Supreme Court Overturns $399M Verdict In Long-Running Apple/Samsung Patent Spat

The seemingly never-ending smartphone patent slapfight between Apple and Samsung continues on, with the U.S. Supreme Court ruling today that a $399 million jury award granted to Apple needs to be reassessed because the iPhone maker isn’t entitled all of the profits from the infringing Samsung devices.

This long-running legal battle has a lot of ins, outs, what-have-yous, but it basically comes down to this: How much did Samsung’s smartphone designs infringe on Apple’s various patents? More importantly, how do you calculate the damage done by those infringements?

See, the Supreme Court ruling doesn’t overturn the jury’s decision that Samsung did indeed cross the line when making smartphones that looked and acted an awful lot like Apple’s patent-protected iPhone. Instead, it sends the case back to a lower court with guidance on how to figure out how much Apple is really owed.

Section 289 of the Patent Act states that if someone infringes on a patent, he is liable to the patent’s owner to the “extent of his total profit.”

So if I were to infringe on a patented design for a drinking straw, the owner of that patent could come after me for all of the profits I’ve made off that straw. It’s a simple concept when applied to a single item that is sold discretely.

Not so simple when the infringement only involves a portion of the overall product being sold. Going back to the drinking straw example: If my unauthorized straw was just one part of a more complicated drinking vessel — say some sort of bluetooth-connected, temperature-regulating thermos — that has nothing to do with the straw patent, could that straw patent owner still come after me for all the profit I made?

In the Samsung/Apple case, the previous courts had held that Apple was indeed entitled to the full profit of the infringing Samsung phones, even those devices had many vital design features and elements — like the entire operating system — that did not infringe on any Apple patents.

Samsung’s argument to SCOTUS — that the damages should not be calculated this way — was backed up by a number of tech companies, including Google, Dell, HP, NewEgg, Facebook, and Vizio, all of whom argued that the courts’ “deeply flawed” line of reasoning “will lead to absurd results and have a devastating impact on companies… because it ignores the reality of modern, multicomponent technological products.”

Consumer advocates at the Electronic Frontier Foundation and Public Knowledge raised similar concerns, telling SCOTUS that this risk of losing all of a product’s profits because of a single patent infringement “would likely discourage many innovators from entering markets, cutting directly against the very purpose of patents as promoters of innovation.”

This morning, SCOTUS sided with Samsung [PDF].

At the heart of the court’s ruling is the term “article of manufacture,” as it’s used in the Patent Act. If an infringed patent is used in an article of manufacture, then the patent owner can get all the profits — but does the “article of manufacture” term apply to the final product or just to the profit that can be directly associated to the infringing part?

Justice Sonia Sotomayor writes that 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.” Likewise, the simple fact that component may be integrated into a larger product “does not put it outside the category of articles of manufacture.”

The appeals panel that upheld the Apple award had ruled that you couldn’t separate the infringing components from the final phone because these items were not sold separately directly to consumers. In other words, it’s not like these infringing aspects are car parts that have a given price and are regularly sold separately from the finished products.

But Sotomayor explains that this interpretation “gives too narrow a meaning” to “article of manufacture.”

Since the patents in question don’t involve discrete items with simple price tags, Samsung had asked SCOTUS to sort out a test for how to determine how to sort out the question of liability. Instead, SCOTUS also passed this task back to the lower court to figure out, as “Doing so is not necessary to resolve the question presented in this case, and the Federal Circuit may address any remaining issues on remand.”