Tag: patent infringement

NetEase Wins 50 Million RMB & Injunction on Appeal in Minecraft Infringement Litigation at the Guangdong Higher People’s Court

On November 30, 2022, the Guangdong Higher People’s Court announced that NetEase was awarded 50 million RMB (over $7 million USD) and an injunction in an unfair competition case against Shenzhen Mini Play Company (深圳迷你玩公司) involving Minecraft and Mini Play’s similar sandbox game Mini World (迷你世界).  NetEase has the exclusive right to operate Minecraft in China since 2016.  This is believed to be the highest damages award in China for game infringement.

 

 

 

 

Minecraft on left versus Mini World on right.

Minecraft (我的世界) is a sandbox game developed by the Swedish company Mojang Studios in 2009. In May 2016, NetEase announced that it had obtained the exclusive right to operate the game in China, and had the right to enforce any intellectual property infringement and unfair competition claims. In the same month, Shenzhen Mini Play Company launched “Mini World” on Android , and then launched the iOS version and the computer version successively. In 2019, NetEase filed a lawsuit with the Shenzhen Intermediate People’s Court, accusing multiple core elements of the game Mini World of plagiarizing Minecraft. Specifically, NetEase alleged that the overall screens of the two games are highly similar, which constitutes copyright infringement and unfair competition. The court ordered Mini Play to stop the unfair competition, eliminate the impact, and pay 50 million RMB in compensation. The Shenzhen Intermediate People’s Court also determined that “Mini World” was infringing the copyright in Minecraft, and ordered Mini Play to delete the infringing game elements and compensate NetEase more than 21.13 million RMB. Subsequently, both parties appealed to the Guangdong High Court.

The Guangdong Higher Court found that the two games involved in the case are sandbox games, which only set basic game goals and rules, and provided players with basic game resources or elements such as wood, food, creatures, etc. Players freely explore and interact in the virtual world. Players can use the basic game resources preset in the game to create virtual objects, buildings, landscapes, and even game worlds by destroying, synthesizing and building using the basic game resources. Minecraft mainly makes profits through user charges with the cumulative number of downloads from various channels exceeding 3.36 billion with more than 400 million registered users since its launch.

The Guangdong High Court held that the overall screens of the two games constitute electronic works, that is, “audio-visual works” under the newly amended copyright law, but the similarity between the two lies in the design of the game elements rather than the screens of the games. Therefore, it rejected NetEase’s claim of copyright infringement. At the same time, the court held that Mini World and Minecraft are highly similar in terms of gameplay rules, and there are many overlaps in the details of game elements that have exceeded the limit of reasonable reference. By plagiarizing the design of game elements, Mini Play directly seized the key and core personalized commercial value of other people’s intellectual achievements, and seized business opportunities by improperly obtaining other people’s business benefits, which constituted unfair competition.

In determining the amount of compensation, the court held that Mini Play, as the infringing party, should have on hand relevant data of its business income, but refused to provide it to the court without justified reasons, and should bear the legal consequences of adverse presumption.  According to evidence from a third-party platform, the profits of infringement by Mini Play far exceeded the amount of compensation requested by NetEase and therefore the upheld the award of 50 million RMB in compensation for unfair competition.  The Court further ordered Mini Play to delete 230 game elements from Mini World that infringed.

The original announcement from the Guangdong Higher People’s Court can be found here (Chinese only).

Article By Aaron Wininger of Schwegman, Lundberg & Woessner, P.A.

For more intellectual property legal news, click here to visit the National Law Review.

© 2022 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

Patent Infringement Verdict Nixed over Judge’s Stock Ownership

The US Court of Appeals for the Federal Circuit reversed a district court’s opinions and orders and remanded the case for further proceedings before a different district court judge because the original judge had failed to divest all financial interests in the case. Centripetal Networks, Inc. v. Cisco Systems, Inc., Case No. 21-1888 (Fed. Cir. June 23, 2022) (Dyk, Taranto, Cunningham, JJ.)

Centripetal sued Cisco for patent infringement. The original district court judge presided over a 22-day bench trial, which included a more than 3,500-page record, 26 witnesses and more than 300 exhibits. The court heard final arguments on June 25, 2020. While the case was still pending before the district court, the judge learned that his wife owned Cisco stock, valued at $4,687.99. The district court judge notified the parties on August 12, 2020, that he had discovered that his wife owned 100 shares of Cisco stock. He stated that his wife purchased the stock in October 2019 and had no independent recollection of the purchase. He explained that at the time he learned of the stock, he had already drafted a 130-page draft of his opinion on the bench trial, and virtually every issue had been decided. He further stated that the stock did not—and could not have—influenced his opinion on any of the issues in the case. Instead of selling the stock, which might have implied insider trading given his knowledge of the forthcoming order, the judge placed it in a blind trust. Under the terms of the trust, the judge was to be notified when the trust assets had been completely disposed of or when their value became less than $1,000.

Centripetal had no objections. Cisco, however, filed a motion for recusal under 28 U.S.C. § 455(a) and (b)(4). The judge ordered Centripetal to file a response. On October 2, 2020, the court denied Cisco’s motion for recusal. On October 5, 2020, the court issued a 167-page opinion and order containing the judge’s findings that Cisco willfully infringed the asserted claims of the patents-at-issue and awarded Centripetal damages of more than $755 million, pre-judgment interest of more than $13 million and a running royalty of 10%. Cisco moved for amended findings and judgment under Rule 52(b) or a new trial under Rule 59(a)(2). The court denied both motions. Cisco appealed the district court’s findings and asserted that the judge was required to recuse himself under 28 U.S.C. § 455(b) absent divestiture under § 455(f) (the only exception to the bright line rule that a federal judge is disqualified based on a known financial interest in a party).

On appeal, the Federal Circuit addressed two issues: whether the district court judge was relieved of his duty to recuse under § 455(b)(4) because his wife had divested herself of her interest in Cisco under § 455(f), and, if the requirements of § 455(f) were not satisfied, a determination as to the proper remedy.

The Federal Circuit analyzed whether placement of the stock in a blind trust satisfied the divesture requirement of § 455(f). The Court explained that a blind trust is “an arrangement whereby a person, in an effort to avoid conflicts of interest, places certain personal assets under the control of an independent trustee with the provision that the person is to have no knowledge of how those assets are managed.” Centripetal admitted that there are no cases holding that placement of stock in a blind trust constitutes divestment. The Court next turned to the intent of Congress when it drafted the statute. The Court reasoned that to “divest” was understood at the time to mean “dispossess or deprive,” which is only possible when an interest is sold or given away. The Court also noted that Congress used the present tense—that a judge should not sit when he or she has a financial interest in a party. The Court concluded that while placing the stock in a blind trust removed the judge’s wife from control over the stock, it did not eliminate her beneficial interest in Cisco. The Court also found that the Judicial Conference’s Committee on Codes of Conduct had previously ruled that a judge’s use of a blind trust does not obviate the judge’s recusal obligations. Accordingly, the Court found that placing assets in a blind trust is not divestment under § 455(f) and, thus, the district court judge was disqualified from further proceedings in the case.

As for the appropriate remedy, the Federal Circuit considered whether rulings made after August 11, 2020, when the district court judge became aware of his wife’s financial interest in Cisco, should be vacated as a remedy for his failure to recuse. The Court determined that the risk of injustice to the parties weighed against a finding of harmless error and in favor of vacatur. The Court reversed the district court’s opinion and order denying Cisco’s motion for recusal; vacated the opinion and order regarding infringement, damages and post-judgment motions and remanded for further proceedings before a new judge.

Article By Jodi Benassi of McDermott Will & Emery

For more intellectual property legal news, click here to visit the National Law Review.

© 2022 McDermott Will & Emery

Chinese Rail System for Restaurant Meal Delivery Patent Infringed

Perhaps showing the future of restaurants in times of social distancing, defendant Xuansu Company (炫速公司) implemented a restaurant meal delivery system to deliver food to customers using rails from kitchen to customers’ tables thereby avoiding the need for any interaction between customers and restaurant staff.  However, unfortunately for Xuansu, according to the Shanghai Intellectual Property Court , the installed system infringed Chinese patent no. 101282669B and therefore awarded the exclusive licensee, Yunxiao Company (云霄公司), 1 million RMB.

Xuansu’s meal delivery system in operation

The plaintiff argued that the spiral track system installed in the SpaceLab Weightless Restaurant (Space lab失重餐厅) infringed its licensed patent and requested an injunction as well as 8 million RMB.  The defendant countered it was not infringing and used existing technology.

The Court held “Claims 1, 8, 20, 27, 58, and 59 of the patent in question include “the conveyor system transports meals and / or beverages from the back kitchen work area to the customer dining area”, auxiliary transportation devices, rail lines and customer dining areas. The infringing system has all the limitations of the claims including at least one connected dining table, a circular track, and an ordering system,  and therefore falls within the scope of protection of the plaintiff ’s patent rights.”

With respect to the defendant’s existing technology defense, the defendant claimed  US Patent No. 2216357 was prior art. The Shanghai Intellectual Property Court held that the patent publication date was October 1, 1940, which was earlier than the filing date of the patent in question, and it was prior art relative to the patent in question. After comparing the accused infringing technical solution with the prior patent, the Court found that the prior patent does not disclose the technical structure of the parallel track in the accused infringing technical solution, the circular carousel for transferring food to the table, and the guide assembly of the auxiliary conveying device. There are certain differences in the technical structure of the defendant’s system, so the defendant’s defense based on the existing technology cannot be established.

 

A static view of the restaurant meal rail system.
A static view of the restaurant meal rail system in the dining area.
Fig. 35 of the patent at issue owned by HeineMack GmbH and licensed to Yunxiao.

© 2020 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

For more Chinese and other nations patent laws, see the National Law Review Intellectual Property law section.

Amazon Takes Aim at Patent Infringement in its Marketplace

Amazon CEO Jeff Bezos recently disclosed that gross merchandise sales in the Amazon Marketplace by independent third-party sellers (as opposed to sales made directly by Amazon itself) had grown to 58% of total sales. According to data company Statista, 73% of those sellers were small businesses with between 1-5 employees. For many of them, sales on Amazon comprise their entire revenue.

Discussion of the opportunity Amazon Marketplace represents for small business, however, is joined by the voices of many retailers complaining about sales of counterfeit and stolen goods. To better police its online sales, Amazon has launched initiatives such as Project Zero which allows owners of brands to delete counterfeit products.

The online retail giant’s latest enforcement effort—designed to combat patent infringement—has been dubbed the Utility Patent Neutral Evaluation Procedure (UPNEP). Under this new trial program, a company that believes certain products for sale on the Amazon Marketplace infringe its patents can request an evaluation by depositing $4,000. If the seller does not dispute the accusation, Amazon removes the infringing products from the marketplace, and refunds the deposit to the patent owner. If the seller decides to fight the claim, it also deposits $4,000. Amazon then assigns a lawyer with patent expertise to resolve the dispute. The patent owner submits an opening brief, the merchant files a response, and then the patent owner may submit a reply. The lawyer reviews the submissions, and decides whether the listing should be removed or maintained. The winner gets its money back, and the loser’s $4,000 gets paid to the lawyer. There is no discovery, and no appeal or request for reconsideration. The whole process takes just a few months from start to finish.

Many stakeholders in the Amazon ecosystem have applauded the UPNEP as providing both patent owners and Amazon merchants with a quick and cost-effective mechanism for resolving infringement disputes arising from third-party listings. While participation in the program does not prevent a patent owner from commencing a lawsuit, many sellers do not reside in the United States, and thus may not be subject to service of process in a U.S. federal court. Without UPNEP, patent owners would have little to no recourse in such cases.

Law firms with IP litigation expertise are already offering to represent both patent owners and accused sellers in connection with the program. One such firm told The Information that his client boosted sales by 700% after using UPNEP to remove listings that were knockoffs of the client’s patented product. Consultants who advise Amazon sellers are also positioning specialized services. One such consultant advised The Information that a cup manufacturer client had used UPNEP to remove 170 product listings that it believed were infringing its patents.

There are some detractors, however. Deriding the new initiative as “the District of Amazon Federal Court,” Paul Morinville of IP Watchdog says the new initiative is a symptom of a broken patent system. He questions, among other issues, whether the lawyers evaluating the claims will be impartial, or beholden to Amazon’s interests.

Expert Peter Kent, who has served as an expert in several Amazon-related cases, is monitoring developments closely. “A critical question in my mind about the UPNEP program,” explains Kent, “is whether it will be exploited by larger companies trying to knock out competitors using spurious patent claims. For instance, if a small merchant who can’t afford the $4,000 doesn’t respond, their product listings are automatically removed, regardless of the merits of the petitioning company’s patent claims.”

We’ll continue to monitor whether UPNEP—and the model it represents—becomes popular for resolving disputes between patent owners and merchants. With experience on more than 5,000 patent matters in the past decade, proprietary intelligence systems, and the best-in-class network of top experts from complex areas ranging from 5G, artificial intelligence, and virtual reality, IMS stand ready to connect you with the expert best-aligned for your needs.

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In re Google: Co-Pending Litigation Is Not Sufficient Basis to Deny Transfer Motion

Google patent infringementAddressing jurisdictional transfer issues in a divided opinion, the US Court of Appeals for the Federal Circuit granted the extraordinary relief of issuing a mandamus order to transfer a patent infringement case, finding that the district court effectively failed to consider the merits of the defendant’s transfer motion even though the district court weighed all relevant transfer factors. In re: Google, Inc., Case No. 17-107 (Fed. Cir., Feb. 23, 2017) (Prost, CJ) (Linn, J, dissenting) (non-precedential).

This case was initiated when Eolas Technologies sued Google in the Eastern District of Texas for patent infringement. Eolas and Google had litigated against each other prior to this suit. Eolas had previously sued Google in the Eastern District of Texas for patent infringement involving related technology. In the prior case, Google’s motions to transfer and for mandamus were both denied. Google also filed a separate declaratory judgment action relating to other Eolas technology in the Northern District of California.

On the same day that it sued Google, Eolas also sued Amazon and Walmart entities for infringement of the same patent in the same court. Those defendants separately filed motions to transfer venue for convenience to the Northern District of California, each within the same week. The district court denied Walmart’s motion, then Google’s, then Amazon’s. The court issued each decision weeks apart from the preceding decision. In deciding Google’s transfer motion, pursuant to 28 USC § 1404(a), the district court weighed each of the four public-interest factors and four private-interest factors mandatorily considered for a motion to transfer for convenience in the Fifth Circuit. See TS Tech (IP Update, Vol. 12, No. 2).

The district court found that the co-pending litigation with Walmart and Amazon in the same district involving the same patent, as well as the Eastern District’s institutional knowledge relevant to the case obtained from prior litigation between the parties, weighted against transfer. Each of these elements was considered as part of the “other practical considerations” private-interest factor. With respect to the factor requiring balancing the location of witnesses and documentary evidence, the district court found that the location of witnesses and documents at Google’s Northern California headquarters only slightly favored transfer when compared to Eolas’s single employee in the Eastern District of Texas. On balance, the district court found that transfer was not warranted. Google sought mandamus from the Federal Circuit.

The Federal Circuit concluded that the district court improperly overemphasized the “other practical considerations” factor and underemphasized the disparity between Google’s geographic ties to sources of proof as compared to Eolas. According to the Court, the mere co-pendency of related suits in a particular district could not serve as the basis for denying a motion to transfer because such co-pendency would automatically tip the balance in the non-movant’s favor regardless of the existence of co-pending transfer motions and their underlying merits. The Court further found that the Eastern District’s prior experience with the litigants was untenable because the judge presiding over the previous case had retired. The Court also found that the district court did not afford the “relative ease of access to sources of proof” private-interest factor enough weight. The Federal Circuit parted ways with the district court on this factor, noting that it was perhaps the most important of the eight and that it significantly favored Google. In view of these considerations, the Federal Circuit issued a mandamus order transferring the case to the Northern District of California.

The dissent would have denied mandamus relief because it was undisputed that the district court considered all relevant factors, and the heightened mandamus standard of review did not permit the Court to reweigh those factors. Specifically, Judge Linn opined that the majority went beyond its limited role in the mandamus context of assessing whether the district court fully considered each of the eight transfer considerations. According to Linn, the Court rebalanced the considerations and substituted its own judgment, thereby usurping the district court’s role in weighing the factors and making the final determination. The dissent also argued that Google did not show a clear abuse of the district court’s considerable discretion or that the ruling produced the patently erroneous result necessary for the relief sought.

ARTICLE BY John C. Low, Ph.D. of McDermott Will & Emery
© 2017 McDermott Will & Emery

Supreme Court Stryker/Halo Decision Makes it Easier for Courts to Award Enhanced Damages In Patent Infringement Cases

The recent Supreme Court decisions in the Stryker and Halo cases just made it easier for courts to award enhanced damages in patent infringement cases, discarding Seagate’s “objective recklessness” test.

The Seagate Test

In 2007, the Federal Circuit announced a test for enhanced damages whereby a plaintiff seeking enhanced damages had to show that the infringement of his patent was “willful.”  In re Seagate Technology, LLC,  497 F. 3d, 1360, 1371.  The Federal Circuit set forth a two-part test to establish such willfulness: First, “a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent,” without regard to “[t]he state of mind of the accused infringer.” Id., at 1371. This objectively defined risk is to be“determined by the record developed in the infringement proceedings.” Ibid. “Objective recklessness will not be found” at this first step if the accused infringer, during the infringement proceedings, “raised a ‘substantial question’ as to the validity or noninfringement of the patent.” That bar applied even if the defendant was unaware of the arguable defense when he acted.Supreme Court Patent infringement

Second, after establishing objective recklessness, a patentee had to show by clear and convincing evidence the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.”Seagate, 497 F. 3d, at 1371. Only when both steps were satisfied could the district court proceed to consider whether to exercise its discretion to award enhanced damages. Ibid. 

Stryker / Halo Decisions Restore Courts’ Discretion to Award Enhanced Damages

The Supreme Court’s recent decision in the Stryker and Halo cases discarded the Seagate test and restored courts’ discretion to award enhanced damages.  The Court held “[t]he Seagate test is not consistent with §284.”  The relevant language of § 284 contains “no explicit limit or condition on when enhanced damages are appropriate, and this Court has emphasized that the “word ‘may’ clearly connotes discretion.”  So the Court found no explicit requirement for Seagate’s “objective recklessness” test.

The Court also found Seagate unnecessarily required a finding of “objective recklessness” even when wrongdoing was demonstrated by the facts of a case.  The Court also disagreed with Seagate’s requirement of a “clear and convincing evidence” standard for showing recklessness, and held that the proper standard for enhanced damages was a “preponderance of the evidence” — the same standard as for patent infringement determinations.

The Court explained that its decision did not contradict § 298, that failure to present advice to the court may not be used to prove willful infringement:

Section 298 provides that “[t]he failure of an infringer to obtain the advice of counsel” or “the failure of the infringer to present such adviceto the court or jury, may not be used to prove that the accused infringer willfully infringed.” 35 U.S.C. § 298. Respondents contend that the reference to willfulness reflects an endorsement of Seagate’s willfulness test. But willfulness has always been a part of patent law, before and after Seagate. Section 298 does not show that Congress ratifiedSeagate’s particular conception of willfulness. Rather, it simply addressed the fallout from the Federal Circuit’s opinion in Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F. 2d 1380 (1983), which had imposed an “affirmative duty” to obtain advice of counsel prior to initiating any possible infringing activity, id., at 1389–1390. See, e.g., H. R. Rep. No. 112–98, pt. 1, p. 53 (2011).

Consequently, nine years after Seagate, the Supreme Court has made it easier for courts to make a determination of enhanced damages.  Time will tell if this decision will spur additional patent opinion practice, such as prior to the 2007 Seagate decision.

ARTICLE BY Timothy Bianchi of Schwegman, Lundberg & Woessner, P.A.
© 2016 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

Limelight Networks v. Akamai Tech. – Supreme Court Cert. Denied

Yesterday, the Supreme Court declined to hear Limelight’s petition for cert. on the question of whether an accused infringer may be held liable for direct infringement of a claim to a method where multiple parties perform the steps of the method.

On August 13, 2016, the S. Ct. remanded the en banc decision of the Fed. Cir. that set forth the law of divided infringement under s. 271(a), and found that Limelight directly infringed U.S. Pat. No. 6,108,703. The court held that an entity will be found responsible for others’ performance of method steps “(1) where that entity directs or controls others’ performance, [or] (2) where the actors form a joint enterprise.”

As well as in the case of agency or contractual direct infringement, the court concluded that liability under s.271(a) can also be found what an infringer “conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner and timing of that performance.” The infringer must have the right and ability to stop the infringement.

In those instances, “the third party’s actions are attributed to the alleged infringer such that the alleged infringer becomes the single actor chargeable with infringement.” The element of direction or control is a question of fact, as is the presence of a joint enterprise.

If the facts support the presence of a joint venture, all parties involved can be found liable for direct infringement, “as if each were a separate actor.”

The court found that Limelight directed or controlled its customer’s performance of each remaining method step: “tagging and serving content”). Don’t ask me what this means. See slip. op. at 8-9. Of course, this decision is relevant to a drug company instructing a physician and, ultimately, the patient, via labelling and/or training, about how to use a drug or biological.

Article By Warren Woessner of Schwegman, Lundberg & Woessner, P.A.

© 2016 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

Induced Infringement in Commil USA v. Cisco Systems

While the Supreme Court’s section 101 decisions may garner the biggest headlines, the high court has also invested significant efforts in the area of induced infringement. Commil v. Cisco, decided on May 26, 2015, marks the Supreme Court’s third foray into induced infringement in the past halfdecade.

First, in Global-Tech Appliances, Inc. v. SEB S.A., the Supreme Court held willful blindness could satisfy the knowledge requirement for induced infringement. Then, in Limelight Networks, Inc. v. Akamai Technologies, Inc., the Supreme Court held that induced infringement required underlyingdirect infringement. Now, in a twist on Global-Tech, the Supreme Court in Commil v. Cisco has held that an accused infringer’s good-faith belief in the invalidity of a patent cannot provide a defense to induced infringement.

In reaching its decision in Commil, the Court noted that § 271(b) requires that the defendant “actively induces infringement,” and that because infringement and invalidity are separate issues under the Patent Act, belief regarding validity cannot negate the scienter requirement under § 271(b).

Recognizing that its decision might seem at odds with the “simple truth” that someone cannot be induced to infringe an invalid patent, the Court restated the often-overlooked principle that invalidity is an affirmative defense that can preclude enforcement of a patent against otherwise infringing conduct. In other words, invalidity is a defense to liability but not to infringement.

While a good-faith belief in invalidity may no longer be a defense to induced infringement under Commil, the Court’s rationale in Global-Tech and related case law is still intact. That is, a goodfaith belief in non-infringement may be used to overcome allegations of indirect infringement.

As a result, practitioners should expect an increase in the number of non-infringement opinions and their introduction into the evidentiary record, especially where the underlying litigation relies on allegations of induced infringement—as frequently pled in the electronic, automotive and pharmaceutical disciplines.

Practitioners should also carefully consider the possible extension of the holding in Commil to allegations of willful infringement. At present, willful infringement carries a knowledge requirement, i.e., objective recklessness. And willful infringement may be overcome by a showing that the accused infringer had a reasonable belief in the invalidity of the patent. Black & Decker, Inc. v. Robert Bosch Tool Corp., 260 Fed. Appx. 284, 292 (Fed. Cir. 2008). Yet, if the Court’s demarcation between infringement and invalidity in induced infringement applies equally to willful infringement, the Commil decision could simplify a patentee’s case by rendering irrelevant the accused infringer’s belief of invalidity—effectively rewriting the standards for proving willful infringement.

Accordingly, in view of Commil, practitioners should perform a careful evaluation of pre-litigation strategies. The mere existence of an invalidity opinion will no longer protect a party from allegations of induced infringement, and it may not offer them any protection from a charge of willful infringement either. In both instances, however, a non-infringement opinion may offer that same protection.

ARTICLE BY H. Keeto Sabharwal, Daniel E. Yonan & Joshua I. Miller of Sterne, Kessler, Goldstein & Fox P.L.L.C.
© 2015 Sterne Kessler

Apple-Samsung Trade Dress Case Demonstrates Potential Value of Design Patents

A jury awarded Apple more than $1 billion in damages after finding that smartphones sold by Samsung diluted Apple’s trade dress and infringed Apple’s design and utility patents. After a partial retrial limited to determining the appropriate amount of damages, Apple still arose victorious with a $930 million award. Samsung moved for judgment as a matter of law and for a new trial. The district court denied those motions, and Samsung appealed. On May 18, 2015, the Federal Circuit upheld the jury’s verdict of design and utility patent infringement, but reversed the finding of trade dress dilution.

Trade Dress Claims

At issue on appeal was whether Apple’s purported registered and unregistered trade dress associated with its iPhone 3G and 3GS products is functional. Because trademark law gives the trademark owner a “perpetual monopoly,” a design that is functional cannot serve as protectable trade dress. Apple Inc. v. Samsung Elecs. Co., Ltd., No. 14-1335, slip op. at 7 (Fed. Cir. May 18, 2015). The standard is even higher when the owner claims trade dress protection over the configuration of a product, as opposed to product packaging or other forms of trade dress. Slip op. at 8. In fact, the court noted that Apple had not cited a single Ninth Circuit case finding trade dress of a product configuration to be non-functional. Id.

Apple claimed the following elements as its unregistered trade dress:

  • a rectangular product with four evenly rounded corners;
  • a flat, clear surface covering the front of the product;
  • a display screen under the clear surface;
  • substantial black borders above and below the display screen and narrower black borders on either side of the screen; and
  • when the device is on, a row of small dots on the display screen, a matrix of colorful square icons with evenly rounded corners within the display screen, and an unchanging bottom dock of colorful square icons with evenly rounded corners set off from the display’s other icons.

Slip op. at 9. “In general terms, a product feature is functional if it is essential to the use or purpose of the article or if it affects the cost or quality of the article.” Id. (quoting Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 n.10 (1982)). Because this case came to the Federal Circuit on appeal from a district court sitting in the Ninth Circuit, the Federal Circuit applied the Ninth Circuit’s Disc Golf test for determining whether a design is functional. Under that test, courts consider whether: (1) the design yields a utilitarian advantage; (2) alternative designs are available; (3) advertising touts the utilitarian advantages of the design; and (4) the particular design results from a comparatively simple or inexpensive method of manufacture. Slip op. at 10. Because this purported trade dress was not registered, Apple had the burden to prove its validity, which required Apple to show that the product features at issue “serve[] no purpose other than identification.” Id. (citing Disc Golf Assoc., Inc. v. Champion Discs, 158 F.3d 1002, 1007 (9th Cir. 1998)). The court of appeals applied those factors and found extensive evidence supporting Samsung’s claim that the alleged trade dress was functional. Slip op. at 12–14.

In addition to the unregistered product configuration discussed above, Apple also asserted a claim based on US Registration 3,470,983, which covered the design details in each of the 16 icons on the iPhone’s home screen framed by the iPhone’s rounded-rectangular shape with silver edges and a black background. Slip op. at 15. Although Apple enjoyed an evidentiary presumption of validity for its registered trade dress, the court again looked to the Disc Golffactors and found that Samsung met its burden of overcoming that presumption and proving the trade dress was functional and the registration invalid. Slip op. at 16. Because the court held Apple’s purported trade dress was functional, it vacated the jury’s verdict on Apple’s claims for trade dress dilution and remanded that portion of the case for further proceedings. Slip op. at 17.

Design Patent Claims

Apple fared better on its design patent claims. Here, Apple asserted three design patents directed to the “front face” (D’677 patent), “beveled front edge” (D’087 patent) and “graphical user interface (GUI)” (D’305 patent) of its iPhone products.

design patent claims - apple samsung

Samsung challenged the court’s claim construction and jury instructions for failing to “ignore[]” functional elements of the designs from the claim scope, such as rectangular form and rounded corners. Slip op. at 20. The court disagreed, finding that Samsung’s proposed rule to eliminate entire elements from the scope of design claims was unsupported by precedent. Id. Rather, the court found that both the claim construction and jury instructions properly focused the infringement analysis on the overall appearance of the claimed design. Id. at 21.

This victory was financially significant for Apple, as the court found they were entitled to Samsung’s entire profits on its infringing smartphones as damages. Like the district court, the court of appeals found that 35 U.S.C. § 289 explicitly authorizes the award of total profit from the article of manufacture bearing the patented design, rather than an apportionment of damages based only on the infringing aspects of the device (i.e., external features and not internal hardware/software). The court of appeals interpreted Samsung’s argument as imposing an “apportionment” requirement on Apple—a requirement the Federal Circuit previously rejected in Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1441 (Fed. Cir. 1998). Thus, Apple maintains a claim to at least a significant portion of the $930 million damages award in the case.

Summary and Takeaways

Ultimately, after holding that Apple’s purported trade dress covering elements of the iPhone’s overall shape, black-bordered display screen, and matrix of colorful square icons was invalid, the district court upheld the jury’s verdict that Samsung’s devices infringed Apple’s design patents relating to the iPhone’s overall shape, display screen, and matrix of colorful square icons. The image depicted in Apple’s now-invalid trade dress registration is below on the left. Figures from two of its still-valid design patents are on the right. Although the overlap in what was claimed in these different forms of intellectual property is readily apparent, Apple lost on one set of claims and prevailed on the other.

design patent apple samsung iphone

It remains to be seen how damages associated with the design patent claims differ from damages associated with the now-invalid trade dress claims. But this much is clear: the Federal Circuit has given a reason for companies to reevaluate the role of design patents in their intellectual property portfolios. The time and expense associated with obtaining design patents will not suit all products, but for the right product, they can provide a valuable method of recovery in litigation involving similar product designs.

ARTICLE BY Kristin J. Achterhof, Karen Artz Ash, Richard P. Bauer & Floyd A. Mandell of Katten Muchin Rosenman LLP
©2015 Katten Muchin Rosenman LLP

Apple Gets Another Bite At $368 Million Verdict

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You don’t get two bites at the apple, it is sometimes said, but Apple Inc. is getting a second bite at defending itself against a massive damages award after the Federal Circuit Court of Appeals vacated a $368 million jury verdict in a patent infringement case.

The court vacated the award because it found that the plaintiff’s damages expert improperly relied on a model known as the Nash Bargaining Solution to calculate reasonable royalty damages.

Federal district courts have split on whether to allow expert testimony using the Nash Bargaining Solution, but the Federal Circuit held that the expert failed to establish the tie between the Nash theorem and the facts of this case.

The underlying issue in the case was whether two of Apple’s products — FaceTime, which allows secure video calling between Apple devices, and VPN On Demand, which creates a virtual private network from an iOS device — infringed four patents owned by VirnetX, a Nevada software and licensing company.

A jury in federal court in Tyler, Texas, concluded that all four patents were valid and that Apple had infringed them. It awarded VirnetX damages of $368 million.

Proving Reasonable Royalties

On appeal, the Federal Circuit upheld the jury’s verdict of infringement with regard to the VPN On Demand product but reversed and remanded aspects of the infringement verdict with regard to the FaceTime product.

The court then turned its attention to Apple’s challenges of the testimony of VirnetX’s damages expert. In a patent case, when infringement is found, a court is to award damages “adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.”

To establish a reasonable royalty rate in this case, VinetX’s expert offered three alternative methods of calculation. Apple challenged the admissibility of all three methods under Daubert, but over Apple’s objection, the trial court admitted the testimony.

On appeal, however, the Federal Circuit found problems with all three theories.

Smallest Salable Unit

The expert’s first theory was to apply a one percent royalty rate to the base. He derived the one percent rate from the royalty VirnetX typically sought in licensing its patents. For the base, he used what he called the “smallest salable unit” — the lowest sale price of each model of the iOS devices that contained the challenged features. With this theory, he calculated the total damages to be $708 million.

Apple argued that the expert erred by using the entire market value of its products as the royalty base without demonstrating that the patented features drove the demand for those products. The Federal Circuit agreed.

“The law requires patentees to apportion the royalty down to a reasonable estimate of the value of its claimed technology, or else establish that its patented technology drove demand for the entire product,” the court explained. “VirnetX did neither.”

The court went on to say that the expert “did not even try to link demand for the accused device to the patented feature, and failed to apportion value between the patented features and the vast number of nonpatented features contained in the accused products.”

The Nash Bargaining Solution

For both the expert’s second and third theories — each of which he used only with regard to FaceTime — he relied on the Nash Bargaining Solution, a so-called game theory developed in 1950 by John Nash, a mathematician and co-winner of the 1994 Nobel Prize in economics.

In his first use of the Nash theorem, the expert began by calculating the profits associated with the use of FaceTime. He did this based on the revenue generated by Apple’s addition of a front-facing camera on its mobile devices. He then determined that, under the Nash theory, the parties would have split this revenue 50/50. However, after accounting for Apple’s stronger bargaining position, he concluded that Apple would have taken 55 percent of the profits and VirnetX, 45 percent. That amounted to $588 million in damages.

For his second use of the Nash theorem, the expert assumed that FaceTime “drove sales” for Apple’s iOS products. Eighteen percent of all iOS sales would not have occurred without the addition of the FaceTime feature, he concluded. Based on that, he calculated the amount of Apple’s profits that he believed were attributable to FaceTime and apportioned 45 percent of those profits to VirnetX. That amounted to $606 million in damages for FaceTime.

Apple challenged both these theories, arguing that the expert’s use of the 50/50 split as a starting point was akin to the 25 percent rule of thumb for royalties that the Federal Circuit had rejected in earlier cases. Here again, the Federal Circuit agreed with Apple’s argument.

The problem, the court explained, is that the Nash theorem arrives at a result that follows from a certain set of premises. Here, the expert never tied his use of the theorem to the facts of the case.

“Anyone seeking to invoke the theorem as applicable to a particular situation must establish that fit, because the 50/50 profit-split result is proven by the theorem only on those premises,” the court said. In this case, the expert never did that.

Based on these conclusions, the court vacated the damages award and sent the case back to the district court for further proceedings.

Has an expert ever used the Nash Bargaining Solution, or other game theory, in one of your cases? If so, was the result positive?

ARTICLE BY

Robert J. Ambrogi, Esq.
OF
IMS ExpertServices