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October 12, 2015

Flawed By Design

  The Hill

While a few in Washington struggle to breathe air back into patent reform legislation, the next juicy target for “patent trolls” is ripening.  Design patents have become increasingly attractive as a new target.

“Design patents” cover appearances rather than functions of a product.  These patents, and their growing popularity, have been the root cause of much tumult in the patent world. In fact, accordingto the U.S. Patent and Trademark Office, the number of design patent applications has nearly doubled since 2000 and increased by well over one-third since 2009. As these statistics indicate, inventors have been increasingly relying on design patents to add layers of legal protection on top of or in place of protecting innovative functions.

When design patents began they typically covered an entire product and any infringement needed to be shown to be intentional, so for infringement to occur the entire product would need to be copied. Now design patents are granted on elemental features of a product, such as rounded corners on a phone, which increases the number of possible legal disputes without a corresponding advance in innovation. In part, this has led to the patent system straining to keep pace with modern technology, such as smartphones, which contain thousands of patents. 
But the situation has become worse in the wake of Apple v. Samsung.  On appeal, the Federal Circuit agreed with the district court’s decision to award Samsung’s total profits to Apple from the sale of the phones with the allegedly infringing design characteristics, and rejected Samsung’s attempt to exclude functional features from the infringement analysis.  

As a result, plaintiffs in design patent cases can be awarded total profit from sales, even if the infringing element may not have driven the sale or consumer choice. The total profit award is part of the problem of high stakes infringement lawsuits. So, the perverse incentive is to bring design patent infringement cases, even with the weakest merits, intended to motivate defendants to settle and avoid the unbalanced risk should damages be assessed. In other words, the system itself is increasingly biased to settlement regardless of the quality of the claim. These unbalanced economics weigh against innovation and invention. Eli Whitney’s fate, defending his invention of the very successful cotton gin to the point of spending all of his profits, awaits other companies under these legal interpretations.

As Professor Jason Rantanen, at the University of Iowa College of Law has recently written, “The bottom line is that high damage claims for design patent infringement are going to be much more credible in the wake of Apple v Samsung. Under the court’s ruling, it would seem entirely possible, as a hypothetical example, for an automobile manufacture to be liable for its entire profits from a particular car model if that model contained, say, an infringing tail light. Given the publicity surrounding Apple v. Samsung, my expectation is that there will be an explosion of design patent assertions and lawsuits.”

In fact, we’re starting to see proof of this forecast. On June 2nd, Colorado-based Intellectual Capital Consulting, Ltd. (ICC) filed a patent infringement lawsuit against several of the world’s largest innovators – including Samsung, Apple, Sony, BMW, and GM – violating a patent for automobile remote start, locking, alarm and other functionalities controllable via smartwatch. In a separate letter to Samsung, ICC supported their claim by referencing Apple v. Samsung.

Of course this is not a surprise.  Given the number of patented elements within modern technology, like a mobile phone, some marginally relevant component or feature may be covered by a design patent because of it being designed specifically for the overall product.  Can it be a fair outcome that the entire profits of the phone be considered for calculating damages?  What if the designed part is distinct from the overall look and feel of the product?

To the extent that there are necessary protections within design patents to foster innovation, the current state of design patent infringement awards and the trolls this system will attract will drain the benefits of the U.S. patent system as a whole. These flaws, newly publicized by this high profile case will limit the value of patents by increasing the cynicism in the system.  That harms not just the patent system, but the value of intellectual property rights in general.  Given our increasingly knowledge-based economy, that means that the very underpinning of the economy, jobs, and success of the nation are threatened.

Cleland is a research fellow with the Institute for Policy Innovation (IPI), an independent, nonprofit public policy research organization based in Dallas.


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