‘Smartphone wars’ will shape future of innovation

The United States has led the world in innovation, especially in the technology sector. But if the country wants to continue that streak, it needs pro-innovation policies, including a patent regime that reasonably protects companies involved in patent lawsuits from financial ruin.

A recent World Economic Forum study on overall economic competitiveness found that the United States has reached an eight-year high, falling behind only Switzerland. According to the study, “The strength of the United States comes from its performance in efficiency enhancers and innovation and sophistication factors.”

{mosads}Critical to ensuring that strength are policies that promote the underlying “innovation and sophistication factors” by which the U.S. economy has come to be defined, particularly in the technology industry. Although one might assume that robust patent protection for industrial designs are an important component of that innovation, the fight over Apple’s smartphone design patents demonstrates how easily rules meant to protect legitimate innovation can be used to generate unnecessary windfall profits for plaintiffs to the detriment of startup competitors.

In 2016, the U.S. Supreme Court issued a unanimous decision in the years-long legal battle between Apple and rival smartphone manufacturer Samsung over how damages are determined for non-functional design patents when the design patents apply to only a component of the phone, not the full device. This is a critical question in the age of complex devices composed of many different designs and thousands of functional utility patents. The Supreme Court unanimously held that the relevant “article of manufacture” for determining remedies does not have to be the end product sold to the consumer but can be a component of that product.

Beyond this important piece of the ruling, however, the Supreme Court did not provide guidance on the construction of an appropriate test for determining the article of manufacture and subsequent remedies. After a lower court similarly punted the question, the case is back where it started; it is up to the Northern District Court of California to craft a reasonable test that provides adequate protection for design patent holders while ensuring that remedies stemming from design patent infringement are reasonably calculated.

Judge Lucy Koh recently ordered a retrial to take a fresh look at how much Samsung owes Apple in light of the Supreme Court ruling. Judge Koh has also proposed a four part test for determining the article of manufacture. Although the test initially appears too broad and too difficult for judges and juries to interpret, at the very least it makes clear that the article of manufacture must be something less than the entire smartphone. It will be important to simplify the test to bring clarity to innovators and startups of all sizes.

Engine Advocacy, along with 3D printing marketplace and service company Shapeways, Inc., filed a brief with the Supreme Court in support of Samsung to underscore the far-reaching impacts that a decision in the case would have on companies, large and small, in the technology sector. A reasonable test should be simple, clear and accessible to those without expensive legal resources

Meanwhile, Apple continues to advocate for its proposed test for determining the article of manufacture that would do more harm than good. As prominent patent experts have noted, the four-factor test that Apple has proposed disregards important facets of the Supreme Court’s ruling, with Apple continuing to argue that the article of manufacture is the end-product for sale rather than a component of a more complex device.  

Equating the article of manufacture with the entirety of a multi-component device such as a smartphone, as Apple continues to argue, would preserve the same concerns most of us in the technology community had pre-SCOTUS. Faced with the threat of unreasonable remedies, entrepreneurs may be discouraged from launching competing companies in the first place.

Additionally, Apple’s interpretation of design patent law would incentivize frivolous lawsuits on the part of patent trolls. Startups typically lack the necessary financial resources to defend against these meritless cases. This dynamic could well hinder innovation in some of the most promising sectors of the economy.

If Apple gets its way, these problems would only get worse. As Patently-O recently indicated, design patent issuances hit a record high during fiscal year 2017. With an increasing number of design patents on the market, courts should expect a corresponding uptick in the filing of cases asserting these patents.

The district court — in concert with reasonable input from both Apple and Samsung — has the opportunity to set a standard for design patent litigation that supports not only today’s innovators but countless startups and entrepreneurs to come. Engine Advocacy looks forward to the establishment of a simple, clear, and fair test for design patent law.   

​Evan Engstrom is the executive director of Engine Advocacy, a policy, advocacy, and research organization supporting startups as an engine for economic growth. Follow him on Twitter @evanmengstrom.