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November 1, 2016

What Do Cheerleader Uniforms and Smartphones Have in Common?

By Lynda J. Oswald & Dan Cahoy, The Conversation

Cheerleader uniforms, with their bright colors and striking patterns, are intended to arouse school spirit and showcase athletic prowess. This seems a world apart from the technologically sophisticated field of smartphones, which allow us to find obscure information, socially interact and transact business while on the go.

But these two consumer products have one key feature in common. They both embody an essential aspect of what makes modern products successful: design.

Consumers are increasingly attracted to distinctive design over functionality in products as diverse as coffee pots and ride-sharing apps. The growing importance of innovative design in functional products is causing businesses to claim protection of their intellectual property (IP) rights in ways that stretch the limits of existing law.

In view of the changing consumer marketplace, it is not surprising that cheerleader uniforms and smartphones are before the Supreme Court this term. These two cases may reshape our current boundaries of intellectual property law, altering the choices that consumers have in the marketplace and the manner in which businesses compete.

As business law professors specializing in the impact of patent law on business strategy with a combined 35 years’ experience teaching intellectual property law to future managers, we were intrigued by the question of IP design protection that appears in these two seemingly dissimilar cases. This is precisely the type of emerging legal issue that successful businesses must identify early and craft strategies to address.

Design vs. utility

Traditionally, the mainstay of American intellectual property protection has been utility patents.

These are very strong but limited (in terms of time and subject matter) property rights issued by the United States Patent and Trademark Office to protect useful inventions. Many of the features of your smartphone, for example, are covered by utility patents (whether owned by the manufacturer or licensed from another company).

Design patents, copyrights and trademarks, on the other hand, are available to protect aesthetic features, but only to the extent that those features are not functional. The Patent Act, for example, draws a clear distinction along these lines between utility and design patents. The Copyright Act extends copyright protection only to those design features that are independent and separable from “the utilitarian aspects of the article.” In the trademark area, a 2001 Supreme Court decision confirmed that functional designs may not receive a federal trademark registration.

This functional/nonfunctional divide means that there can be no overlap between utility patents and the other forms of intellectual property protection. However, design patents, copyrights and trademarks can overlap and be used creatively by businesses to ensure maximum legal protection. The classic Coca-Cola bottle, for example, was originally covered by a design patent and is now trademarked. Similarly, the iconic Dam Troll doll was originally protected through both design patent and copyright.

The Supreme Court steps in

Consumer electronics titan Apple is pursuing a design patent infringement case against rival Samsung Electronics for alleged theft of its smartphone inventions and designs.

According to Apple, its elegant iPhone shape and distinctive graphical icon display was copied by Samsung in an attempt to free-ride on Apple’s success. Samsung responded that its decision to incorporate similar design elements was dictated by the function of a smartphone and need for it to fit in a pocket.

Samsung lost at trial in 2012 and was assessed damages of over US$1 billion (later reduced). The part of the case related to Apple’s design patents was appealed to the Supreme Court. The question for the court was whether Apple’s damages should be based on sales of the entire, functional phone or just the value added by aspects of the design embodied by Apple’s patents (the rounded, rectangular shape and distinctive screen icons).

Fundamentally, the case is about the need to separate – and value – consumer interest in the functional from the aesthetic. Samsung Electronics Co. v. Apple was heard by the Supreme Court on Oct. 11, with the decision expected later this term.

In Star Athletica v. Varsity Brands, athletic wear producer Varsity is seeking to protect its distinctive cheerleading uniform designs through copyright law. Varsity routinely registers its stripes, chevrons and color block designs with the U.S. Copyright Office. When Varsity discovered that a competitor, Star Athletica, was selling uniforms with similar designs, it sued. Star Athletica countered that these design features are inseparable from the function of cheerleader uniforms.

Although this dispute appears straightforward – is one firm profiting from the theft of another’s creativity? – the framework for deciding is actually quite elusive (or, in the words of the lower appellate court, “the law in this area is a mess”). If we give Varsity too much control over the basic design elements of sports uniforms, how will other companies be able to compete and offer a choice to consumers? But if we don’t protect Varsity’s interest in its designs, what incentives does it have to continue to innovate and create?

The Supreme Court will hear oral argument in the case on Oct. 31.

The blurring of form and function

Is it a coincidence that the Supreme Court is deciding two cases involving intellectual property protection of design in a single term?

This is the first design patent case heard by the court in over 100 years. And it is the first time the court has looked at copyright in the design aspects of functional items in over 60 years.

It’s no coincidence. Rather, the court’s docket mirrors the realities of the consumer marketplace. The literature suggests that consumers are increasingly motivated by design when making their purchasing decisions. This is particularly true when the competing products share increasingly similar functional characteristics. How a product looks, in addition to how it functions, is becoming increasingly important to consumer choice.

At the same time, businesses are finding that technological advances in production methods and materials enable them to employ more innovative designs, which further feeds consumer interest.

On the other hand, technology also enables competition. Low-cost copying and production from China and elsewhere, inexpensive contract manufacturing that permits designs to be easily sourced from parts manufacturers and low-cost 3-D printing have lowered barriers to entry. Businesses can no longer rely solely upon R&D, manufacturing skill, efficiency or first-mover advantages to protect their competitive advantage.

As a result, protection of product appearance through copyright, design patents and trademark is of growing importance to consumer product industries. The lower courts are seeing numerous cases in this area, such as disputes over trademark rights in the design of Chuck Taylor shoes, design patent rights in inflatable lounge chairs and the copyright in a flash drive design based upon the Sims Plumbob icon.

The perils of expansive design rights

Both consumers and businesses have reason to be concerned about the ramifications of aggressive expansion of IP protection of design in functional products.

Pro-IP rights decisions by the court in Samsung v. Apple and Star Athletica v. Varsity Brands could strengthen the intellectual property rights of the first business to create (or seek to protect) a design, but at the expense of competition and consumer choice. Utility patents are expensive to obtain and maintain, subject to rigorous examination and have relatively short time limits. If companies can use more easily obtainable aesthetic design rights to avoid the deliberate legal hurdles against functional protection, they can limit competition, leading to higher prices and fewer options in the marketplace for consumers.

Unfortunately, the solution is not as simple as denying intellectual property protection to the design features of functional products. Without some protection, competitors can easily appropriate the market share earned by those who invest in innovative design.

Taken to an extreme, a complete disconnect between function and form could enable counterfeiting and piracy. This is particularly true if some consumers are willing to accept a trade-off of lower quality or functionality of a lookalike car or chair in exchange for a lower price.

Intellectual property policy represents a delicate balance between innovation incentives and competition. When that balance is disrupted or simply reset, it is everyone’s concern.

Courtesy of Lynda J. Oswald & Dan Cahoy, The Conversation

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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