War Between Apple v. Samsung

On the surface, the Apple/Samsung trial that recently concluded appears to be a minor win for Samsung in a long-running patent war. The U.S. Court of Appeals for the Federal Circuit cut Samsung’s damages payment from $930 million to $548 million, a substantial reduction in penalty.

The legal reasoning behind the court’s decision has, however, validated some of Apple’s most corrosive arguments for the future of design patent litigation. Worst of all, these consequences won’t just be limited to technology conglomerates like Apple and Samsung; they will percolate throughout the economy and affect businesses everywhere, particularly in our society’s most vulnerable and underprivileged communities.

For consumers, particularly minorities, the court’s ruling raises questions about innovation and competition. Patents are meant to protect companies that innovate and create. But the court’s ruling places less certainty on design patent interpretation, and opens the floodgates for increased litigation on design patents.

In short, the court ruled that Apple’s complaint over Samsung’s infringement of certain design features (such as the “rounded rectangle” shape of smartphones) was valid, and that this infringement entitled Apple to damages despite the fact that these patents are irrelevant to customers’ purchasing decisions. This is an extremely troubling precedent to set, as it means that basic elements of design, such as shapes, can be patented and used as the basis for extremely costly lawsuits.

If companies can patent something as straightforward as “rounded rectangles,” and can potentially sue for the infringer’s profits even though the shape is likely unrelated to the features that prompt customers to actually purchase a product, then the sky is the limit for predatory litigants. The ramifications will not just be limited to the so-called “smartphone wars” either, but will spread throughout the economy as a new breed of patent trolls race to find businesses to sue on the pretext of design patent infringement.

Today, African Americans own only 5.5 percent of U.S. businesses 4 percent of high-tech enterprises. Many of the National Black Chamber of Commerce’s 10,000 members own patents to compete against other firms that also hold patents. Becoming involved in a design patent war could shutter many minority-owned businesses.

Even worse, the law now holds that business owners found responsible for selling a product that infringes on a design patent are also liable for profits from its sale. This extreme extension of liability could cripple a small business. If a convenience store owner in an underprivileged neighborhood is found to have sold a potato chip brand whose bag violates a design patent, the resulting penalties could easily put him or her out of business. This is totally counterproductive to the pressing priority of using business and economic growth to help uplift underprivileged communities.

This extension of legal culpability also makes no practical sense. Is a small business owner supposed to validate that each and every product he or she sells does not violate design patents? The answer is obviously no.

Because of the court’s unfortunate ruling, we can only hope that Congress will override this damaging interpretation of the law through a legislative fix. Without this step, there is a substantial chance that the very patent trolls that both the House and Senate are currently working so hard to cripple will simply shift from their current tactics to design patent litigation. In fact, if the court’s reasoning stands, design patent litigation will likely be even more financially rewarding for unscrupulous patent trolls than their current practices, making our problem even worse.

As the NBCC previously wrote, litigation costs for companies sued by trolls can range from $2 million to $8 million. Minority-owned companies struggling to make ends meet cannot afford hefty litigation costs, let alone the threat of more trolls knocking on their doors and the potential of owing total profits on a product they sell. The court’s unwillingness to define design patent law interpretation is damaging to African-American companies, the consumers they serve, and the communities they support.

There is so much more on the line in this case than the $548 million that Samsung owes Apple. The consequences of the Court’s ruling have the potential to permeate every part of the economy as design patents become the default crutch for people and companies willing to twist the law to make a quick buck.

Samsung and Apple are both multi-billion dollar conglomerates that can afford hefty legal fees as well as suffer the occasional setback in court. The Black small business owners who work seven days a week to barely make ends meet, however, are the last people prepared to deal with a flood of unwarranted litigation. They will truly feel the brunt of the mistake that the U.S. Court of Appeals for the Federal Circuit has made, not the world’s biggest electronics firms.

Harry C. Alford is the co-founder, President/CEO of the National Black Chamber of Commerce®. Website: www.nationalbcc.org Email: halford@nationalbcc.org