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Apple’s Infamous Rounded-Corners Case May Actually End Up Encouraging Patent Trolls

A federal court may have introduced a new dimension to the patent troll debate last week by highlighting a subtle but significant distinction within U.S. patent law.

Both the House and the Senate have introduced bills in recent months designed to discourage abusive patent litigation, known as “patent trolling,” in response to claims that frivolous patent cases discourage innovation and force U.S. businesses to spend billions of dollars every year defending themselves in court.

The main offenders are non-practicing entities — organizations that amass patent portfolios for the purpose of collecting licensing fees or filing infringement claims rather than to put the patents to productive use — and some experts worry that last week’s ruling could inspire them to step up their efforts. (RELATED: Republicans Vow to Take On Patent Trolls in Next Session)

On May 18, the U.S. Court of Appeals for the Federal Circuit overturned part of a 2012 jury verdict requiring Samsung to pay $930 million in damages for copying the “rounded corners” design of Apple’s smartphones, but upheld the jury’s decision to calculate damages for the remaining claims based on the total value of the phone.

Specifically, the ruling rejected Apple’s claims that Samsung had violated “trade dress” while affirming that Samsung had infringed on “design” and “utility” patents. (RELATED: China Declares War on US Intellectual Property, Gets Into the Patent Trolling Business)

Both trade dress and design patents apply to ornamental, nonfunctional elements of a product, but while design patents are subject to a 14-year limit, trade dress is essentially equivalent to a trademark in that it never expires. Utility patents, which are by far the most common variety, protect the functional elements of a product.

The Federal Circuit reasoned that features such as “a rectangular product with four evenly rounded corners” have certain functional utilities — rounded corners, for instance, make a phone easier to insert and remove from a pocket — and therefore are not eligible for the perpetual protection of a trademark because that would have anti-competitive effects.

In accepting the jury’s judgment that Samsung had violated design patents, though, the court set a precedent that could potentially make frivolous patent litigation even more costly.

“Design patents are a lot more attractive on a lot of fronts after yesterday,” Sarah Burstein, a law professor at the University of Oklahoma, told Fortune. “Now, design patents are even more important if you’re litigating.” (RELATED: Reform Bill Takes Aim at Patent Trolls, Pisses Off Conservatives Instead)

As the judges explain in their ruling, design patents are governed by an 1887 law that requires an infringer to compensate the owner “to the extent of his total profit.” The penalty for infringing on a utility patent, in contrast, is limited to compensation for damages directly attributable to the specific violation.

According to intellectual property activist Florian Mueller of the Foss Patents blog, this distinction means that, “the infringement of a single design patent by a multifunctional product implementing numerous design and utility patents could entitle the right holder to a disgorgement of an infringer’s entire profits.”

The judges acknowledged that a brief had been filed by 27 law professors arguing that the 1887 law “makes no sense in the modern world,” but said they were bound by statute and that policy arguments must be taken up with Congress. (RELATED: Intra-Conservative Debate Over Patent Reform Heats Up)

The biggest risk, according to Fortune, is that non-practicing entities could begin stockpiling design patents to increase the likelihood that the targets of frivolous infringement claims will offer to settle rather than take the risk, however miniscule, of losing all of their profits in court.

John Marshall Law School professor Daryl Lim issued a similar warning in a blog post for Real Clear Policy, saying patent trolls “may soon capitalize on design patents as they have on utility patents, spurring companies to stockpile design patents to preserve their freedom to operate.”

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