Today the Supreme Court found an ambiguity in the Patent Act, reversing Apple’s $399 million infringement award against Samsung.

In the ongoing international litigation war between Apple and Samsung,  Apple prevailed at the trial court level on a design patent infringement case regarding Apple’s rounded corners and user interfaces. Apple was awarded $399 million, representing Samsung’s total profits from sales of the infringing smartphones. Samsung appealed that Apple was only entitled to the profits based on the infringing aspects (the corners and interfaces) not the profits from the entire phone. The Federal Circuit disagreed, affirming the Apple award. In its appeal to the Supreme Court, Samsung ridiculed the lower court’s ruling, arguing that under the Federal Circuit’s logic “profits on an entire car – or even an eighteen-wheel tractor trailer – must be awarded based on an undetachable infringing cup-holder.”

The Supreme Court Decision

Justice Sotomayor, writing for a unanimous court, agreed with Samsung, finding that “the term ‘article of manufacture’ [in Section 289 of the Patent Act] is broad enough to embrace both a product sold to a consumer and a component of that product.” The Court acknowledged that the parties asked “us go further and resolve whether, for each of the design patents at issue here, the relevant article of manufacture is the smartphone, or a particular smartphone component.” But the Court punted: “Doing so would require us to set out a test for identifying the relevant article of manufacture at the first step of the §289 damages inquiry and to parse the record to apply the test in this case.” Instead, the Court remanded the case back to the Federal Circuit.

What’s Next?

So the Federal Circuit is tasked with determining (A) the proper test for whether, with regards to Samsung’s smartphones, the “article of manufacture” are the infringing components or the entire smartphone, and then (B) to calculate the proper amount of damages associated with the article of manufacture.

Patent Infringement Litigants (Their Attorneys and Damages Experts) Must Hold Their Breath

Like gamblers on a sporting event over which they have no control, parties litigating patent infringement actions can only hold their collective breath and wait to see which test the Federal Circuit devises and whether the test is pro-plaintiff or defendant. Undoubtedly, the losing party (Apple or Samsung) will argue the Federal Circuit got it wrong, and ask the Supreme Court for a do-over.

In the past couple years, there have been several consumer class action lawsuits filed against alcohol beverage makers claiming that their labels or marketing campaigns are false or misleading. Several lawsuits have been filed against distilled spirits makers alleging that the use of the terms “handmade” or “handcrafted” was misleading consumers. Similarly, MillerCoors was sued in a California state court action alleging that it was misleading the public by marketing Blue Moon beer as a craft beer. And this past August, Diageo, the makers of Red Stripe beer, was sued in a suit alleging that it failed to fully disclose that the beer was brewed in Pennsylvania, rather than Jamaica.

These suits are part of a larger trend of consumer class action cases filed against food and beverage makers claiming that terms used in labels or marketing materials are false or misleading. The early cases tended to focus on the use of the terms “natural” or “nature” which is not defined under federal labeling statutes. But the more recent suits against alcohol beverage makers are based on other allegedly misleading practices.

What is “Handmade” Alcohol?

After much early publicity, these “handmade” lawsuits seem to be dying a slow death. In May 2015, Judge Robert Hinkle of the Northern District of Florida dismissed a suit against Beam Suntory and its Maker’s Mark Distillery alleging that the use of “handmade” in labeling and marketing materials mislead the public. See Salters v. Beam Suntory, 2015 WL 2124939 (N.D. Fl. May 1, 2015). And in August, a federal court in California dismissed a similar suit against Maker’s Mark. Welk v. Beam Suntory Import Co., et al, Case No. 3:15-CV-00328 (S.D. Cal. August 21, 2015) (Dkt. No. 17) (“[a] reasonable consumer wouldn’t interpret the word ‘handcrafted’ on a bourbon bottle to mean that the product is literally ‘created by a hand process rather than by a machine.’”) Most recently, on September 23, 2015, Judge Hinkle also dismissed most of the “handmade” claims filed in a similar suit against Fifth Generation, the maker of Tito’s Handmade Vodka. Pye v. Fifth Generation, Inc., Case No. 4:14-CV-00493-RH-CAS (N.D. Fla. Sept. 23, 2015).

In the first Florida action against Maker’s Mark, Judge Hinkle found that “no reasonable person would understand ‘handmade’ in this context to mean literally by hand. No reasonable person would understand ‘handmade’ in this context to mean substantial equipment was not used.” Salters v. Beam Suntory, 2015 WL 2124939 (N.D. Fl. May 1, 2015).  He dismissed the claims “with prejudice” meaning they cannot be brought again against these defendants. And in the Florida action against Tito’s Handmade Vodka, Judge Hinkle stated that “the term [handmade] obviously cannot be used literally to describe vodka. One can knit a sweater by hand, but one cannot make vodka by hand. Or at least, one cannot make vodka by hand at the volume required for a nationally marketed brand like Tito’s. No reasonable consumer could believe otherwise.”

Notably, in the Florida Maker’s Mark decision, Judge Hinkle also seemed to distinguish the use of “handmade” by craft breweries (in addition to knitters) versus the use of the term by bourbon makers, stating that “[i]f ‘handmade’ is understood to mean something else – some ill-defined effort to glom onto a trend toward products like craft beer – the statement is the kind of puffery that cannot support claims of this kind.” Salters, 2015 WL 2124939 at *3.  That could mean that the use of “handmade” by craft breweries is legitimate and not misleading, or that the term is so ill-defined that even a bourbon maker can use “handmade.” Or both.

As to the Florida suit against Tito’s Handmade Vodka, a claim for negligent misrepresentation still remains, but not regarding the use of the term “handmade.” Rather, Judge Hinkle found that the complaint’s allegation that the vodka was not made in “an old fashioned pot still” (as stated on the vodka’s label) was sufficient to state a claim for breach of an express warranty. Pye v. Fifth Generation, Inc., supra.

And in a similar California federal suit against Tito’s, Judge Jeffrey Miller dismissed the plaintiff’s statutory false representation claims on the grounds that the plaintiff had failed to allege that the plaintiff (and class members) would not have bought the vodka had they known it was not “handmade.” Hofmann v. Fifth Generation, Inc., 14-cv-2569, Dkt. No. 15 (S.D. Cal. Mar. 18, 2015)). However, as to the plaintiff’s negligent misrepresentation claim, the Court did not dismiss this tort claim because the plaintiff, at least as to this claim, did allege that it bought the vodka in reliance on the claim that the product was “handmade.” This suggests that statutory claims might survive too if properly alleged. In any event, Tito’s has filed a summary judgment motion which is currently pending.

Blue Moon: What Does “Craft” Mean?

As to the widely-publicized Blue Moon case filed in California state court this summer, it is still ongoing. In that case plaintiff alleged the labeling and marketing of Blue Moon beer was misleading in part because the owner of the beer is MillerCoors though MillerCoors is not identified on the label; rather, the label says “Blue Moon Brewing Company.” The marketing of the product is such that “MillerCoors” is never or hardly mentioned.

Social media users were critical of the lawsuit, and craft beer aficionados expressed incredulity that anyone really believed that Blue Moon was made by a small craft brewery. Nonetheless, there is probably some segment of craft beer buyers, perhaps those that are not yet craft beer aficionados, who are unaware of the corporate ownership of Blue Moon and who prefer to buy beer made by a small craft brewery rather than a huge macrobrewery like MillerCoors or Anheuser-Busch InBev (whether or not a class of such people could be legally ascertained is another question). While many consumers may not care if their ketchup is made by a local ketchup maker, certain craft beer buyers may care about where their beer is brewed.

So there may be some amount of “deception,” but is that deception material, and does it go beyond the “deception” that is inherent in much product marketing? That’s harder to say.

That question becomes even harder as there have been more and more acquisitions of craft breweries in the past year. Anheuser-Busch has bought several craft breweries this past year including Elysian Brewing, Ten Barrel Brewing, and recently Golden Road Brewing. This past month MillerCoors acquired Saint Archer Brewing of San Diego. And in the mother of all beer deals, Anheuser-Busch is even trying to acquires SAB Miller, which is a partner with Molson Coors in the U.S. joint venture MillerCoors (though such a deal will likely result in a divestment of the Miller brand in the United States).

For the past few years, the national Brewers Association has called for transparency in labeling, including in identifying ownership. See Transparency in Labeling (“Consumers have an interest in knowing the name of the brewing company or parent corporation that ultimately owns the beer brand”). That is a laudable goal. But is the failure to identify corporate ownership “false” or “misleading” under current false advertising law?

This is somewhat analogous to the controversy over contract brewing in the industry. Back in the mid-1990s, when craft brewing was experiencing a growth spurt, a Dateline television program portrayed Boston Beer Company (Samuel Adams) in a negative light because much of Samuel Adams beer was contract brewed by another brewery. The implication was that Boston Beer was misleading the public, and this cast the craft brewing industry in a negative light.

But there is a difference between a craft brewer using contract brewers in order to meet demand versus a macrobrewery trying to portray a beer as “craft.” In the former case, the craft brewer may not have the capital to buy enough tanks, fermenters, and other equipment to meet demand, and contract brewing allows the brewer to get started, to ramp up production to generate more revenue which then allows the brewer to buy his/her own equipment. And that is exactly how many craft breweries were able to grow. In the latter case, a macrobrewery has the resources, but is simply trying to portray its beer as a “micro” beer or craft beer.

Many beer experts and fans will state that all that should really matter is how the beer tastes. They also point out that Blue Moon beer and its brewer, Keith Villa, do have craft origins even though it was a Coors project. That is worth pointing out. Blue Moon is not Shock Top (which does identify Anheuser-Busch on the label but is not hailed by anyone as having any “craft” roots). But in this day and age, an increasing number of consumers do care about who is brewing their beer or producing their food. These consumers want to know if their money is going to a large conglomerate with headquarters overseas, or to a local or small company. Taste matters, but so does origin.

Nonetheless, the Blue Moon suit may meet the same fate as other food and beverage false labeling suits – eventually dismissed due to federal preemption or the primary jurisdiction doctrine, or may settle. Perhaps a settlement might require MillerCoors to add the “MillerCoors” name to the label and/or to the Blue Moon website in the future.

Your Imported Beer Is Made In the U.S.A.

The geographic-origin beer labeling suits have mostly settled. A lawsuit against Kirin Beer, which is brewed and distributed by Anheuser-Busch in the United States rather than Japan, was settled this past year. Anheuser-Busch agreed to print the statement “Brewed under Kirin’s strict supervision by Anheuser-Busch in Los Angeles, CA and Williamsburg, VA” on its labels. Consumers who applied to a settlement fund were also eligible to receive 50 cents for each six-pack of Kirin beer, one dollar for each 12-pack, and ten cents for each bottle or can. See Kirin Beer Settlement (the settlement claims period closed on June 15).

Anheuser-Busch settled a similar lawsuit alleging that Beck’s beer labels (also owned by AB) were misleading since the beer is not brewed in Germany. See Beck’s Beer Settlement. The amount Anheuser-Busch paid to plaintiffs’ attorneys in the case was over $3.5 million, according to the Wall Street Journal.  The suit against Red Stripe beer still pending.

Maybe this will all go away if Anheuser-Busch simply buys every brewery on the planet, then there would only be one brewery. Less lawsuits, but less filling.

All of these cases  highlight the need for beverage makers to carefully examine their labeling and advertising materials, and consider whether consumers could challenge statements made by beverage makers as being either false or misleading.  Even as these claims get dismissed or settled, the high costs of litigation make such reviews warranted.

(Note: A previous version of this article stated that AB-InBev owned, Kirin Beer.  It does not, rather it brews and distributed Kirin Beer in the United States).