This week on IP Matters, the never-ending Apple and Samsung battle is back with a $539 million bang! That’s the amount of damages the jury at the United States District Court for the Northern District of California said Samsung owes Apple for infringing 5 of Apple’s patents. Will this be the end of this long legal battle between Apple and Samsung? Not likely.

Apple’s case against Samsung is simple—You sold millions of smartphones containing Apple patents. Pay total profits to us.

Apple wants the whole Samsung profit paid to it as money damages.

Apple’s position is that Samsung’s act of selling the affected phones amount to patent infringement, and consequently renders Samsung liable to payment of the total profit of sale as damages. This is in accordance with section 289 of the US patent law (Code Title 35).

Section 289 provides that during the term of a patent for a design, whoever without owner’s license, does any of the two acts below “shall be liable to the owner to the extent of his total profit”:

(1) applies the patented design, or any colorable imitation from the design, to any article of manufacture for the purpose of sale, or

(2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied.

But Samsung—having been found liable for patent infringements long before now—disputes the amount of damages awarded to Apple.

Samsung contends that Apple is entitled to the profits from the specific components found to have infringed on Apple’s patent, and not the entire profit from the whole article or device.

This contention formed the basis of Samsung’s earlier appeal against a trial verdict in 2012 which awarded almost $1 billion in damages against Samsung. Though later reduced to about $548 million, Samsung challenged $399 million of the award at the US Supreme Court.

According to Samsung’s calculations, what it should pay Apple should not be more than $28 million.

Apple’s battle against Samsung is a long-drawn battle, going as far back as 2011.

The first case between Apple and Samsung was in 2011. Apple claimed that Samsung sold smartphones that infringed Apple’s designs and utility patents in the iPhone. This covered Apple’s  design patents D618,677; D593,087, and D604,305, and utility patents 7,469,381 and 7,864,163.

The D677 patent covers Apple’s iPhone’s rectangular font face with corners. The D087 patent protects a rim surrounding the bottom of the iPhone. And the D305 patent protects the shape of the grid displaying app icons on-screen. For the utility patents, US patent 7,469,381 protects a computer-implemented method for list scrolling and document translation, scaling, and rotation on a touch-screen display. US patent 7,864,163 protects a computer-generated method for portable electronic device and graphical user interface for displaying structured electronic documents.

Samsung sold 8.6 million smartphones found to have infringed on Apple’s patents above. From this sale, Samsung made $3.3 billion. But this sum represents the total profit made from selling the whole device, not specific components of the device found to have infringed on Apple’s patent.

So the question is: Does award of damages for patent infringement entitle a patent owner to total profits from sale of the infringing device or profits from the components of the device that really infringed on the patent?

In the US, award for infringement had always been determined by calculating profits from sales of the whole device. This is the position of the US patent law (Code Title 35). (More on this below.)

But a US Supreme Court decision in December 2016, the Supreme Court agreed with Samsung that payments should cover components of a device, and not the entire product.

The US Supreme Court ordered that the case be taken back to the California District Court to determine the award after considering both Apple’s and Samsung’s competing submissions.

The Jury sides with Apple; says Samsung owes Apple $539 million for selling smartphones products containing Apple’s patents.

To determine the award against Samsung, the case fell on primarily deciding what amounts to an article of manufacture as used unders section 289 of the US patent law (Code Title 35).

Apple argued that the patents affected adequately cover the entirety of Samsung’s infringing smartphones, thus rendering Samsung liable to pay total profit to Apple.

But Samsung countered Apple, maintaining that article of manufacture—in relation to Apple’s three design patents—are iPhone’s black glass, bezel or surrounding rim, display screen, and round corner. It submitted that only profits from these components are payable as money damages.

To properly determine the article of manufacture, the Jurors applied 4 rules:

1. The scope of the design claimed in Apple’s patent, including the drawing and written description;

2. The relative prominence of the design within the product as a whole;

3. Whether the design is conceptually distinct from the product as a whole; and

4. The physical relationship between the patented design and the rest of the product, including whether the design pertains to a component that a user or seller can physically separate from the product as a whole, and whether the design is embodied in a component that is manufactured separately from the rest of the product, or if the component can be sold separately.

At the end of proceeding, the jury’s verdict went against Samsung. It found that Samsung owes Apple $539 million for infringing Apple’s patents in the iPhone.

Apple is happy. Samsung is sad. But the lesson is clear: ‘Don’t infringe on IP. Get License.’

Apple will be obviously happy with the jury. It says the seven-year old case (still counting) is more than just the money.

But it’s all about the the money for Samsung, since it had been hoping to pay only $28 million for the patent infringements. So the jury’s verdict must have made Samsung the most unhappy technology company in the world. After a long legal battle that must be costing it millions of dollars, it still gets to pay over half a billion dollars in damages!

Samsung says the decision “flies in the face of a unanimous Supreme Court ruling” and “will consider all options to obtain an outcome that does not hinder creativity and fair competition for all companies and consumers.”

Though the US Supreme Court decision in December 2016 flies in the face of the wording of section 289 of the US patent law (Code Title 35), I agree with the decision. It’s a welcome interpretation of the statute. A literal interpretation of the statutory provision would not have only succeeded in punishing Samsung for the infringement, but also failed to reasonably compensate Apple for the damages suffered since the award would have amounted to a Father Christmas gift weeks before Christmas day in 2016. (Yes, reasonable compensation for damages should be a two-way consideration—just as too little would be unreasonable, so is too much!)

Three Points You Should Take Away from Apple’s Case.

1. A grant of patent gives the patentee exclusive ownership of a patented object. With a patent, you are the boss. By having a patent, you exclusively control sale, use, importation, and manufacturing of the patented object. Here, Apple has patents covering certain aspects which include rim of iPhone’s front face, mobile design e.g rounded corners, and iOS home screen’s  app-grid layout. Any company that wished to use any of these patented innovations must get a license, otherwise that company risks a lawsuit.

2. In the US, there is a distinction between design patents and utility patents. The US Patent and Trademark Office (sometimes called “the PTO”) grants design patents and utility patents. While a design patent protects the way an article, device, or object looks or protects its ornamental design, a utility patent protects both the way an article, device, or object is used and the way it works and protects a method or process of making or doing something. In Nigeria, protection of ornamental designs fall under industrial designs.

3. Unauthorized sale, use, importation, or manufacturing of a patented product amounts to infringement and this makes the patentee entitled to profits earned from the infringement. As can be seen in Apple’s claim against Samsung, an infringer is liable to pay profits made from an infringement to the patentee. The only issue in Apple’s case is how much Apple is entitled to—profits made from the components of Samsung’s smartphones that infringed on Apple’s patents or total profits from the sale of the whole phone. So when you are selling unlicensed patent, you may be doing business for the true owner, not for your shareholders! Someday, the true owner will demand you pay all profits to it. Steer clear of unlicensed intellectual property!

Three Lessons Businesses Need to Take Away from the Apple-Samsung Battle

1. Prevention is better than cure. A business should get a license for components needed for its products. Of course you can make fast, fine-smelling mint from infringing on a big competitor’s IP, but don’t bank on it. At a time the Apple iPhone was becoming the hottest and most expensive smartphone in the mobile-phone market, Samsung smelled the cheese. Rather than paying Apple for license—which I doubt Apple would have made easily available to Samsung—Samsung decided to invest in R&D to build the same technology. Under patent law, you are not allowed to make, import, use, or sell a technology that is already patented. And it’s immaterial that you built it independently. Samsung made over 3 billion dollars from it but not without getting its fingers burnt in the process. (Indeed, one of the issues in Apple’ s case was if Samsung could deduct R&D investments from the final damages.)

2. In today’s highly competitive and disruptive economy, technology companies must be agile, flexible, and innovative. You can’t be an island in the today’s technology market, otherwise you will end up an islander in the consumer market. I will show why. Today’s electronic and mobile devices are mostly made up of small components numbering up to hundreds, typically owned by different manufacturers. You can’t do it alone. So focus on your Unique Selling Proposition (USP), understand the technologies you will need to build your product on, map out your market, know your competitors, invest in your brand, and continually innovate. If you get your penetration and growth strategies wrong, you will most likely infringe IP.

3. Be smart with the use of third-party technology. As a long-term solution, invest in your IP strategy. Know exactly the worth of every component of your product. Know exactly what each component brings to the table. And know the numbers—costs and profit margins. Also, keep a good accounting system. Keep a good contract system. And keep all records intact and safe. If or when issues arise, you will not be overwhelmed or allow lawyers on the other side determine what their client’s technology is worth to you. In this case, Apple had calculated what its technology was worth to Samsung, but Samsung did its best to prove it was much less, relying on its own accounting system and records. Run your business; don’t let your business run you. When your business runs you, sooner or later it will run you over. Having an IP strategy will make your business an IP business in your core market, not an IP infringer, fighting for less damages after the damage has been done.

In IP Matters, it’s never too early because IP matters to business and development, any day.