A Review of the Legal Claims in Apple v. Samsung: Trade Dress Infringement

Two weeks into the Apple v. Samsung trial, there have been some very interesting stories to come out. From lawyers being scolded for making press releases and not having their court admission ducks in a row to evidentiary rulings on the admissibility of evidence of independent development. These stories are interesting in their own right, but I think it would be helpful to see how they relate to the endgame of the litigation. That endgame is actually spelled out, from Apple’s point of view, in the first document filed in the case: the complaint.

Complaints are the legal pleadings that start the ball rolling in a case and can provide a basis for understanding why the parties do what they do. For example, in an earlier post I wrote why certain evidence of independent development was not admitted, much to the chagrin of some tech bloggers and the general public. Unfortunately, I haven’t see a simple dissection of the claims in the complaint.

With that in mind, I’m going to go through the claims in the complaint that relate to IP issues. I’ll leave the other state claims, like unjust enrichment, aside as the facts needed to prove them are similar to the IP issues, but they are likely being plead to provide different damages theories. In this post, I’ll focus on trade dress infringement.

Trade Dress Infringement

There are two types of protectable trade dress: product configuration (which protects the product itself), and product packaging. Apple describes it’s iPhone product configuration as it’s “distinctive shape and appearance — a flat rectangular shape with rounded corners, a metallic edge, a large display screen bordered at the top and bottom with substantial black segments, and a selection of colorful square icons with rounded corners that mirror the rounded corners of the iPhone itself, and which are the embodiment of Apple’s innovative iPhone user interface.”

Apple also alleges that the product packaging of the Samsung GalaxyS infringes the packaging trade dress of the iPhone. Below are the images provided in the complaint.

Product packaging is generally more susceptible to trade dress protection than product configuration. This is because physical attributes of a product are often functional and functional aspects are not protectable as trade dress. To limit the scope of product configuration trade dress protection, it is only available for product designs that have become become distinctive as a result of an acquired secondary meaning. That is, the design must evoke, in the mind of the consumer, a particular source of the product.

There are also two statutory mechanisms for recover for trade dress infringement. The Lanham act codified common law principles of trademark and unfair competition and allows for federal suits in cases involving unregistered trade dress. The Act also allows for registered trade dress. The legal difference is that a registered trade dress is likely entitled to some presumption of protectability, but the damages and equitable relief available are roughly the same.

However, having a protectable trade dress isn’t enough. Apple will have to show that Samsung’s product configuration and/or packaging are confusingly similar to Apple’s. It’s important to note that the gauge for confusion is the relevant consumer. While tech bloggers may not confuse the two, the question really is if a typical consumer would.

Next up, I will provide a little background for the utility and design patent infringement allegations in Apple’s complaint.

Legislation Limiting Certain Design Patents Hits the House: The PARTS Act

I recently wrote on the power of design patents but now they are under attack, at least in one industry. Reps. Darrell Issa (R-CA) and Zoe Lofgren (D-CA) introduced a bill to be known as the PARTS Act to the House on February 2, 2012 and it had a subcommittee hearing on August 1. Gene Quinn of ipwatchdog.com does a good job of connecting the dots from the witnesses at the subcommittee hearing to vehicle insurance trade groups. The bill would retroactively remove design patent protection for automotive replacement parts. This isn’t about engine components, but rather body panels and interior components that are designed for not just a function but an aesthetic.

With respect to a design patent that claims a component part of a motor vehicle as originally manufactured —

(A) it shall not be an act of infringement of such design patent to make or offer to sell within the United States, or import into the United States, any article of manufacture that is similar or the same in appearance to the component part that is claimed in such design patent if the purpose of such article of manufacture is for the repair of a motor vehicle so as to restore such vehicle to its appearance as originally manufactured; and

(B) after the expiration of a period of 30 months beginning on the first day on which any such component part is first offered to the public for sale as part of a motor vehicle in any country, it shall not be an act of infringement of such design patent to use or sell within the United States any article of manufacture that is similar or the same in appearance to the component part that is claimed in such design patent if the purpose of such article of manufacture is for the repair of a motor vehicle so as to restore such vehicle to its appearance as originally manufactured.

While these patents can protect the appearance of a particular model, automotive companies and their suppliers also pursue design patents on these components to protect their position in the replacement part market. While they could pursue protection on the entire vehicle appearance, typical body repairs involve only one or two body panels. Accordingly, it’s advantageous to obtain a design patent on each new panel design independent of the others.

Under current law, a design patent may be obtained that will have a 14 year term from the date of issue. That effectively covers the life of many cars. The result of the bill would be a wholesale devaluing (really an elimination of value) for design patents already issued in this area. Replacement parts manufacturers would be able to immediately start producing and marketing exact copies of the OEM panels. Two and a half years after the first offer for sale of a vehicle having the patented part, anyone could sell or use the copies.

While this could conceivably reduce repair costs (a boon to car insurance companies) it will also reduce the return on investments in new vehicle design and body styles. There are pros and cons to the concept of trying to increase competition in a particular market, but immediately devaluing design patents is not the way to promote competition in the area.

Like the SHIELD Act, the PARTS Act targets a specific industry and aims to weaken patents in those industries. It seems that efforts to weaken intellectual property protection in the United States are moving away from comprehensive changes and are instead being applied to specific industries.

An Example of a Brand Effectively Using Social Media

Listening pays dividends. We’ve all heard that you have to listen before speaking when it comes to social media. But the listening doesn’t stop once you start talking. So please, bear with me as I provide more background than necessary about my lunch.

My wife and I planned to meet for lunch on our anniversary at our favorite sushi place @bluesushiomaha. I tweeted out that was the plan and included the twitter handle of the restaurant in question. The manager recognized me from my twitter profile picture. and brought us a complimentary appetizer (their wonderful mango crab rangoon).

My wife and I both ordered a two maki lunch special that was as wonderful as always.  As we were finishing, the manager brought a complimentary desert — tempura fried ice cream with raspberry and chocolate sauce. It was a desert we’d had before and hadn’t bee too impressed with it. We likely wouldn’t have tried it again, but the manager had brought it out for us and it turned out to be so much better than the last time. The batter had been fried to a crispy perfection and stood up to the melting ice cream like a champ. Its our new favorite desert at this restaurant.

In short, the food was excellent and the service was superb. It always is at Blue and that’s why we go there as often as we do.

But, why am I blogging about lunch? Because social media made it the experience it was. I had no expectation of a comped appetizer and desert when I let people know my lunch plans, but the manager made a point to say, “thanks for tweeting.” The restaurant wasn’t just using twitter as a way to send out micro blasts as advertisements. They were actively listening to their customers, and in the process, providing a wonderful experience for the type of customer who could try to reward them — one who is pretentious enough to think people will read a blog entry about his lunch.

Bill in the House Would Make Losing Patent Owners Pay Some Litigation Costs

Reps. Peter DeFazio (D-OR) and Jason Chaffetz (R-UT), have introduced the “Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act.” The bill, if passed, would award attorney’s fees and costs to the winning putative infringer if the judge finds that the patent owner “did not have a reasonable likelihood of succeeding…” The bill is limited to patents related to computer hardware and software.

There are a few things I want to point out. First, despite the statement (reported by arstechnica.com) from Rep. Chaffetz that “A single lawsuit, which may easily cost over $1 million if it goes to trial, can spell the end of a tech startup and the jobs that it could have created,” this bill will likely not affect cases that go to trial. While not congruent with the standard for summary judgement or a Rule 12(b)(6) motion, I don’t think many cases that make it to trial would fit the standard set out in the SHIELD Act.

Second, the bill does not address the situation of an accused infringer who loses a case in which they did not have a reasonable likelihood of succeeding. This puts a disincentive on patent owners, especially small business patent owners (many of whom are technology startups), who would otherwise want to defend their intellectual property. At the same time, it encourages infringers to drag their feet, avoid settlement, and force the patent owner to rack up legal fees even if the infringer has a strong feeling they may lose on summary judgement.

Many technology startups chose to use patents to protect their ideas. Those patents are only useful if they can be enforced and this one-sided legislation will make it harder for small businesses to do so. It may also impact their value to potential suitors who may chose to emulate the technology rather than acquire it.

A better approach would be to impose a “loser pays” system across all patent cases (or even all cases brought in federal court). Whatever is done, it should be done across the board to apply to all technology areas.

As the bill stands, I doubt it will impact the behavior of patent trolls. Defendants will still settle because the mere hope of recovering their defense costs won’t offset the potential downside of not settling. The suits that will be deterred are those brought by innovative startups who now will have to fear paying the accused infringer’s costs should the startup lose. Those costs could break a small company and the fear of paying them will keep small businesses from asserting valid patents.

Apple v. Samsung: Independent Development is Not a Defense

There has been a lot of coverage of the Apple v. Samsung case going on. I’ve posted on the value of design patents that this litigation highlights. One topic is that of the public release of excluded evidence by Samsung’s lawyers. Some tech blogs have taken issue with the ruling saying Samsung should be able to show evidence that the design was their own idea.

This misses a critical point. Independent development is not a defense to patent infringement. Even if you never saw the design or the patent you are accused of infringing, that will not protect you. This is true even in you came up with the idea first.

Unless an earlier developed design fits into a statutory category of prior art (such as a printed publication, patent, article for sale, etc.) then its existence is irrelevant to validity and infringement. This surprises some people and it is different than other areas of intellectual property law.

For example, trade secret law protects against misappropriation; copyright law protects from copying. In these areas, a defendant can avoid liability by demonstrating independent development. I’m sure the attorney’s for Samsung were well aware of this, and it will be interesting to see what Judge Koh does in response to the public statements and release of evidence that was deemed irrelevant.

Apple v. Samsung: The Power of Design Patents

Design patents are often maligned as limited in their usefulness. Many clients want to obtain one or more utility patents for their new products but don’t think of the potential power of design patents. In the United States, design patents are used to protect the aesthetic aspects of a product. That may sound narrow or easy for competitors to design around, but that may not always be the case.

Apple’s design patents for the iPhone are an extreme example of the potential power of design patents. It should be noted that nearly 80% of Apple’s damages claim is based on design patent infringement.

Like any other patent, Apple can (and has) also assert infringement in the International Trade Commission. The result of a finding of infringement in the ITC is not damages, but rather an exclusion order that is enforced by customs who prevent the infringing devices from being imported. In the electronics (and many other industries) where production is done offshore, this is a heavy hammer to wield that effectively excludes the infringing products from one of the larges consumer markets in the world.

Because ITC proceedings are streamlined, they are considerably less expensive than litigation. This makes them available to a broader range of patent owners, including smaller companies.

Update —

The Federal Circuit has again held that patent licensing companies can utilize the ITC. There is a requirement that their be potential damage to “domestic industry” and licensing satisfies that requirement.

In Response to Hyperbole: Apple and the “Andriod Killer” Patent

There has been a lot of discussion of a patent issued to Apple last week. U.S. Patent 8,223,134, issued to Apple on July 17, 2012, and has been called everything from an “Android Killer” to something all other smartphone makers should fear. This patent relates to the the user interface of various iOS devices. However, many people don’t realize how the exclusionary power of a patent is defined. Only the claims, those numbered paragraphs at the end of the patent, define what is protected.

Some have characterized the claims of the ‘134 patent a overly broad, but take a look at the broadest device claim:

A portable multifunction device, comprising:

a touch screen display;

one or more processors;

memory; and

one or more programs,

wherein the one or more programs are stored in the memory and configured to be executed by the one or more processors,

the one or more programs including instructions for: displaying a portion of an electronic document on the touch screen display, wherein the displayed portion of the electronic document has a vertical position in the electronic document;

displaying a vertical bar on top of the displayed portion of the electronic document, the vertical bar displayed proximate to a vertical edge of the displayed portion of the electronic document,

wherein: the vertical bar has a vertical position on top of the displayed portion of the electronic document that corresponds to the vertical position in the electronic document of the displayed portion of the electronic document; and

the vertical bar is not a scroll bar;

detecting a movement of an object in a direction on the displayed portion of the electronic document;

in response to detecting the movement: scrolling the electronic document displayed on the touch screen display in the direction of movement of the object so that a new portion of the electronic document is displayed,

moving the vertical bar to a new vertical position such that the new vertical position corresponds to the vertical position in the electronic document of the displayed new portion of the electronic document, and

maintaining the vertical bar proximate to the vertical edge of the displayed portion of the electronic document; and

in response to a predetermined condition being met, ceasing to display the vertical bar while continuing to display the displayed portion of the electronic document, wherein the displayed portion of the electronic document has a vertical extent that is less than a vertical extent of the electronic document.

The claims are actually fairly narrowly tailored to cover the iPhone and other devices non-scroll bar on list and document displays. The vertical bar must not be a scroll bar; it mus be imposed over the image being displayed; it must change its position as the image is moved vertically by the user (who must be moving the image via natural scrolling); the vertical bar must stop being displayed, i.e., after a preset time with no movement on the screen. All of these conditions must be met by another device’s UI before it can infringe this claim. Omitting any of them will avoid literal infringement.

I realize it’s not as exciting as claiming that the patent will shut down all competition in smartphones, but it won’t.

I personally think this shows the value of patents in this area. What Apple has done with these claims is to provide itself with some protection against direct copying of these features of its UI. Other companies still have a lot of room to develop competing systems and devices, even better ones. These patents help prevent knockoffs from eliminating the incentive to create while still leaving the door open to new competition. In the end, consumers win.

Should You Assign Your IP to a Holding Company?

When you have a piece of intellectual property, like a patent, it’s a good idea to make sure it’s clear who owns it. Under U.S. law, inventions are owned by their inventors unless there is an agreement to the contrary.  That usually means that the inventor executes an assignment of the ownership rights in the patent to their employer or other entity.

Some entities have set up holding companies that hold the intellectual property of the parent entity.  This is done for a variety of reasons, including simplified portfolio management, tax planning, and others, but there is a cost. In some cases, damages from an infringement suit brought on behalf of an IP holding company may be limited to the “reasonable royalty” minimum, and not include lost profits. That’s because the patent owner (the holding company) doesn’t generate a profit and thus had not profits to lose.

The question, though, has come up anew with the recent news that Qualcomm is spinning off some of its R&D functions into a new company. It’s important, though, to keep in mind the wide array or pros and cons to using an IP holding company. Whether you will practice the patent, intend to license it, if it embodies standard-essential technology, and your competitive position in the market that the technology relates to all impact the decision.

As with assigning any corporate asset, it isn’t a clear cut decision and will require good advice from a variety of professionals. In the case of patents assignments, consulting with a patent attorney may be as important, or even more so, than consulting with a tax planner.

Reverse Payments in Generic Pharma Litigation Held Presumtively Anti-Competitive

The Third Circuit has held that reverse payments in settlement of Orange Book litigation are presumptively illegal.

Reverse payments in settlements of pharmaceutical patent cases have been controversial for some time. Under the Hatch-Waxman Act, a generic manufacturer can get approval for the generic form of a name-brand drub using a streamlined process that relies on data originally submitted by the name-brand manufacturer. The generic manufacturer makes a certification to the FDA that their product doesn’t infringe the patent claims that supposedly cover the drug either because the patent in invalid or the generic version falls outside the scope of the patent claims. The making of the certification itself is an act of patent infringement that can prompt a lawsuit. These patents are listed in the FDA’s Orange Book and these types of cases are often referred to as “Orange Book litigation.”

The goal of Hatch-Waxman was to streamline the approval process for generic drugs and increase their availability on the market. The generic manufacturer could piggyback on the name-brand’s data and avoid costly studies, and the name-brand could bring an immediate suit to defend its patents without waiting for the generic to enter the market. However, the unique situation this created also lead to a new form of settlement that includes a “reverse payment” to the accused infringer.

Reverse payments are those from the patent holder, to the infringer, made in exchange for the infringer’s agreement to not enter the market. The idea of reverse payments can be unsettling because of the apparent anti-competitive effects. Some view the arrangements as a way for a brand-name manufacturer to keep a lock on the market without having to defend the validity of its patent in court. Logically, the reverse payment would only be made if the expected profits resulting from maintaining its position as the only provider of a drug exceeds the size of the reverse payment.

However, there is a less cynical view of the reverse payment arrangement. Consider a piece of property to which doesn’t have a clean title. For example, a neighbor may claim an easement, or allege adverse possession of a part of the property. The property owner may choose to pay the neighbor (also a putative trespasser) in exchange for the neighbor abandoning its claim to any of the property.

In the case of Orange Book litigation, the patent owner has a piece of property, but its meets and bounds may be in question. The accused infringer may claim the patent is invalid or that their formulation isn’t covered by the claims. This is akin to a cloud on the title. The patent owner has a strong incentive to clean the title by removing the challenges to validity and scope. This can be done through litigation, however, litigation always carries the risk of loss. Settlements, including reverse payment arrangements, can be a reasonable way for the parties to price the risk of litigation.

This doesn’t mean that reverse payments can’t be abused. This is a result of the way Hatch-Waxman excludes third party generic manufactures from the market for the drug to give the first generic an incentive to initiate the process. A patent owner can collude with the generic manufacturer to create a prohibition on third party generic manufactures when the parties both believe the patent to be either invalid or not infringed. However, when such an arrangement should be illegal can be difficult to determine.

Since there is always a risk that a patent will be held invalid or its claims not infringed, the patent owner will always have some concern about it. How certain must the patent owner be that the patent is invalid or not infringed? 50%? 80%? 90%? Should the likelihood of invalidity or non-infringement be measure subjectively from the patent owners perspective, or objectively? At what point would you simply be forced to litigate all of the issues to know if the settlement is legal?

To deal with this, courts have generally applied a “scope of the patent” test. The test looks to see if the agreement extends the exclusive rights of the patent owner beyond what they are entitled to under the patent. Of course, the point of a settlement is to avoid litigating the issues of validity and infringement, and in the review, these are generally assumed.  The result is that no reverse payment arrangements have been found to be antitrust violations under the test.

Enter the Third Circuit. This week in In Re: K-Dur Antitrust Litigation, the court held that reverse payment settlements between a patent holder and generic pharmaceutical manufacturer are presumptively anti-competitive. This presumption can be overcome by showing that either the payment was not for the purpose of delaying market entry by the generic manufacturer or that the agreement offers some pro-competitive benefit.

This analysis is called a “quick-look rule of reason analysis” and is familiar to antitrust scholars and practitioners. However, it could have significant affects on the generic/name-brand dichotomy in the pharmaceutical industry. In any event, this creates a very clear circuit split involving mutually exclusive antitrust tests for reverse payment settlements and sets up an interesting opportunity for the Supreme Court to weigh in on the issue.

New Microsoft Tablet an ‘iPad Killer’?

I first heard about this from Mashable.  Apparently, Microsoft is jumping into the tablet market with its own device that is being billed as an “iPad Killer.” It’s not the first time they’ve made a device. After all, the X-box has been a big success. But the tablet market is very different from the game console market, and that’s because Apple has really shaped the market around a concept: the Apple Ecosystem.

Apple’s mobile products (iPad, iPhone, and iPod Touch) run iOS which is exceptionally user friendly and makes it possible to move content across devices.  With the soon to be released OS X Mountain Lion, iCloud will be much more powerful and user friendly and more seamlessly link the Mac on your desk to the mobile devices that are always with you. All this creates inertia for users, and while some can be persuaded to move to a new device, it will be harder to convince them to leave the entire Ecosystem behind.

Microsoft will need to integrate its tablet with smart phones and cloud services to effectively compete. Even then, it may be difficult to overcome the inertia that exists. However, it’s not impossible.

Some studies suggest that Windows phones may overtake iOS by 2016.  A competitive tablet and Microsoft ecosystem could accelerate adoption. Apple has left the door open to a competing ecosystem by releasing iCloud with shortcomings that have been lamented by many Apple fans. While much of the functionality that would make iCloud a terrific service is technically present, only power users are able to make it reach its potential. iCloud will have to become more accessible and seamless from the user’s perspective. Apple’s best strategy in competing with the soon to come Microsoft tablet may not be to build an ever better iPad, but to build a better iCloud.

In any event, this won’t be a tablet war. This will be a battle of ecosystems and the winners will be consumers who will see ever improving platforms vying for supremacy.