# Amicus Curiae Brief — Samsung Elecs. Co. v. Apple Inc., 136 S. Ct. 1453 (2016) (No. 15-777)

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0640%3A33

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2016

## Text

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IN THE

Supreme Court of the United States

SAMSUNG ELECTRONICS Co., LTD., SAMSUNG
ELECTRONICS AMERICA, INC., AND SAMSUNG
TELECOMMUNICATIONS AMERICA, LLC,

Petitioners,
v.

APPLE INC.,
Respondent.

ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

BRIEF OF PUBLIC KNOWLEDGE, THE
ELECTRONIC FRONTIER FOUNDATION, THE
R STREET INSTITUTE, THE AMERICAN
ANTITRUST INSTITUTE, AND IP JUSTICE AS
AMICI CURIAE IN SUPPORT OF PETITIONERS

VERA RANIERI CHARLES DUAN

ELECTRONIC FRONTIER Counsel of Record
FOUNDATION PUBLIC KNOWLEDGE

815 Eddy Street 1818 N Street NW, Suite 410

San Francisco, CA 94109 Washington, DC 20036

(415) 436-9333 (202) 861-0020

vera@eff.org eduan@publicknowledge.org

Counsel for amici curiae

TABLE OF CONTENTS

TABLE OF AUTHORITIES
INTEREST OF AMICI CURIAE
SUMMARY OF ARGUMENT
ARGUMENT ...

I.

Il.

Iil.

IV.

CONCLUSION

The Federa! Circuit’s Construction Is Not Mandated
by the Text of Section 269 .............

Section 289 Should Be Interpreted to Promote Fair-
ness and Economic Efficiency Rather Than to Over-

ea are

A. Alternate Interpretations Would Better Pro-
mote Innovation

B. Economic Concerns with Holdup and Royalty
Stacking Militate in Favor of an Alternate In-
terpretation . . oe Reebe oraen

The Federal Circuit’s Interpretation Invites an In-

dustry of Counterproductive Patent Litigation ... .

A. Design Patents Are Ripe for Abuse, Especially
with the Enticement of Total Profits .

B. Analogous Federal Circuit Rules Have Created |

Cottage Industries of Patent Litigation

Section 289 Should Be Interpreted in a Way that

Avoids Serious Constitutional Doubts. ,

A. Due Process May Disallow Certain Excessively
High Damages Awards ‘

B. A Total Profits Award, leveapective of Actual
Harm, Potentially Violates These Due Process
i+ whe owed « eA e aees

C. Alternative Interpretations of Section 289°
Avoid These Constitutional Doubts

(2)

i
a

ao wore

TABLE OF AUTHORITIES

CASES

Alice Corp. Pty. Ltd. v. CLS Bank International,

oe S| Ul Eee eee eee

Apple Inc. v. Samsung Electronics Co.,
786 F.3d 983 (Fed. Cir.2015) . . ......

Ashwander v. Tennessee Valley Authority,
a A ee a

Bilski v. Kappos,

ES 6k ip bw oe. ole 6:6 we 8

BMW of North America v. Gore,
517 US. 569 (1996). .....

Bonito Boats, Inc. v. Thunder Craft Boats, Inc.,
4

BP Lubricants USA Inc., In re,
637 F:3d 1307 (Fed. Cir. 2011)

Broadcom Corp. v. Qualcomm Inc.,
501 F.3d 297 (8d Cir.2007) . ......

Brooks Furniture Manufacturing, Inc.
v. Dutailier International, Inc.,

27, 29-31

.13

393 F.3d 1378 (Fed. Cir. 2005), overruled by Octane

Fitness, LLC v. Icon Health & Fitness, Inc., 134 S.

Ct. 1749 (2014)

Commil USA, LLC v. Cisco Systems, Inc.,
135 S. Ct. 1920 (2015)

Commonwealth v. O’Laughlin,
830 N.E.2d 222 (Mass. 2005)

Cooper Industries, Inc. v. Leatherman Tool Group, Inc.,

532 U.S. 424 (2001) .

(72)

24

. 25

. 16

27, 29

(272)

Crowell v. Benson,

285 U.S. 22 (1932) . ate : 32
Deshaney

v. Winnebago County Department of Social Services,

489 U.S. 189 (1989) __.. Pat by sae
eBay Inc. v. MercExchange, LLC,

ae Se Ee 6 4) 9-0 low ba wee » se re
Ericsson, Inc. v. D-Link Systems, Inc.,

773 F.3d 1201 (Fed. Cir. 2014) . 13
Forest Group, Inc. v. Bon Tool Co.,

590 F.3d 1295 (Fed. Cir. 2009) 3, 22-23
Garretson v. Clark,

111 U.S. 120 (1884). . ee an a . a

Sarah Burstein, Moving Beyoud the Standard Criti-
cisms of Design Patents, 17 Stan. Tech. L. Rev. 305

Pt eikede tb éale eb ie hed ae he es 18
Colleen Chien, Startups and Patent Trolls, 17 Stan. Tech.
ee «we 06s» ‘ 1]

Colleen V. Chien & Mark A. nates Patent Holdup, t the
ITC, and the Public Interest, 98 Cornell L. Rev.1(2012) . 13

Thomas F. Cotter, Patent Holdup, Patent Remedies, and

Antitrust Responses, 34 J. Corp. L. 1151(2009) .. 13-14
Decorative Television Frame, U.S. Patent No. D755,744
(issued May 10,2016) ... ; “+ eee
Joseph Farrell et al., Standard Setting, Patents, and
Hold-Up, 74 Antitrust L.J. 608 (2007) “ae aos . 12

Fed. Trade Comm’n, To Promote Innovation: The
Proper Balance of Competition and Patent Law and
Policy (2003), aveilable at http://www.ftc.gov/sites/
default / files / documents / reports / promote - innovation -
proper-balance-competition-and- cnecee ee
innovationrpt.pdf . oe es —

(viii)

Gift Bag, U.S. Patent No. D739,765 (issued Sept. 29,
re ee btn ed ee wets

Justin E. Gray, Decrease in New False Marking Cases
Filed Post In re BP Lubricants, Gray on Claims (Mar.
31, 2011), http://www.grayonclaims.com/home/2011/3/
a
REED. 606s 60's 008

Justin E. Gray, False Marhing—Seitiement Update,

Gray on Claims (Aug. 9, 2011), http://www.grayonclaims.
com/home/2011/8/9/false - marking - settlement - update.

Dus Seée- eee he eke Chae ees
Benjamin Klein et al., Vertical Integration, Appropriable
Rents, and the Competitive hia sea. Process, 21 J.L.
& Econ. 297 (1978) ‘

William F. Lee & A. Douglas Melamed, Breaking the Vi-
cious Cycle of Patent eee 101 Cornell L. Rev. 385
Se a. Wave a ok deck whe ea

Mark A. Lemley, A Rational Gaston of Design Patent
Remedies, 17 Stan. Tech. L. Rev. 219(2013) ......

Mark A. Lemley & Carl Shapiro, Patent Holdup and
Royalty Stacking, 85 Tex. L. Rev. 1991 (2007)

Joseph S. Miller, Standard Setting, Patents, and Access

Lock-In: RAND Licensing and the Theory of the Firm,

40 Ind. L. Rev. 361 (2007)
Mirror, U.S. Patent No. D754,979 (issued May 3, 2016)

Michael R. O’Neill, False Marking Claims: The New
Threat to Business, Intell. Prop. & Tech. L.J., Aug. 2010,
at 22, available at http://files.mwe.com/info/pubs/False_
Patent_Marking Claims.pdf ......

Restatement (Second) of Torts (1977) .

Restatement (Third) of Restitution and Unjust Enrich-
A pcr ee eS aoe :

17

23

12

15

13
17

22
29

. 30

(iz)

Perry J. Saidman, The Crisis in the Law of Designs, 89 J.

Pat. & Trademark Off. Soc’y 301 (2007). .....

Pamela Samuelson & Tara Wheatland, Statutury Dam-
ages in Copyright Law: A Remedy in Need of Reform,
51 Wm. & Mary L. Rev. 439(2009) ...

Sheila B. Scheuerman, Due Process Forgotten: The Prob-
lem of Statutory Damages and Class Actions, 74 Mo. L.

SES Bo I ee, tree ee

David L. Schwartz, The Rise of Contingent Fee Represen-

tation in Patent Litigation, 64 Ala. L. Rev. 335 (2012) .. .

Nicholas W. Stephens, From Forest Group to the Amer-
ica Invents Act: False Marking Comes Full Circle, 97
Iowa L. Rev. 1008 (2012) .........

U.S. Dep’t of Justice & Fed. Trade Comm'n, Antitrust
Enforcement and Intellectual Property Rights: Promot-
ing Innovation and Competition (2007), available at

http://www.usdo}j.gov/atr/public/hearings/ip/222655.pdf_ .

US. Dep’t of Justice & US. Patent & Trademark
Office, Policy Statement on Remedies for Standards-
Essential Patents Subject to Voluntary F/RAND Com-
mitments (Jan. 8, 2013), http://www.justice.gov/atr/
public/guidelines/290994.pdf . rh

U.S. Patent No. D558,753 (issued Jan. 1, 2008)
US. Patent No. D741,316 (issued Oct. 20,2015) .

US. Patent & Trademark Office, Manual of Patent Ex-
amining Procedure (9th ed. Nov. 2015)

U.S. Patent & Trademark Office, Performance and Ac-
countability Report, Fiscal Year 2015 (2015), available
at http://www.uspto.gov/sites/default/files/documents/
ES Pe ee ee

Donald R. Ware, Research Tool Patents: Judicial Reme-
dies, 30 AIPLA Q.J. 267 (2002) . a

. 20

30

.13

.13

19
19

. 18

. 18

.15

(x)

Brian T. Yeh, Cong. Research Serv., False Patent Mark-
ing: Litigation and Legislation (2010), available at
https://www.fas.org/sgp/crs/misce/R41418.pdf .... . 22-23

INTEREST OF AMICI CURIAE

Public Knowledge’ is a non-profit organization that
is dedicated to preserving the openness of the Internet
and the public’s access to knowledge, promoting creativ-
ity through balanced intellectual property rights, and up-
holding and protecting the rights of consumers to use in-
novative technology lawfully. Public Knowledge advo-
cates on behalf of the public interest for a balanced patent
system, particularly with respect to new and emerging
technologies.

The Electronic Frontier Foundation (“EFF”) is a non-
profit civil liberties organization that has worked for over
25 years to protect consumer interests, innovation, and
free expression in the digital world. EFF and its more
than 23,500 dues-paying members have a strong interest
in helping the courts ensure that intellectual property law
serves the public interest.

The R Street Institute is a non-profit, non-partisan
public-policy research organization. R Street’s mission
is to engage in policy research and educational outreach
that promotes free markets, as well as limited vet effec-
tive government, including properly calibrated legal and
regulatory frameworks that support Internet economic
growth and individual liberty. R Street’s particular fo-
cus on Internet law and policy is one of offering research
and analysis that show the advantages of a more market-
oriented society and of more effective, more efficient laws

'Pursuant to Supreme Court Rule 37.3(a), all parties received ap-
propriate notice of and consented to the filing of this brief. Pursuant
to Rule 37.6, no counsel for a party authored this brief in whole or
in part, and no counsel or party made a monetary contribution in-
tended to fund the preparation or submission of the brief. No person
or entity, other than amici, their members, or their counsel, made a
monetary contribution to the preparation or submission of this brief.

l

2

and regulations that protect freedom of expression and
privacy.

The American Antitrust Institute (AAI) is an inde-
pendent, nonprofit organization devoted to promoting
competition that protects consumers, businesses, and so-
ciety. It serves the public through education, research,
and advocacy on the benefits of competition and the use
of antitrust enforcement as a vital component of national
and international competition policy. The AAI has long
recognized the important role that a balanced patent sys-
tem can play in promoting competition, innovation, and
consumer welfare.

IP Justice, founded in 2002, is an international civil lib-
erties organization that promotes Internet freedom, inno-
vation policy, and balanced intellectual property rights.
Although based in San Francisco, IP Justice partici-
pates in a number of international law and Internet pol-
icy venues which impact digital rights including the In-
ternet Corporation for Assigned Names and Numbers
(ICANN), the UN World Intellectual Property Organiza-
tion (WIPO), the UN Internet Governance Forum (IGF),
and other international treaty and trade agreements ad-
dressing Internet policy and intellectual property rights.
IP Justice has held an accredited consultative status with
ECOSOC, the Economic and Social Council of the United
Nations, since 2003.

SUMMARY OF ARGUMENT

Five years ago, the United States Court of Appeals
for the Federal Circuit construed a statute in a way that
led to one of the most disastrous episodes in modern
patent law. The court thought its construction unremark-
able, based on the “plain langua~e” of the statute. But
that court’s interpretation, which authorized vast mone-
tary awards in certain patent lawsuits, had far-reaching
effects. The decision would trigger siz hundred and
seventy-five new lawsuits within a year, create a cottage
industry of litigation firms, force companies to scramble
to avoid “staggering fines,” and draw criticism as “a shift
in wealth to lawyers.”

The case thus described was Forest Group, Inc. v. Bon
Tool Co. and related to patent marking, but it could be the
present design patent damages case in five years’ time if
history is any guide. For the Federal Circuit’s decision
here, interpreting 35 U.S.C. § 289 to require an award
of total profits on any consumer product that infringes a
design patent, sets up the same precarious situation as
the widely denounced interpretation of 35 U.S.C. § 292 in
Forest Group that authorized potentially enormous false
marking awards.

This Court should reverse the Federal Circuit and con-
strue § 289 to balance the equities among patent owners,
industry, and the public. The statutory text is more open
to interpretation than the Court of Appeals assumed it to
be. Given that interpretive flexibility, there are at least
three reasons why this Court should reject the Federal
Circuit’s construction and adopt a different one.

~ 2S¢e Section 111.B()) infra p. 22.

3

4

First, the Federal Circuit’s construction will under-
mine the patent system. With many design patents be-
ing directed to only minor parts of products, awarding
the totai profits on such products will greatly overvalue
the patents and undervalue the numerous other features
in those products. This possibility will likely raise prices,
discourage new goods and services from coming to mar-
ket, and thus impede consumers’ access to new technolo-
gies contrary to the constitutional mandate that patents
promote progress. It also opens the door to the eco-
nomic inefficiencies of patent holdup and royalty stacking,
which work to disincentivize future invention and produc-
tivity.

Second, there are strong reasons to believe that the
Federal Circuit’s interpretation will create a costly and
abusive new industry of design patent assertion that will
enrich a few clever litigators at the expense of the public.
With the Federal Circuit’s decision offering the promise
of enormous damage awards, and with extant substantive
law already making it easy to obtain broad-scoped design
patents, design patent law offers the motive, means, and
opportunity for widespread and abusive litigation. In-
deed, history shows that, at least three times, the Federal
Circuit has devised rigid rules that have fostered patent-
related litigation industries, including the patent mark-
ing situation described above.

Third, affirming the Federal Circuit’s reading of § 289
may invite a serious question of the constitutionality of
that damages statute. This Court has held for a century
that excessively high damages awards, disproportionate
to the magnitude of the actual offense, can run afoul of
the Due Process Clauses of the Fifth and Fourteenth
Amendments, in the contexts of both punitive damages

5

and statutory awards. An award of total profits on a prod-
uct for infringement of a design patent of minor or incon-
sequential value to that product is potentially impermis-
sible under this jurisprudence, and may render § 289’s ap-
plication unconstitutional in many cases should the Fed-
eral Circuit’s interpretation stand. This Court has often
sought to construe statutes to avoid serious doubts us to
their constitutionality where such statutes permit alter-
native interpretations; it should again do so here.

Too often has the patent system been beleaguered by
unbalanced rules that favor a small class of rightsholders
at the expense of the public good and the constitutional
mandate for that system. Too rarely does this Court re-
ceive a timely case allowing it to nip that imbalance in the
bud, before the harm is done, simply by correcting a way-
ward construction of a patent statute. This is that timely
case.

To prevent such harm from occurring, to protect the
public interest, and to ensure that § 289 comports with
the objects of the patent system, this Court should re-
verse.

ARGUMENT

I. THE FEDERAL CIRCUIT'S CONSTRUCTION Is
NoT MANDATED BY THE TEXT OF SECTION 289

Contrary to the decision of the Court of Appeals, the
design patent damages statute is not so wholly inflexible
as to require an award of total profits on entire products
in all cases. The statutory language is sufficiently ambigu-
ous to permit a proper interpretation that more appropri-
ately balances the interests of the patent system.

Statutory construction requires a complete view of
the text of a statute in the context of the broader law
and policy. “In expounding a statute,” explained Justice
Taney, “we must not be guided by a single sentence or
member of a sentence, but look to the provisions of the
whole law, and to its object and policy.” United States v.
Heirs of Boisdore, 49 U.S. (8 How.) 113, 122 (1850); see
also United Sav. Ass’n v. Timbers of Inwood Forest As-
socs., 484 U.S. 365, 371 (1988) (“Statutory construction,
however, is a holistic endeavor.”); Robinson v. Shell Oil
Co., 519 U.S. 337, 341 (1997); Yates v. United States, 1358.
Ct. 1074, 1082 (2015) (Ginsburg, J., op.) (“dictionary defini-
tions .. . are not dispositive of the meaning” of a statute);
id. at 1092 (Kagan, J., dissenting) (“I agree with the plu-
rality (really, who does not?) that context matters in in-
terpreting statutes.”).

The Federal Circuit claimed to be “bound by what the
statute says” in holding that 35 U.S.C. § 289 requires®
awarding patentees the “total profit from the article of

‘Respondent faults amici for a “mistaken assumption that the
Federal Circuit’s ruling requires” a total profit award. Br. Opp’n 34—
35 n.15. But the Federal Circuit has at least twice said that § 289
“requires the disgorgement of the infringers’ profits.” Nike Inc. v.
Wal-Mart Stores, Inc., 138 F.3d 1437, 1448 (Fed. Cir. 1998) (empha-

6

7

manufacture bearing the patented design,” by which it
means the total profit on the whole product as sold to
consumers. Apple Inc. v. Samsung Elecs. Co., 786 F.3d
983, 1001-02 & n.1 (Fed. Cir. 2015). But the statutory lan-
guage is not so plain and mandatory in that respect.

The statute states, in relevant part, that an infringer
of a design patent “shall be liable to the owner to the ex-
tent of his total profit, but not less than $250.” 35 U.S.C.
§ 289 (emphasis added). Read literally, then, the statute
does not limit the award to the “total profit from the ar-
ticle of manufacture,” as the Federal Circuit held; total
profits would seem to apply to all products sold or ser-
vices rendered, infringing or not. According to the text
of § 289, Samsung would theoretically be liable to Apple
for its profits from selling washing machines.

Thus, even the Federal Circuit’s interpretation ac-
knowledges and depends on ambiguity in the statutory
text.

But there is no good reason that the Federal Circuit’s
limitation on the scope of § 289, cabining total profits at
the level of consumer articles, is the right line to draw.
Petitioners and several amici have proposed alternate in-
terpretations of § 289. See, e.g., Br. 37 Intellectual Prop-
erty Law Professors 17, Jan. 15, 2016; Br. Computer and
Communications Industry Association 9, Jan. 15, 2016.

Accordingly, the statutory language is sufficiently am-
biguous to allow interpreting § 289 in a manner consonant
with the overall “object and policy” of patent law, namely
“to promote the progress of science and useful arts.” U.S.
Const. art. I, § 8, el. 8.

sis added); Nordock, Inc. v. Sys. Inc., 803 F.3d 1344, 1354 (Fed. Cir.
2015).

8

Il. SECTION 289 SHOULD BE INTERPRETED TO
PROMOTE FAIRNESS AND ECONOMIC EFFI-
CIENCY RATHER THAN TO OVERCOMPENSATE

ONE PARTY

This Court should interpret § 289 in a way that ad-
vances the public purpose of the patent system, namely
to offer a fair reward to inventors without unduly bur-
dening the public interest in access to technology. The
Federal Circuit’s approach fails to strike that balance.

Many design patents are directed not to entire prod-
ucts, but rather only to small components or parts. By
contrast, the products that potentially infringe design
patents are often complex ones incorporating numerous
technologies and designs. “Modern devices may poten-
tially infringe many thousands of patents, held by nu-
merous different owners.” William F. Lee & A. Douglas
Melamed, Breaking the Vicious Cycle of Patent Dam-
ages, 101 Cornell L. Rev. 385, 407 (2016). Thus, the prof-
its on a complex product may derive from myriad techno-
logical and design innovations, any combination of which
might drive consumers’ purchasing decisions.

As a result, awarding total profits on an entire prod-
uct for a patent on only a small component gives design
patentees a windfall of profits attributable to a large num-
ber of far more significant elements, including those cov-
ered by other utility and design patents. See Mark A.
Lemley, A Rational System of Design Patent Remedies,
17 Stan. Tech. L. Rev. 219, 232-33 (2013).

Alternate interpretations of § 289 will better allocate
value between a patent owner and a product manufac-
turer. That correct allocation will have at least two bene-
fits. First, it would encourage future innovation by better
accounting for future inventors and creators. Second, it

9

would avoid the known economic inefficiency problems of
“patent holdup” and “royalty stacking.” Accordingly, this
Court should reject the Federal Circuit’s interpretation
of § 289 and adopt a different reading that accommodates
these important considerations.

A. ALTERNATE INTERPRETATIONS WOULD
BETTER PROMOTE INNOVATION

An alternate reading of § 289 would better serve the
basic purpose of the patent system, namely enhancing the
public interest in greater access to technology. This pur-
pose, enshrined in the Constitution and in this Court’s de-
cisions, is best served through appropriate limits on the
strength of patents, including limiting infringement dam-
ages to a proper measure of the patentee’s inventive con-
tribution. But the Federal Circuit’s total-profits interpre-
tation grants excessive damages that would break this
balance, and so it should be rejected.

1. The primary purpose of the patent system is to
encourage innovation and ultimately to benefit the public.
The Constitution authorizes Congress to create a patent
system, but only one that is directed “to promote the
progress of science and useful arts.” U.S. Const. art. I,
§ 8, cl. 8; see Bonito Boats, Inc. v. Thunder Craft Boats,
Inc., 489 U.S. 141, 146 (1989) (“the Clause contains both a
grant of power and certain limitations upon the exercise
of that power.”). The “primary object” of patents is “the
benefit to the public or community at large.” Kendall v.
Winsor, 62 U.S. (21 How.) 322, 327-28 (1859). Thus, “the
patent power may not overreach the restraints imposed
by the stated constitutional purpose.” Graham v. John
Deere Co., 383 U.S. 1, 6 (1966).

10

Limiting damages to the inventive contribution of the
patentee is critical to maintaining that public purpose
of patents. Garretson v. Clark affirmed that patentees
should “in every case give evidence tending to separate or
apportion the defendant’s profits and the patentee’s dam-
ages between the patented feature and the unpatented
feature.” 111 U.S. 120, 121 (1884). In particular, dam-
ages based on the whole machine are appropriate only
given evidence that the value of the whole machine could
be “properly and legally attributable to the patented fea-
ture.” Jd.; see also Westinghouse Co. v. Wagner Mfg. Co.,
225 U.S. 604, 614-15 (1912) (“[I}f plaintiff’s patent only
created a part of the profits, he is only entitled to recover
that part of the net gains.”).

Following Garretson, the recent case VirnetX, Inc. v.
Cisco Systems, Inc. held that a patentee could be
awarded “only those damages attributable to the infring-
ing features.” 767 F.3d 1308, 1326 (Fed. Cir. 2014). Such
a rule was necessary, said the Federal Circuit, to en-
sure that the award “does not overreach and encom-
pass components not covered by the patent.” /d. (citing
LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d
1255, 67-68, 70 (Fed. Cir. 2012)).

2. By requiring an award of total profits on the en-
tire consumer product, the Federal Circuit’s reading of
§ 289 breaks this balance. In most circumstances not all
of the infringer’s profits are attributable to the infringing
patent—it would be highly unbalanced, for example, to
award an owner of a patent on a tire design the total prof-
its on a vehicle. “[A]}warding the plaintiff any more than
the lost profit attributable to the component . . . would in
effect expand the scope of the plaintiff’s patent to encom-
pass the entire final product.” Roger D. Blair & Thomas

11

F. Cotter, Rethinking Patent Damages, 10 Tex. Intell.
Prop. L.J. 1, 14 (2001).

The Federal Circuit’s rule ignores the interests of oth-
ers whose innovations contributed to the profitability of
the same product. By allocating 100% of the profits on a
product to a design patent asserter and 0% to all other
contributors to that product, that rule strips away any in-
centives for those other contributors to innovate, directly
contravening the constitutional purpose of the patent sys-
tem. See Section II.B(2) infra p. 14 (discussing “roy-
alty stacking,” where the sum of patent royalties exceeds
100% of the value of the product).

The degree of overcompensation is most stark in the
increasingly likely scenario of “innocent” infringement,‘
that is, where the manufacturer arrived at a similar de-
sign through its own inventive efforts. Damages under
§ 289 require no showing of the infringer’s knowledge of
infringement, of the patent itself, or of other products
incorporating the design. See Br. Pet’rs 16 (citing Act
of July 19, 1952, ch. 950, § 289, 66 Stat. 792, 813-14). A
company could develop a new product coincidentally us-
ing a minor patented design and then be blindsided with
loss of all profits on that product. This possibility would
dissuade new firms from developing innovative products
and bringing them to market. Cf. Colleen Chien, Star-
tups and Patent Trolls, 17 Stan. Tech. L. Rev. 461, 477
(2014) (documenting small companies’ avoidance of tech-
nology and markets out of fear of patent assertion); James
Bessen, The Evidence Is In: Patent Trolls Do Hurt Inno-
vation, Harv. Bus. Rev. (July 25, 2014), URL supra p. vii.

‘The numerous design patents being obtained on the most basic
shapes and designs, see infra p. 18, make innocent infringement more
and more likely.

12

By requiring awards of total profits on whole con-
sumer products, the Federal Circuit’s interpretation of
§ 289 will increase risk for those who want to develop new
products or services, and thereby deter innovation. Ac-
cordingly, this Court should adopt an alternative inter-
pretation of § 289 crafted to promote innovation rather
than overcompensation, to favor a balance between the
public interest and patentees, and to advance the needs
of business, the economy, and the public.

B. ECONOMIC CONCERNS WITH HOLDUP AND
ROYALTY STACKING MILITATE IN FAVOR OF
AN ALTERNATE INTERPRETATION

An interpretation of § 289 different from the Federal
Circuit’s rule would avoid two problematic economic inef-
ficiencies: patent holdup and royalty stacking.

1. “Holdup” refers to the situation where one firm
sinks startup investments into a project, only to be forced
later into negotiations with an outside party having the
power to block that project. The firm is forced to choose
between abandoning the project and the sunk costs or
paying the outside party theoretically up to the entire
value of the project. See Dieter Balkenborg et al., A
Simple Economic Teaching Experiment on the Hold-Up
Problem, 43 J. Econ. Educ. 377 (2012) (describing holdup
and surveying literature); Benjamin Klein et al., Verti-
cal Integration, Appropriable Rents, and the Competi-
tive Contracting Process, 21 J.L. & Econ. 297, 298 (1978).
“It is as if the sawmill owner set its prices [for pur-
chasing logs] only after a logger transported its logs to
the sawmill, unloaded them, and sent its trucks away.”
Joseph Farrell et al., Standard Setting, Patents, and
Hold-Up, 74 Antitrust L.J. 603, 612 (2007).

13

Holdup creates perverse ex ante incentives and harms
static and dynamic efficiency. Any excessive payments
that the firm makes due to threat of holdup translate
to downstream costs to consumers. And the victimized
firm, anticipating the loss of the value of its startup in-
vestments as a result of holdup, may decline ex ante to
invest in future projects. See Thomas F. Cotter, Patent
Holdup, Patent Remedies, and Antitrust Responses, 34
J. Corp. L. 1151, 1169 (2009); Joseph S. Miller, Standard
Setting, Patents, and Access Lock-In: RAND Licensing
and the Theory of the Firm, 40 Ind. L. Rev. 351, 366-67
n.65 (2007). Where holdup is enabled, fewer products and
services make it to market, harming consumers’ access
to and choice of technology. Colleen V. Chien & Mark A.
Lemley, Patent Holdup, the ITC, and the Public Interest,
98 Cornell L. Rev. 1, 6 (2012).

In the patent context, the harms of holdup have been
recognized by no small number of authorities. Justice
Kennedy warned in eBay Inc. v. MercExchange, LLC
that where “the patented invention is but a small compo-
nent of the product,” an injunction could be “employed as
a bargaining tool to charge exorbitant fees to companies
that seek to buy licenses to practice the patent”—that is,
as a tool for patent holdup. 547 U.S. 388, 396 (2006) (con-
curring op.).° The Department of Justice, Federal Trade
Commission, and Patent and Trademark Office have all
recognized the risks of patent holdup.°

®See also Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024, 1031
(9th Cir. 2015); Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 310
(3d Cir. 2007); Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1209
(Fed. Cir. 2014).

®U.S. Dep't of Justice & Fed. Trade Comm'n, Antitrust Enforce-
ment and Intellectual Property Rights: Promoting Innovation and
Competition 35-37 (2007), available at URL supra p. ix; U.S. Dep’t

14

Here, the Federal Circuit’s interpretation of § 289
would likely lead to the same results as patent holdup.
While holdup normally involves an injunction threat, the
effect of disgorgement of all profits on a product is the
same: the nominal right to continue manufacturing is a
nullity when every cent of the value is taken away. Cf.
Cotter, supra, at 1171 (excessive damages “could cause
much the same harm to static and dynamic efficiency” as
an injunction). The mere threat of design patent litiga-
tion may be used as a club to extract excessive payments
that will be passed on to consumers. See Section III infra
p. 16. And if companies like Samsung contemplated that
their investments in phone designs would yield no profits
in view of a single infringement case, then such compa-
nies would be wary of investing in new designs, the exact
loss that holdup theory predicts.

2. “Royalty stacking” is another problem that will
likely also result from the Federal Circuit’s reading of
§ 289. Royalty stacking occurs when multiple patentees
each are able to obtain an infringement royalty that is
greater than the proportional contribution of each patent
to the infringing product. The total “stack” of royalties,
as a result, can exceed 100% of the product’s total value,
meaning that the infringing manufacturer would have
to pay more in royalties than the manufacturer actually
earns in sales. See Microsoft Corp. v. Motorola, Inc., 795
F.3d 1024, 1031 (9th Cir. 2015); Cotter, supra, at 1169.

The harms of royalty stacking are similar to those
of patent holdup: manufacturers who wish to develop
new products will likely be discouraged ex ante by the

of Justice & U.S. Patent & Trademark Office, Policy Statement
on Remedies for Standards-Essential Patents Subject to Voluntary
F/RAND Commitments 4 (Jan. 8, 2013), URL supra p. ix.

15

prospect of potentially having to go into debt to pay
royalties. See Mark A. Lemley & Car! Shapiro, Patent
Holdup and Royalty Stacking, 85 Tex. L. Rev. 1991, 2012
(2007). As the Federal Circuit recognized in the pharma-
ceutical development context, “(t]he cumulative effect of
such stacking royalties can be substantial.” Integra Life-
sciences I, Ltd. v. Merck KGaA, 331 F.3d 860, 871 (2003)
(citing Donald R. Ware, Research Tool Patents: Judicial
Remedies, 30 AIPLA Q.J. 267, 295 (2002)), vacated on
other grounds, 545 U.S. 193 (2005).

By authorizing total profits recovery to every design
patent owner, the Federal Circuit’s rule creates a clear
path to royalty stacking. Although § 289 does not allow
“an owner of an infringed patent” to “twice recover the
profit made from the infringement,” the statute does not
deal with a situation where patents of two different paten-
tees are involved. If two design patent owners succeed in
showing that a product infringes their respective patents,
then the product manufacturer could theoretically owe
twice its entire profits. Or if a product infringes a design
patent and a utility patent, the manufacturer could owe
total profits plus a reasonable royalty.’

Accordingly, the total profit award authorized by the
Federal Circuit potentially leads to patent holdup and
royalty stacking. These consequences suggest the error
of the Federal Circuit’s interpretation of § 289 and the su-
periority of an alternate one.

7A court might try to avoid this situation by deeming that, af-
ter the first award of total profits, there are no more profits to
be awarded such that future patent asserters would receive noth-
ing. Such a result would introduce an extremely strange path-
dependence into patent infringement, wherein the patent damages
award turns on the order in which lawsuits are filed, and it would
also induce a race to the courthouse over design patents.

16

Ill. THE FEDERAL CIRCUIT’S INTERPRETATION
INVITES AN INDUSTRY OF COUNTERPRODUC-
TIVE PATENT LITIGATION

The rigid “total profits” rule will almost certainly
spawn a cottage industry of opportunistic litigation, com-
pounding the harms described above. The present ease of
obtaining broad design patents on simple concepts means
that the stage is already set for opportunities for abu-
sive design patent litigation. And the situation with de-
sign patents is highly analogous to other situations where
newly-minted Federal Circuit rules triggered waves of
litigation. In other contexts this Court has sought to
avoid incubating patent litigation industries; it should
seek to avoid the same possibility here.

A. DESIGN PATENTS ARE RIPE FOR ABUSE,
ESPECIALLY WITH THE ENTICEMENT OF
TOTAL PROFITS

Means, motive, and opportunity are the elements con-
ducive to bad acts.® Current law makes it almost trivially
easy to obtain design patents—the means—that have
broad scope and that are likely to sweep in large ranges
of unintentional infringers—the opportunity. By opening
the door to potentially enormous total-profits awards, the
Federal Circuit’s interpretation of § 289 adds the final leg
of the triad—the motive—for the rise of a design patent

litigation industry.

®See, e.y., People v. Downer, 557 P.2d 835, 839 (Colo. 1976);
Welch v. Bd. of Prof'l Responsibility, 193 S.W.3d 457, 466 (2006).
These three elements alone will not support a criminal conviction,
see Commonwealth v. O’Laughlin, 830 N.E.2d 222, 231 (Mass. 2005),
but the presence of all three is certainly probative of likelihood that
the bad acts will occur. Cf. Fed. R. Evid. 404(b)(2).

17

FIG. 1

Gift Bag, U.S. Patent No. Mirror, U.S. Patent No.
D739,765 fig.1 (issued Sept. 29, D754,979 fig.2 (issued May 3,
2015). 2016).
(== =)

4 J

FIG. 1

Decorative Television Frame, U.S.
Patent No. D755,744 fig.1 (issued May
10, 2016).

Figure 1: Example design patents recently issued.

18

The Means. Design patents are routinely granted on
the most trivial aspects of consumer products. In 2014,
the Patent and Trademark Office granted 24,008 design
patents while only 2,828 applications went abandoned,
meaning that a design patent application that year had an
89.5% chance of being granted. U.S. Patent & Trademark
Office, Performance and Accountability Report, Fiscal
Year 2015, at 184 tbl.1 (2015), available at URL supra
p. ix. Compared to utility and other patents, which had a
51.5% probability of grant that year, a design application
is practically a sure bet for obtaining a patent.

Within that 89.5% cohort of granted design patents,
it is easy to find ones of dubious validity. As shown in
Figure 1 above, recently issued patents include designs
as pedestrian as a Christmas stocking, a wall mirror, and
a television screen. See also Sarah Burstein, Moving Be-
yond the Standard Criticisms of Design Patents, 17 Stan.
Tech. L. Rev. 305, 324-28 (2013) (describing Federal Cir-
cuit law that “may explain, at least in part, why the PTO
has been issuing design patents for so many apparently
obvious designs lately”).

The Opportunity. It is not just that design patents
routinely issue on commonplace designs: the law permits
issuance of very broad patents that can easily sweep in
unsuspecting companies as infringers. Current design
patent laws and regulations “allow the patentee to adjust
his patent coverage” by replacing solid lines in the figures
with dashed ones, as dashed lines are not considered part
of the design claimed by the patent. Jn re Owens, 710
F.3d 1362, 1367 (Fed. Cir. 2013); see also U.S. Patent &
Trademark Office, Manual of Patent Examining Proce-
dure § 1503.02(III) (9th ed. Nov. 2015). Furthermore, the
applicant can use continuation practice to obtain multi-

19

U.S. Patent No. D558,753 fig.1 U.S. Patent No. D741,316 fig.1
(issued Jan. 1, 2008). (issued Oct. 20, 2015)

(enlarged fragment).

Figure 2: Example design patent continuations.

ple patents from a single application and thus revise the
scope of patented subject matter over time. See 35 U.S.C.
§ 120; In re Salmon, 705 F:2d 1579, 1579 (Fed. Cir. 1983).

These two legal tools allow a design patent owner to
render a large swath of competitors or other manufac-
turing companies liable for infringement. For example,
Figure 2 shows figures from two Apple design patents,
the right one being a continuation of the left. While the
older patent is extremely “narrow,” claiming nearly the
whole laptop design, the newer patent replaces nearly
the entire figure with unclaimed dashed lines, claiming
only the small oblong shape of the front push latch. Thus,
a different-looking laptop using a similar-shaped latch
would infringe the newer patent, but not the older.

This practice makes it difficult to avoid infringement
through design-around. A hypothetical Apple competitor
could have tailored its activity to avoid infringing the ear-
lier patent, and yet find itself infringing the later issued

20

patent. See Sarah Burstein, Costly Designs, 77 Ohio St.
L.J. 107, 116-17 (2016).°

And those who unintentionally use a patented design
are in an even worse situation, having no good way to de-
termine what design patents may be implicated by their
products. The mutability of design patents through bro-
ken lines and continuations, combined with the general
difficulty of finding similar images, makes searching the
patent catalog an exercise in futility. Nor would review
of competing products on the shelves be more effective:
patent marking on products is incomplete at best.’ Prod-
uct makers and sellers have limited ability to avoid po-
tential infringement claims, meaning that design patent
owners have a wide opportunity to bring lawsuits.

The Motive. With the means and opportunity for
widespread design patent litigation established, only the
motive for bringing such suits remains. That motive is
created by the Federal Circuit’s reading of § 289 to award
total profits on consumer products, giving design patent
holders the possibility of large windfalls in damages.

*One practitioner apparently applauds this strategy, calling it
“well-accepted patent gamesmanship” and “one of the most power-
ful weapons in a design patentee’s arsenal.” See Perry J. Saidman,
The Crisis in the Law of Designs, & J. Pat. & Trademark Off. Soc’y
301, 319-24 (2007). Query whether giving a “powerful weapon” to
patentees is the right result. Cf Medtronic, Inc. v. Mirowski Fam-
ily Ventures, LLC, 1348. Ct. 843, 851 (2014) (“But the ‘public’ also has
a ‘paramount interest in seeing that patent monopolies . are kept
within their legitimate scope.’”) (quoting Precision Instrument Mfg.
Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 816 (1945)).

While marking under 35 U.S.C. § 287 is a prerequisite to design
patent damayes, see Nike Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437,
1446 (Fed. Cir. 1998), marking wil] not reveal patents issued after the
products were marked, and it will not reveal patents held by non-
manufacturing owners.

21

Design patentees may augment these already large
potential awards in at least two ways. First, they may opt
not to license to or sue component manufacturers, wait-
ing instead to seek a greater damages award based on
more complete, and more profitable, downstream prod-
ucts. See Lee & Melamed, supra, at 427 n.201. Second,
they may take advantage of the Federal Circuit’s ques-
tionable recent decision in Lexmark International, Inc. v.
Impression Products, Inc., 816 F.3d 721 (Fed. Cir. 2016)
(en banc), petition for cert. filed, No. 15-1189 (Mar. 21,
2016), and use the device of conditional sales to control the
secondary resale market as well as to extract the profits
of competitors."

Accordingly, the means, motive, and opportunity for
a new wave of design patent litigation are all present in
view of the Federal Circuit’s decision here. By reversing
that decision, this Court would forestall such an undesir-
able result.

B. ANALOGOUS FEDERAL CIRCUIT RULES HAVE
CREATED COTTAGE INDUSTRIES OF PATENT
LITIGATION

The likelihood that the Federal Circuit’s decision will
give rise to an industry of design patent litigation is illu-
minated by the fact that other recent Federal Circuit de-
cisions have given rise to industries of patent litigation,
ones that have harmed the patent system and the public.

'\ Lexmark held that, where a patent holder manufactures prod-
ucts and places a notice of conditions on the packaging, downstream
resellers or users who violate the conditions would be liable for
patent infringement, despite the patent exhaustion doctrine. See
id. at 773-74. Several amici filed a brief with this Court arguing that
Lexmark is incorrect and contrary to Supreme Court precedent.

22

1. Most analogous to the present case, the Federal
Circuit in Forest Group, Inc. v. Bon Tool Co. construed
35 U.S.C. § 292 to impose up to a $500 fine for each article
on which the manufacturer erroneously applied a patent
marking. See 590 F.3d 1295, 1384 (Fed. Cir. 2009). The
interpretation of the patent marking statute “exponen-
tially raised the potential recoveries in false marking ac-
tions,” causing a “meteoric rise in false patent marking
suits.” Brian T. Yeh, Cong. Research Serv., False Patent
Marking: Litigation and Legislation 2 (2010), available
at URL supra p. x.

Within a year of that decision, the cottage industry
of false marking litigation had been established: 675 new
lawsuits were filed, many by newly established firms fil-
ing dozens of cases. See Nicholas W. Stephens, From
Forest Group to the America Invents Act: False Mark-
ing Comes Full Circle, 97 lowa L. Rev. 1003, 1019 n.107
(2012); Justin E. Gray, False Marking—Settlement Up-
date, Gray on Claims (Aug. 9, 2011), URL supra p. viii.
One practitioner advised companies to quickly review
their product lines to avoid “staggering fines” even for
“inadvertent mismarking.” Michael R. O’Neill, False
Marking Claims: The New Threat to Business, Intell.
Prop. & Tech. L.J., Aug. 2010, at 22, 28-29, available
at URL supra p. viii. The result of Forest Group was
widely criticized; one senator called it “a shift in wealth
to lawyers that comes at the expense of manufacturing
jobs.” 157 Cong. Rec. $5321 (daily ed. Sept. 6, 2011) (state-
ment of Sen. Ky)).

The decision being reviewed here is similar to the
court’s Forest Group decision five years ago. In both
cases the Federal Circuit interpreted a statute, claiming
to be merely applying the plain language of the statute,

93

that opened the door to high-magnitude judicial awards.
In both cases, the right to sue was easy to obtain and the
pool of potential defendants was large. So it should be un-
surprising if the result of the Federal Circuit’s decision
here, if left unchanged, would be similar to the result of
Forest Group: an overnight industry of litigants “scour-
ing store shelves ... with hopes for a massive payday.”
Yeh, supra, at 2.”

2. The Federal Circuit’s ruling in State Street Bank
& Trust Co. v. Signature Financial Group, Inc., autho-
rizing patents on business methods, see 149 F.3d 1368,
1373 (Fed. Cir. 1998), also resulted in a flood of applica-
tions for patents on business methods and software. See
Fed. Trade Comm’n, To Promote Innovation: The Proper
Balance of Competition and Patent Law and Policy ch. 4,
at 39 (2003), available at URL supra p. vii. Patent own-
ers, armed with patents on these basic concepts, were
now in a position to sue broad swaths of businesses, and
potentially receive massive infringement payouts. This
practice went largely unchecked until this Court substan-
tially corrected the standard for patentable subject mat-
ter eligibility in Bilski v. Kappos, 561 U.S. 593 (2010), and

The courts were instrumental in repairing the damage left by
Forest Group. Several months after that decision, a different panel
of the Federal Circuit clarified the intent requirement of 35 U.S.C.
§ 292. See In re BP Lubricants USA Inc., 637 F.3d 1307, 1311 (Fed.
Cir. 2011). Congress ultimately modified the patent marking statute,
see America Invents Act, Pub. L. No. 112-29, § 16(b), 125 Stat. 284,
329 (2011), but BP Lubricants is generally credited with significantly
decreasing the onslaught of false marking cases. See Justin E. Gray,
Decrease in New False Marking Cases Filed Post In re BP Lubri-
cants, Gray on Claims (Mar. 31, 2011), URL supra p. viii. Notably,
because design patent infringement is a strict liability offense, this
avenue is not available in the present case.

24

Alice Corp. Pty. Ltd. v. CLS Bank International, 134 S.
Ct. 2347 (2014)

3. Similarly, the Federal Circuit established a rigid
rule restricting the ability for courts to shift attorney fees
in patent cases under 35 U.S.C. § 285. Brooks Furni-
ture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381
(Fed. Cir. 2005), overruled by Octane Fitness, LLC v. Icon
Health & Fitness, Inc., 134 S. Ct. 1749 (2014). This had
allowed patent owners to bring borderline frivolous in-
fringement actions without risk.

The combination of easily-obtained business method
patents and the lack of consequence for even highly ques-
tionable lawsuits in large part facilitated the industry of
“patent assertion entities.” Their patent infringement ac-
tions are often in fact unsuccessful, with one study finding
that high-volume patent asserters, those whose patents
were litigated eight or more times in a nine-year period,
lost almost 90% of the time when their cases were fully
litigated. See John R. Allison et al., Patent Quality and
Settlement Among Repeat Patent Litigants, 99 Geo. L.J.
677, 681 (2011).

But patent assertion entities need not rely on success
on the merits; they can leverage the cost of litigation as a
weapon to extract settlements before reaching the merits.
Wrote one commentator: “It is not uncommon for settle-
ment demands to be in the range of $100,000 or $250,000,
even though the cost of litigating the case for an accused
infringer would be close to one million dollars per year.
Sometimes the demands are as low as $5,000 or $10,000.”
David L. Schwartz, The Rise of Contingent Fee Repre-
sentation in Patent Litigation, 64 Ala. L. Rev. 335, 370
(2012). The misguided Brooks Furniture rule thus helped
to establish the dubious “industry . . . in which firms

25

use patents ... primarily for obtaining licensing fees.”
Commil USA, LLC v. Cisco Sys., Inc., 135 S. Ct. 1920,
1930 (2015) (quoting eBay, 547 US. at 396 (Kennedy, J.,
concurring)).

Experience with utility patent assertion should in-
form this Court’s expectations about design patent asser-
tion: where a rule of law affords an opportunity for abu-
sive litigation, there are those willing and able to avail
themselves of that rule in short order. Indeed, the pos-
sibility of disproportionately large total-profit damages
makes design patent assertion appear even more attrac-
tive than utility patent assertion, where a proportionality
requirement has long been in place.

And experience shows that time is of the essence. Or-
dinarily it might take years or decades before this Court
or Congress has an opportunity to deal with harm already
done by a misguided rule of patent law. But in this case
this Court can avoid the bulk of the harm in the first in-
stance by reversing a misguided rule ab initio.

IV. SECTION 289 SHOULD BE INTERPRETED IN A
WAY THAT AVOIDS SERIOUS CONSTITUTIONAL
DOUBTS

Besides being bad policy, the Federal Circuit’s inter-
pretation may raise constitutional doubts, specifically be-
cause an absolute “total profits” rule can result in exces-
sively high and disproportionate damages awards that
could violate the Fifth Amendment.” Correcting that
interpretation may thus avoid a potential constitutional

quagmire.

- 1The Federal Circuit’s interpretation also runs afoul of the Patent
Clause, as explained in Petitioners’ brief. See Br. Pet’rs 38-39.

26

A. DUE PROCESS MAY DISALLOW CERTAIN
EXCESSIVELY HIGH DAMAGES AWARDS

That the Due Process Clauses of the Fifth and Four-
teenth Amendments prohibit “excessive” and “wholly
disproportionate” damages is a longstanding principle of
this Court."*

A long arc of cases confirms that due process con-
strains damages awards to bear some relationship to the
harm caused. Waters-Pierce Oil Co. v. Texas held that
civil penalties could be unconstitutional where “the fines
imposed are so grossly excessive as to amount to a de-
privation of property without due process of law.” 212
U.S. 86, 111 (1909). Similarly, St. Louis, Iron Mountain &
Southern Railway Co. v. Williams suggested that a statu-
tory penalty could “transcend the limitation” of the Four-
teenth Amendment “where the penalty prescribed is so
severe and oppressive as to be wholly disproportioned to
the offense and obviously unreasonable.” 251 U.S. 63, 66-
67 (1919) (citing Waters-Pierce Oil, 212 U.S. at 111).

Though Waters-Pierce Oil and St. Louis ultimately
found no due process violation on their respective facts,
this Court did find such a violation in Southwestern Tele-
phone & Telegraph Co. v. Danaher. There, a state had
levied a relatively large civil penalty against a telephone
company that had disconnected one of its users for insuf-
ficient payment. See 238 U.S. 482, 485-86 (1915). Particu-
larly given its finding of “no intentional wrongdoing,” this
Court held that the penalty “was so plainly arbitrary and

‘4 Although patent law, as federal law, is governed by the Due Pro-
cess Clause of the Fifth Amendment rather than that of the Four-
teenth Amendment, the standards appear not to differ. See, e.g.,
Reno v. Flores, 507 U.S. 292, 301 (1993); Deshaney v. Winnebago
County Dep't of Soc. Servs., 489 U.S. 189, 196 (1989).

27

oppressive as to be nothing short of a taking of its prop-
erty without due process of law.” See id. at 491. Danaher
thus stands for the proposition that a “plainly arbitrary
and oppressive” recovery rule can violate due process.’°
See generally Sheila B. Scheuerman, Due Process Forgot-
ten: The Problem of Statutory Damages and Class Ac-
tions, 74 Mo. L. Rev. 103 (2009).

More recent cases have held that proportionality be-
tween damages and injury is required in the context
of punitive damages. In 7’XO Production Corp. v. Al-
liance Resources Corp., 509 U.S. 443 (1993), a plurality
of this Court relied on Waters-Pierce Oil, St. Louis, and
Danaher to determine that “the Due Process Clause of
the Fourteenth Amendment imposes substantive limits
‘beyond which penalties may not go.’” 7'XO, 509 U.S. at
453-54 (quoting Seaboard Air Line Ry. v. Seegers, 207
U.S. 73, 78 (1907)).

That principle was followed in BMW of North Amer-
ica v. Gore, which held that the Fourteenth Amendment
“prohibits a State from imposing a ‘grossly excessive’ pun-
ishment on a tortfeasor.” 517 U.S. 559, 562 (1996) (cita-
tions omitted); see also Cooper Indus., Inc. v. Leather-
man Tool Group, Inc., 5382 U.S. 424, 434 (2001). Thus,
“punitive damages may not be ‘grossly out of proportion
to the severity of the offense.’” 517 U.S. at 576 (quoting
TXO, 509 US. at 453, 462); see also Cooper Indus., 532
U.S. at 435; United States v. Bajakajian, 524 US. 321,
334 (1998); State Farm Mut. Auto. Ins. Co. v. Campbell,
538 U.S. 408, 1152 (2003).

‘It is noted that Danaher specifically did not declare unconsti-
tutional the overall statute disallowing discriminatory disconnec-
tion, but rather only found the statutory penalty to be insufficiently
grounded. See id. at 490.

28

Indeed, a rule allowing excessive damages can even
fail procedural due process. Philip Morris USA v.
Williams considered a punitive damages award that was
apparently premised largely on injury to third parties
similarly situated to the plaintiff but not parties to the
action. See 549 U.S. 346, 350-51 (2007). Noting initially
that “the Constitution imposes certain limits, in respect
both to procedures for awarding punitive damages and to
amounts forbidden as ‘grossly excessive,’” Philip Morris
held that the Fourteenth Amendment “forbids a State to
use a punitive damages award to punish a defendant for
injury that it inflicts upon nonparties.” /d. at 353. Thus,
where a damages award goes beyond compensation for
the harm to the party itself, there is a potential problem
of procedural due process.

Accordingly, damages that are excessive and dispro-
portionate in relation to a defendant’s wrongdoing or to
the amount of harm caused to the plaintiff can violate con-
stitutional due process guarantees enshrined in the Fifth
and Fourteenth Amendments.

B. A TOTAL PROFITS AWARD, IRRESPECTIVE
OF ACTUAL HARM, POTENTIALLY VIOLATES
THESE DUE PROCESS PRINCIPLES

In adopting a construction of § 289 that awards the
plaintiff all of the defendants’ profits on a product when
that product contains only a small infringing element, the
Federal Circuit has opened the door to damages awards
that may be unconstitutionally high.

1. Where the infringing element comprises a minor
contribution to an overall product and has a null or neg-
ligible effect on the product’s profits, such awards may
be “grossly out of proportion to the severity of [the de-

29

fendant’s] offense,” Gore, 517 U.S. at 575, and dispropor-
tionate to the harm caused by the defendant’s wrongdo-
ing, see id. at 580-81. Indeed, much like Philip Morris’s
concern with damage awards going beyond the “harm po-
tentially caused the plaintiff,” 549 U.S. at 354 (emphasis
in original), a sufficiently large gap between patented fea-
ture and total product value can cause a total profit award
to go far beyond harm to the patentee, beyond even valid
deterrent and punitive concerns, into the domain of con-
stitutional excessiveness.

The Federal Circuit’s reading of § 289 is worse from a
due process perspective than the punitive damages situ-
ations of Gore and its progeny. With punitive damages, a
judge or jury has discretion to make a reasonable award.
But under § 289, an infringer “shall be liable” for total
profits—even if a judge or jury believes a lesser amount
is warranted. See note 3 supra p. 6 (discussing Nordock,
Inc. v. Sys. Inc., 803 F.3d 1344, 1354 (Fed. Cir. 2015)).

Additionally, punitive damages require a showing of
culpability, in contrast to the Federal Circuit’s interpre-
tation of § 289. So a defendant may be liable for a dispro-
portionately large award even without the “degree of rep-
rehensibility” contemplated in Gore. See 517 U.S. at 575-
78. For example, the defendant may have independently
invented the patented design, or the defendant may rea-
sorably believe that an element is functional and there-
fore not covered by a valid design patent.

And to a certain degree, the total profits rule actually
acts punitively. Compensatory damages “are intended to
redress the concrete loss that the plaintiff has suffered by
reason of the defendant’s wrongful conduct.” Campbell,
538 U.S. at 416 (citing Cooper Indus., 5382 U.S. at 432
(citing Restatement (Second) of Torts § 903, at 453-54

30

(1977))). Damages consisting of a defendant’s “total prof-
its” awarded under § 289 can far exceed the amount nec-
essary for compensation of the injured plaintiff.

If a court were to “make an award of profits which
have been shown not to be due to the infringement,”
it would be “not to do equity but to inflict an unau-
thorized penalty.” Sheldon v. Metro-Goldwyn Pictures
Corp., 309 U.S. 390, 405 (1940) (emphasis added); see also
Restatement (Third) of Restitution and Unjust Enrich-
ment § 42, cmt. h (2011) (“[D]isgorgement in excess of
net gain would be punitive, as would disgorgement of
gains derived from legitimate sources.”). By construing
§ 289 to require an award based on the whole consumer
product, the Federal Circuit’s rule would award profits
“shown not to be due to the infringement” and would
thereby “inflict an unauthorized penalty” potentially con-
flicting with this Court’s jurisprudence.

Accordingly, there is good reason to believe that Gore
and its progeny would be applicable to § 289. Indeed,
commentators have observed that this Court “has ap-
plied due process excessiveness reviews to a wide vari-
ety of sanctions—not just to punitive damages, but also
to civil fines, forfeitures, criminal penalties, and other de-
privations of liberty or property.” Pamela Samuelson &
Tara Wheatland, Statutory Damages in Copyright Law:
A Remedy in Need of Reform, 51 Wm. & Mary L. Rev.
439, 492 (2009). That is because the larger principle,
which reconciles Gore, Waters-Pierce Oil, and Danaher,
is that a legal or equitable award must show at least
some reasonable relationship to the injury being reme-
died, for that award to pass muster under the Due Pro-
cess Clause. There is potentially no such reasonable re-
lationship where the actual injury relating to a small

31

patented design feature is minimal and yet profits on a
complete product are enormous.

2. Rejection of the Federal Circuit’s interpretation
of § 289 also comports with the underlying motivations for
the aforementioned cases. Concerns of fairness underlie
those holdings that due process disfavors grossly exces-
sive damage awards. Gore referred to “[e]lementary no-
tions of fairness” and to “fair notice . . . of the severity of
the penalty” in arriving at its rule against grossly exces-
sive punitive damages. 517 U.S. at 574-75.

The potentially excessive nature of the Federal Cir-
cuit’s interpretation of § 289 may similarly raise funda-
mentally important concerns of fairness to the defendant.
It is unfair because the entire profits of a complex de-
vice of many components, built by the hard work of nu-
merous designers, developers, and engineers, are handed
to a single design patent holder, ignoring the substantial
contributions of the defendant and many other creators.
Thus, where the disparity between the value of the de-
sign patent (and therefore, the harm to the plaintiff) and
the amount of the “total profits” is high, these awards will
serve not to compensate the plaintiff for its losses, but
rather will represent a windfall to the patent holder and
an unexpected total loss to the product manufacturer.

The Federal Circuit’s reading of § 289 thus creates a
potential and concerning conflict with the constitutional
command of due process.

C. ALTERNATIVE INTERPRETATIONS OF SECTION
289 Avorip THESE CONSTITUTIONAL DOUBTS

“{I)t is well established that if a statute has two pos-
sible meanings, one of which violates the Constitution,
courts should adopt the meaning that does not do so.”

32

Nat'l Fed’n of Indep. Bus. v. Sebelius (“NFIB”), 132 S. Ct.
2566, 2593 (2012). Indeed, “even if a serious doubt of con-
stitutionality [of an act of Congress] is raised, it is a cardi-
nal principle that this Court will first ascertain whether
a construction of the statute is fairly possible by which
the question may be avoided.” Crowell v. Benson, 285
U.S. 22, 30 (1932). Where an alternative construction is
available, courts “are obligated to construe the statute
to avoid such [constitutional] problems.” Immigration &
Naturalization Serv. v. St. Cyr, 533 U.S. 289, 300 (2001)
(citing Ashwander v. Tenn. Valley Auth., 297 US. 288,
341, 345-48 (1936) (Brandeis, J., concurring)). “[E]very
reasonable construction must be resorted to, in order to
save a statute from unconstitutionality.” NFIB, 132 S.
Ct. at 65 (quoting Hooper v. California, 155 U.S. 648, 657
(1895)).

As discussed previously, see Section I supra p. 6, the
text of § 289 is ambiguous and subject to multiple possi-
ble readings, all of which may be characterized as fairly
possible. The interpretation proposed by Petitioners is
supported by the statutory context, legislative history,
and policy aims of the patent system. By contrast, the
Federal Circuit’s interpretation raises serious questions
of constitutionality. In view of those serious questions,
this Court should reject the Federal Circuit’s construc-
tion pursuant to its preference for avoiding constitution-
ally problematic constructions and to avert future ques-
tions regarding the statute’s constitutionality.

CONCLUSION

For the foregoing reasons, this Court should reverse
the Court of Appeals.

Respectfully submitted,

CHARLES DUAN

Counsel of Record
PUBLIC KNOWLEDGE
1818 N Street NW, Suite 410
Washington, DC 20036
(202) 861-0020
cduan@publicknowledge.org

VERA RANIERI

ELECTRONIC FRONTIER
FOUNDATION

815 Eddy Street

San Francisco, CA 94109

(415) 436-9333

vera@eff.org

Counsel for amici curiae

June 7, 2016

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0640%3A33. Public record. Not legal advice.