Case: 14-1335 Document: 196 Page: 1 Filed: 07/01/2015 Nos. 2014-1335 & 2015-1029 In the United States Court of Appeals for the Federal Circuit APPLE INC., PLAINTIFF-APPELLEE v. SAMSUNG ELECTRONICS CO., LTD.; SAMSUNG ELECTRONICS AMERICA, INC.; SAMSUNG TELECOMMUNICATIONS AMERICA, LLC, DEFENDANTS-APPELLANTS ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA (CIV. NO. 11-1846) (THE HONORABLE LUCY H. KOH, J.) BRIEF OF AMICI CURIAE DELL INC., EBAY INC., FACEBOOK INC., GOOGLE INC., HEWLETTPACKARD CO., LIMELIGHT NETWORKS INC., NEWEGG INC., AND SAS INSTITUTE INC. IN SUPPORT OF DEFENDANTS-APPELLANTS’ PETITION FOR REHEARING EN BANC KANNON K. SHANMUGAM DAVID M. KRINSKY ALLISON B. JONES CHRISTOPHER A. SUAREZ WILLIAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washington, DC 20005 (202) 434-5000 Case: 14-1335 Document: 196 Page: 2 Filed: 07/01/2015 CERTIFICATE OF INTEREST Pursuant to Federal Circuit Rule 47.4, undersigned counsel for amici curiae certifies the following: 1. The full names of the amici curiae represented by me in this case are Dell Inc., eBay Inc., Facebook Inc., Google Inc., Hewlett-Packard Co., Limelight Networks Inc., Newegg Inc., and SAS Institute Inc. 2. The names of the real parties in interest represented by me are the 3. No parent corporation or publicly held corporation owns 10 percent or same. more of the stock of any of the amici curiae represented by me. 4. Amici curiae did not participate in proceedings in the lower tribunals. The following attorneys have appeared or are expected to appear in this Court on behalf of the amici curiae: Kannon K. Shanmugam, David M. Krinsky, Allison B. Jones, and Christopher A. Suarez, all of Williams & Connolly LLP, 725 Twelfth Street, N.W., Washington, DC 20005. /s/Kannon K. Shanmugam KANNON K. SHANMUGAM JULY 1, 2015 (i) Case: 14-1335 Document: 196 Page: 3 Filed: 07/01/2015 TABLE OF CONTENTS Page Interest of amici curiae...............................................................................................1 Introduction ................................................................................................................1 Argument....................................................................................................................2 A. Modern technologies are highly complex and consist of numerous technological components and software subsystems ......................................2 B. Section 289 envisions awarding total profits only on designs of relatively simple products ................................................................................5 C. In light of the purpose of Section 289, this Court should adopt a narrow interpretation of the phrase ‘article of manufacture’ ..........................9 Conclusion ...............................................................................................................10 ii Case: 14-1335 Document: 196 Page: 4 Filed: 07/01/2015 TABLE OF AUTHORITIES Page CASES Bergstrom v. Sears, Roebuck & Co., 496 F. Supp. 476 (D. Minn. 1980) ................. 7 Bush & Lane Piano Co. v. Becker Bros., 234 F. 79 (2d Cir. 1916) ...................... 7, 8 Bush & Lane Piano Co. v. Becker Bros., 222 F. 902 (2d Cir. 1915) .................... 7, 8 Catalina Lighting, Inc. v. Lamps Plus, Inc., 295 F.3d 1277 (Fed. Cir. 2002) ............................................................................ 7 Dobson v. Dornan, 118 U.S. 10 (1886) ..................................................................... 5 Dobson v. Hartford Carpet Co., 114 U.S. 439 (1885) .............................................. 5 Gorham Co. v. White, 81 U.S. 511 (1871) ................................................................ 6 Henry Hanger & Display Fixture Corp. v. Sel-O-Rak Corp., 270 F.2d 635 (5th Cir. 1959) ................................................................................ 7 Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437 (Fed. Cir. 1998) ........................ 7 Schnadig Corp. v. Gaines Manufacturing Co., 620 F.2d 1166 (6th Cir. 1980) .............................................................................. 7 Trans-World Manufacturing Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552 (Fed. Cir. 1984) ............................................................................ 8 Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011) ................... 10 Young v. Grand Rapids Refrigerator Co., 268 F. 966 (6th Cir. 1920)...................... 8 STATUTES Act of Feb. 4, 1887, ch. 105, § 1, 24 Stat. 387 .......................................................... 5 35 U.S.C. § 289 ............................................................................................1, 5, 9, 10 iii Case: 14-1335 Document: 196 Page: 5 Filed: 07/01/2015 Page MISCELLANEOUS 18 Cong. Rec. 834 (1887) .......................................................................................... 6 Braden Cox & Steve DelBianco, Consumer Demand Drives Innovation and Integration in Desktop Computing, Ass’n for Competitive Technology (June 2007) .................................................. 5 Federal Trade Commission, The Evolving IP Marketplace (2011) ........................... 9 H.R. Rep. No. 49-1966 (1886) ............................................................................... 5, 6 V. Ashnan Nasur et al., Factors Influencing Consumers’ Laptop Purchases, Sixth Global Conference on Business and Economics (Oct. 15-17, 2006) .................................................................................................. 4 Abraham Pai, Smart TV: Piece by Piece, Samsung Tomorrow (Sept. 23, 2011) ................................................................ 2, 3 R&D Magazine, 2014 Global R&D Funding Forecast (Dec. 2013) ............................................................................. 4 Jonathan Sallet, The Creation of Value: The Value Circle and Evolving Market Structures, 11 J. on Telecomm. & High Tech. L. 185 (2013) ................. 5 S. Rep. No. 49-206 (1886) ......................................................................................... 5 Christopher Versace, What Do Consumers Want in a New Smartphone?, Forbes (Aug. 21, 2013) .......................................................... 4 iv Case: 14-1335 Document: 196 Page: 6 Filed: 07/01/2015 INTEREST OF AMICI CURIAE Amici are Dell Inc., eBay Inc., Facebook Inc., Google Inc., Hewlett-Packard Co., Limelight Networks Inc., Newegg Inc., and SAS Institute Inc. Amici are companies that develop, manufacture, and sell modern technologies, including smartphones, operating systems, computers, and online platforms, as well as the components, software, and services that support them.* The panel’s decision in this case regarding the appropriate measure of damages for the infringement of design patents will have significant ramifications for amici and the technology industry more generally. INTRODUCTION In this closely watched case, the panel upheld a jury’s award of the entirety of Samsung’s profits on smartphones that were found to have infringed three Apple design patents relating to a portion of the iPhone’s outer shell and one graphical-user-interface screen. Although the design patents covered only minor features of those complex electronic devices, the panel rejected Samsung’s argument that damages must be limited to the profits made from those infringing features. See slip op. 25-28. It instead concluded that the relevant statute, 35 U.S.C. § 289, * Pursuant to Federal Rule of Appellate Procedure 29(c)(5), amici affirm that no counsel for a party authored this brief in whole or part and no person other than amici or their counsel made a monetary contribution to fund its preparation or submission. Counsel for amici has represented defendants-appellants in other litigation, including litigation against plaintiff-appellee. (1) Case: 14-1335 Document: 196 Page: 7 Filed: 07/01/2015 “explicitly authorizes the award of total profit from the article of manufacture bearing the patented design.” Id. at 26-27. Viewing the smartphone as a single “article of manufacture,” the panel held that the statute required it to award the total profit where the “innards of Samsung’s smartphones were not sold separately from their shells as distinct articles of manufacture to ordinary purchasers.” Id. at 27-28. Amici urge rehearing en banc of the panel’s decision. If allowed to stand, that decision will lead to absurd results and have a devastating impact on companies, including amici, who spend billions of dollars annually on research and development for complex technologies and their components. ARGUMENT A. Modern Technologies Are Highly Complex And Consist Of Numerous Technological Components And Software Subsystems Complex, multicomponent products have become the norm in the modern consumer electronics industry. To use but one example, a so-called “smart television” contains over 2,500 high-tech components. See Abraham Pai, Smart TV: Piece by Piece, Samsung Tomorrow (Sept. 23, 2011) . Those components include an outer casing, speakers, a liquid crystal display, a circuit board containing 1,200 semiconductors (including chips that support WiFi and Bluetooth), a wall mount, a remotely controlled keyboard, a tuner, USB and HDMI ports, graphics hardware, an operating system, and hundreds of software applications that may run on that system—including games, communication applications, 2 Case: 14-1335 Document: 196 Page: 8 Filed: 07/01/2015 and news applications. Id. Those components, in turn, may be covered by individual design patents for features such as the curvature of the wall mount, the look and feel of the keyboard, the design of the speakers, or even the shape of a single icon within an application. Despite containing numerous components, however, a smart television is sold as a complete product to an ordinary purchaser. Under the panel’s reasoning, the manufacturer of a smart television containing a component that infringed any single design patent could be required to pay in damages its total profit on the entire television, no matter how insignificant the design of the infringing feature was to the manufacturer’s profit or to consumer demand. Software products and online platforms face similar dangers. A design patent may cover the appearance of a single feature of a graphical user interface, such as the shape of an icon. That feature—a result of a few lines out of millions of code—may appear only during a particular use of the product, on one screen display among hundreds. But the panel’s decision could allow the owner of the design patent to receive all profits generated by the product or platform, even if the infringing element was largely insignificant to the user and it was the thousands of other features, implemented across the remainder of the software, that drove the demand generating those profits. As the foregoing examples demonstrate, the panel’s decision is disconnected from the reality of complex modern technologies, and it attaches outsized signifi- 3 Case: 14-1335 Document: 196 Page: 9 Filed: 07/01/2015 cance to the design of individual components. When it comes to complex technologies, design is but one factor that contributes to consumer demand. In a study of the factors that influence consumers’ laptop purchasing decisions, for example, design was ranked 21st out of 26 factors—behind functional qualities such as processor speed, memory capacity, and even the number of USB ports. See V. Ashnan Nasur et al., Factors Influencing Consumers’ Laptop Purchases, Sixth Global Conference on Business and Economics 5 (Oct. 15-17, 2006) . So too, in the smartphone context, consumers value numerous other qualities such as battery life, durability, and security. See Christopher Versace, What Do Consumers Want in a New Smartphone?, Forbes (Aug. 21, 2013) . And it is beyond doubt that functionality is a major factor in consumers’ choice of which software products and online platforms to use. To state the obvious, the investment in research and development in information and communication technologies—currently estimated at $250 billion annually—extends well beyond design to include the hardware, software, and services that are incorporated into the technologies. See R&D Magazine, 2014 Global R&D Funding Forecast 24 (Dec. 2013) . The reason is simple: technology companies know that consumers want a product that works well, not simply one that looks good. 4 Case: 14-1335 Document: 196 Page: 10 Filed: 07/01/2015 Consumer preferences exert influence over every component that is incorporated into modern technologies, even though those components may not be “sold separately.” Slip op. 27. An “ordinary purchaser’s” demand for various hardware, software, and service components drives a manufacturer’s purchasing decisions for the components of a laptop or smartphone. See Braden Cox & Steve DelBianco, Consumer Demand Drives Innovation and Integration in Desktop Computing, Ass’n for Competitive Technology (June 2007). “[C]onsumers are demonstrating a desire to shape demand through their own insistence on mixing and matching products and product features,” Jonathan Sallet, The Creation of Value: The Value Circle and Evolving Market Structures, 11 J. on Telecomm. & High Tech. L. 185, 190 (2013), and manufacturers are heeding that call. B. Section 289 Envisions Awarding Total Profits Only On Designs Of Relatively Simple Products Congress adopted the “total profit” rule now contained in Section 289 in re- sponse to the Supreme Court’s rulings in two nineteenth-century cases that awarded nominal damages of six cents for infringement of design patents covering carpets. See Dobson v. Dornan, 118 U.S. 10 (1886); Dobson v. Hartford Carpet Co., 114 U.S. 439 (1885). Concerned that the patent laws provided “no remedy” for design-patent infringement in the wake of those decisions, S. Rep. No. 49-206, at 1 (1886), Congress passed a bill awarding the “infringer’s entire profit on the article,” H.R. Rep. No. 49-1966, at 3 (1886); see Act of Feb. 4, 1887, ch. 105, § 1, 24 5 Case: 14-1335 Document: 196 Page: 11 Filed: 07/01/2015 Stat. 387. That bill was premised on the assumption that “it is the design that sells the article,” and that the design, as the primary feature of the article, is the only thing that “makes it possible to realize any profit at all.” H.R. Rep. No. 49-1966, at 3. The 1886 Congress did not have complex, multicomponent technologies in mind. As the House Report explained, “[s]o far as the consumers are concerned, the effect of design patent laws that are respected is to give them more beautiful carpets and wall-papers and oil-cloths.” H.R. Rep. No. 49-1966, at 3. The bill’s sponsor similarly noted that the bill protects “designs for carpeting, oil-cloths, wall-paper, and things of that sort,” and that the bill was introduced in response to “a great body of persons who are engaged in the manufacture of goods in which designs are the principal feature.” 18 Cong. Rec. 834, 835 (1887) (statement of Rep. Martin). Carpets, oilcloths, and wallpaper are relatively simple articles for which the design embodies virtually the whole article and is the primary factor driving sales. In the immediate aftermath of Congress’s adoption of the total-profit rule, design-patent cases largely focused on relatively simple products that are defined by their designs. The seminal case articulating the standard for design-patent infringement involved, of all things, an ornamental spoon. See Gorham Co. v. White, 81 U.S. 511, 520-522 (1871). Other cases, including those cited by the 6 Case: 14-1335 Document: 196 Page: 12 Filed: 07/01/2015 panel here, applied the total-profit rule to simple products such as garment racks, fireplace grates, sofas, athletic shoes, and lamps—products much like the carpets and oilcloths envisioned by Congress when it originally enacted the rule. See Catalina Lighting, Inc. v. Lamps Plus, Inc., 295 F.3d 1277, 1281 (Fed. Cir. 2002); Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1438 (Fed. Cir. 1998); Schnadig Corp. v. Gaines Manufacturing Co., 620 F.2d 1166, 1167 (6th Cir. 1980); Henry Hanger & Display Fixture Corp. v. Sel-O-Rak Corp., 270 F.2d 635, 638 (5th Cir. 1959); Bergstrom v. Sears, Roebuck & Co., 496 F. Supp. 476, 480 (D. Minn. 1980). By contrast, where courts have been faced with more complex, multicomponent products, they have recognized that an award of total profit should not extend to components of the article that do not embody the design. For example, in Bush & Lane Piano Co. v. Becker Bros., 222 F. 902 (1915) and 234 F. 79 (1916), the Second Circuit declined to award the total profit from a piano that included an infringing piano case. As the court put it, the patentee “did not invent a piano, but a piano case,” 222 F. at 905, and the piano’s instrument and case were distinct articles of manufacture. The court concluded that the “article” from which total profit was awarded should depend on the “technical, mechanical, popular, and commercial” circumstances in a particular case. 234 F. at 81. 7 Case: 14-1335 Document: 196 Page: 13 Filed: 07/01/2015 The panel in this case attempted to distinguish Bush & Lane Piano on the ground that “the commercial practice in 1915” was such that “ordinary purchasers regarded a piano and a piano case as distinct articles of manufacture.” Slip op. 27. But ordinary purchasers also view modern technology as containing multiple “articles” that are integrated into products based on their preferences. See p. 5, supra. Just as Samsung or Apple purchases the components and features of its smartphones from third parties based on consumer demand, the manufacturer of infringing pianos in Bush & Lane Piano purchased the cases from others before assembling them and selling the pianos as whole units. See 222 F. at 904. Courts have applied similar principles in two other design-patent cases that the panel did not address. In Young v. Grand Rapids Refrigerator Co., 268 F. 966 (1920), the Sixth Circuit refused to award total profits on a refrigerator that incorporated an infringing door latch. Because it is readily apparent that the design of a latch does not permeate a refrigerator, “it [wa]s not seriously contended that all the profits from the refrigerator belonged to the [patentee],” and damages were awarded based on the profit derived from the latch alone. Id. at 974. More recently, this Court declined to award profits from eyeglasses that were sold on infringing display racks, because the design patent did not cover both articles of manufacture. See Trans-World Manufacturing Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552, 1567 (1984). 8 Case: 14-1335 C. Document: 196 Page: 14 Filed: 07/01/2015 In Light Of The Purpose Of Section 289, This Court Should Adopt A Narrow Interpretation Of The Phrase ‘Article Of Manufacture’ Applying the total-profit rule to complex modern technologies without re- gard for their numerous components would produce absurd consequences that Congress would not have intended. Awarding a design patentee the total profit from an infringer’s product when the design covers only a relatively minor portion of the product is not only out of proportion with the significance of the design, it is out of touch with economic realities. See p. 4, supra. Such disproportionate damages awards hinder innovation and can “disrupt[] the ability of the market to allocate [research and development] resources to those areas most likely to generate the products most valued by consumers.” Federal Trade Commission, The Evolving IP Marketplace 146 (2011). They may also foster a new basis for opportunistic lawsuits. The Court should avoid these pernicious consequences by interpreting “article of manufacture,” consistent with the legislative history, case law, and statutory text, to mean the component “to which [the] design . . . has been applied.” 35 U.S.C. § 289. The statute awards the “extent of [the infringer’s] total profit” for “any article of manufacture to which such design . . . has been applied”; that is, “the profit made from the infringement.” Id. Thus, where the design’s application permeates the entire product and drives nearly all of its demand—as with carpets, ornamental spoons, or athletic shoes—the “article of manufacture” would be the 9 Case: 14-1335 Document: 196 Page: 15 Filed: 07/01/2015 whole product, and profit from the whole product may be awarded. But where a design “has been applied” only to one portion of a multicomponent product and does not drive demand for the entire product, the “article of manufacture” is rightly considered to be only the component to which the design applies. Such an approach would also be congruent with the “entire market value” rule that this Court has applied in determining whether the royalty base for reasonable royalty damages should extend to an entire multicomponent technology. Under that rule, a patentee may “assess damages based on the entire market value of the accused product only where the patented feature creates the basis for consumer demand or substantially create[s] the value of the component parts.” Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011) (internal quotation marks omitted). There is no dispute here that the designs at issue solely involved a portion of the smartphone’s outer shell and one graphical-user-interface screen. A proper interpretation of Section 289 should focus on those components, not the smartphones as a whole. The panel erred in holding otherwise. If it is allowed to stand, the panel’s decision will have significant detrimental consequences for the continued development of useful modern technologies. CONCLUSION The petition for rehearing en banc should be granted. 10 Case: 14-1335 Document: 196 Page: 16 Filed: 07/01/2015 Respectfully submitted, /s/Kannon K. Shanmugam KANNON K. SHANMUGAM DAVID M. KRINSKY ALLISON B. JONES CHRISTOPHER A. SUAREZ WILLIAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washington, DC 20005 (202) 434-5000 JULY 1, 2015 Case: 14-1335 Document: 196 Page: 17 Filed: 07/01/2015 CERTIFICATE OF SERVICE I, Kannon Shanmugam, counsel for amici curiae and a member of the Bar of this Court, certify that, on July 1, 2015, a copy of the attached Brief of Amici Curiae was filed with the Clerk through the Court’s electronic filing system. I further certify that all parties required to be served have been served. /s/Kannon K. Shanmugam KANNON K. SHANMUGAM