A growing consensus is emerging in Washington about the necessity of reliable access to the Internet and online resources. Last week, in front of a packed auditorium in the capital of the Choctaw Nation, President Obama unveiled the ConnectHome initiative, which aims to provide high-speed internet to some 200,000 rural and low-income families. The month prior, Congressional leaders introduced the Digital Learning Equity Act, seeking to rollout greater out-of-school Internet access for students through Department of Education grants.
As the Internet has fast become the bedrock of commerce and communication, such efforts are critical to ensure a level playing field for businesses and communities, especially those in the rural pockets of the country.
Congress has been spinning its wheels trying to address utility patent trolls, yet they’re ignoring the looming threat of design patent trolls that have seen a catalyst from recent court decisions. Specifically, recent interpretations of Section 289 of the U.S. patent code have opened the door for businesses and individuals to seek outsized settlements for design infringements, which could further incentivize patent trolling and predatory patent litigation.
In May of this year, without any analysis of the importance of the patented designs, the Federal court ruled that an entity that infringes on a patented design could be held liable for all the profits earned from the product in which the design is incorporated. This can lead to the absurd scenario in which an unwitting infringer could be forced to pay their full profits several times over if they intrude on more than one protected design. Given that many products, especially high-tech devices incorporate numerous patented components, the outcome is untenable.
Consider, for example, a situation in which the manufacturer of a tractor might be forced to pay all his or her profits from the equipment because it infringed on a patent covering the design of the fender. The manufacturer might then be required to pay the same amount to a second patent holder with the rights to the wheel design. It quickly becomes a race of who can bleed them dry first.
This multiple damage scenario is particularly likely to occur when a single product contains different patented features held by several owners. It’s not difficult to see how soon the tractor manufacturer has little incentive to produce the equipment at all.
The potential infringement claims don’t stop at the manufacturer. It can trickle down to the store selling the tractor as well as tractor owners – who frankly aren’t purchasing tractors based on fender or wheel design, yet could be paying large sums for operating the infringing machinery. This domino effect is thanks to the “make available for sale” provision in Section 289, which shares blame with those selling an allegedly infringing a product. Under this interpretation, if a farm operator purchased equipment or tools that have infringing design patents on them online from a company like eBay or Amazon, does this then make eBay or Amazon liable for “exposing the sale” of products that infringe on design patents, even if for a minor feature? If this is the case, this will have a chilling effect on these necessary business models that provide rural customers access to a wide range of products difficult to obtain locally.
The dilemma is particularly troublesome for technology providers, and thereby for the individuals who rely on the devices they create to access the Internet. A recent Pew Research study found one in five American adults rely on their smartphone as their primary, and often only, access to the internet. In rural parts of the country still lacking adequate broadband infrastructure, it’s not uncommon that a smartphone serve as their sole connection to the Internet. Barriers that hamper development of new devices obstruct their access to online resources.
Because smartphones and other modern appliances utilize many patented technologies – the iPhone, for example, hundreds of patented elements – developers face the risk of paying out their full profit for intruding only a few discrete features, as was a court’s decision in a recent case between Apple and Samsung. With such sizable consequences, companies may well forego developing new technologies for fear it will end up costing them.
Simply put, infringement penalties should fit the scope of the infringement. One wouldn’t expect the tractor manufacturer to give up all his or her profits because of a bumper design. That shouldn’t be the case in the U.S. technology markets either.
As early as late nineteenth-century, the National Grange has advocated the risks in design patent law. In 1879, our organization cautioned about emergence of “patent sharks,” some of earliest predatory patent abusers, which patented designs on crowbars, hoes and other tools and then demanded to be paid by others in the agricultural industry. In the Apple-Samsung case [CLICK HERE TO VIEW BRIEF], the National Grange filed an Amicus brief urging the court to reconsider the outsized $399 million penalty imposed because the ruling’s implications for modern day tools – tools that are helping to close the digital divide.
In response to the courts’ failure to curb patent litigation abuse, for the past year, Congress has been debating various patent reforms. In the case of design patents, it looks like the court has again failed to interpret the law reasonably and indeed laid the groundwork for additional frivolous litigation. While we filed a brief calling on the Court to revisit this issue, if Court denies a rehearing or fails to set a reasonable standard for the award of total profits, Congress should turn some attention to the issue of design patents and provide much-needed guidance to the courts.