35 U.S.C. § 271(f)(1), exposing the manufacturer to liability for all worldwide sales. Petition Granted, dated June 27, 2016. Docket No. 14-1538.

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Dan Liu

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