The Supreme Court decided two important business cases Tuesday, ruling for Samsung in its smartphone patent infringement battle with Apple, and upholding the insider trading conviction of a man who gave a tip to his relative.
The U.S. Court of Appeals for the Federal Circuit had ruled that Samsung must pay all the profits from 11 phone models for violating several of Apple’s design patents.
The Supreme Court was interpreting for the first time in more than a century the law regarding design patents.
The statute states that a party that infringes on a design patent may be held “liable . . . to the extent of his total profit.” But it also says that such infringement occurs when the design patent is applied to “any article of manufacture.”
The federal circuit interpreted the entire smartphone as the “article of manufacture,” even though Samsung pointed out that smartphones contain more than 200,000 technologies that are not at issue.
In an opinion by Justice Sonia Sotomayor, the justices said the lower court got it wrong.
“Reading ‘article of manufacture’ . . . to cover only an end product sold to a consumer gives too narrow a meaning to the phrase,” Sotomayor wrote.
Samsung was not challenging the finding that it had infringed on the patent by copying what Sotomayor called the iPhone’s “familiar” rectangle design with rounded corners or its “colorful grid” of icons.
The issue was how much Samsung should pay for the violation. But the Supreme Court did not settle that, nor identify the particular smartphone components at issue.
The court did not receive briefing on that, Sotomayor said, so the case should return to the lower court for more work.
The case is one of several legal battles between Samsung and Apple over the lucrative smartphone market. It not only is important for the companies but also could have a significant effect on the tech industry, where design and function are key to success.
The insider-trading decision was important for federal prosecutors charged with policing Wall Street, and in considering a case of information-trading between relatives, justices ruled for the government.
Maher Kara, a former investment banker at Citigroup, gave confidential information about health-care industry mergers to his older brother, Michael. Michael bought and sold stock based on the tips and then passed the information to his brother-in-law, Bassam Salman.
Salman made a profit of more than $1 million by trading on the confidential information before being prosecuted for securities fraud. He was convicted in 2013 and sentenced to three years in prison. (Maher and Michael Kara both pleaded guilty to securities fraud in 2011 and cooperated with the government.)
Salman appealed, arguing in part that Maher Kara had not received money, gifts or any other reward in exchange for the tips.
But the Supreme Court said previous rulings made it clear that there were benefits to the disclosures that violated the law.
“Here, by disclosing confidential information as a gift to his brother with the expectation that he would trade on it, Maher breached his duty of trust and confidence to Citigroup and its clients — a duty Salman acquired, and breached himself, by trading on the information with full knowledge that it had been improperly disclosed,” wrote Justice Samuel A. Alito Jr.
The Supreme Court was settling different interpretations of the law from the U.S. Court of Appeals for the 9th Circuit in San Francisco and the 2nd Circuit in New York.
The justices said the 2nd Circuit was wrong. It had ruled in 2014 that simply receiving inside information about a company is not enough. Prosecutors had to show that the person providing the information received something tangible — such as money — in return.
After a more than eight-year crackdown on Wall Street cheating, U.S. attorney Preet Bharara was forced to toss out more than a dozen insider trading convictions over the past year. The ruling, he said, created “an obvious road map for unscrupulous investors.”