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Apple & Samsung Take Total-Profit|Damages Fight to US High Court

WASHINGTON (CN) - In a case that could influence how courts award damages in design patent disputes, the Supreme Court on Tuesday wades into the Apple-Samsung war to determine if the Federal Circuit was correct in upholding a $399 million judgment for Apple.

The Federal Circuit upheld a federal jury's verdict against Samsung last year, after jurors found 11 Samsung smartphones infringed on design patents Apple held on its original iPhone. Particularly, Apple claims Samsung lifted the phone's distinctive screen and "colorful" icons and layout of the display.

Apple claims that Samsung's gains in market share are attributable to its decision to mimic the iPhone's critically acclaimed design.

"Apple innovated; Samsung copied," California-based Apple says in its brief to the Supreme Court.

But the question before the Supreme Court is not whether Samsung infringed on Apple's patent. Instead, the justices will weigh whether Samsung should have to hand over the full amount of the profits it made on the infringing phones or just those that stemmed directly from phones' design.

The statute in the middle of the clash between the two technology titans is the Patent Act, specifically section 289, which deals with awards in patent infringement claims.

Samsung reads the section as saying it should only have to turn over profits it received from the parts of the phone that were found to be infringing.

Called "articles of manufacture," Samsung claims these parts of an item, in this case a phone, are distinct from the entire product.

"Such an article need not be the entire product as sold," Samsung says in its brief. "Many discrete 'articles of manufacture' may be combined into such a product."

But Apple says in its reply that Samsung is taking out of context a section of the Patent Act meant to prevent companies from recovering profits twice. The company says even though Congress has made numerous changes to the Patent Act, it has always left intact the total profits remedy for design patents.

Arti Rai, a law professor at Duke University who specializes in intellectual property law, said it is isn't "necessarily clear" whether the act as it exists can be read in a way favorable to Samsung.

This section of the Patent Act was crafted to deal with items like carpets, in which design is essentially the whole appeal, and has not been tested very much in cases involving high technology, Rai said.

"I think the big question is really whether if, as some people believe, design patents are going to play a very substantial role in our modern high-tech economy, can the statute be adapted by the court to this high-tech era or does Congress have to deal with the adaptation?" Rai said.

In its brief to the Supreme Court, Samsung argues the congressional statute that governs patent disputes did not intend for courts to award victors the whole profits of infringing products. The South Korea-based company warned such a precedent could result in companies investing more in the designs of their products than in the technology that makes them useful.

"The Federal Circuit's automatic entire-profits rule, if not reversed, would have disastrous practical consequences that Congress cannot have intended," Samsung says in its brief. "It would invite such wildly disproportionate results as the award of the entire profits on a car for infringement of a patented cup-holder design."

Samsung claims functionality - things like the Android operating system and the apps available on the Google Play store - are what primarily drives customers to choose its devices, not the style of the screen. Citing Apple's own market data, Samsung says in its brief that just 5 percent of Android purchases are motivated by a phone's design.

According to Samsung, market share rose "considerably" only after it brought on the Android operating system and began designing phones with larger screens - more evidence that features rather than looks drive phone sales.

But Apple asserts that whether in carpets or in smartphones, design remains of the upmost importance.

Among other arguments about what caused Samsung's rise in the smartphone market, Apple warns the Supreme Court that if it were to reverse the Federal Circuit's decision it would be verging into the lawmaking role reserved for Congress.

"Samsung's arguments are addressed to the wrong branch of government," Apple's brief says. "It is not for this court to decide whether to alter the statutory balance that Congress has chosen and left undisturbed for decades."

Changing the precedent for how patent disputes are resolved would do more than just leave Apple lighter on its balance sheet, but would also incentivize "counterfeiters and producers of knock-offs," to become bolder, scaring large companies away from investing in industrial design, Apple claims.

At the same time, Apple argues the problems Samsung that claims the Federal Circuit's ruling could bring are not based in reality.

"Samsung ventures that the Federal Circuit's decision will lead to various bad outcomes," Apple says in its brief. "But the Federal Circuit did nothing new in this case and Samsung fails to explain why the Federal Circuit's straightforward application of long-settled law will yield a parade of horribles that has not arisen in the nearly 130 years since Congress enacted the total-profit remedy."

Beyond the bickering of two of the world's most prominent tech companies, Rai said the government's friend-of-the-court brief supporting neither party could play large in the court's decision on the case.

"It's always noteworthy when the U.S. government has a position in a patent case because in general their positions get a lot of attention from the Supreme Court, particularly in patent cases where the Supreme Court might not be as well versed," Rai said.

The government's amicus brief advocates sending the case to lower courts that can determine to what the term "article of manufacture" should apply and whether a new jury trial is warranted.

Although the "article of manufacture" in a given case might not refer to the entire finished product in every case, sorting through what is and is not a relevant article should be done in a case-by-case basis, the government says.

"Although the district court's jury instructions equated the term 'article of manufacture' with the finished smartphones, it is unclear whether petitioners produced evidence supporting their assertions that components of the phones should be considered the relevant articles of manufacture," the government says in its brief. "The lower courts should be permitted to make that determination in the first instance."

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