New England Biz Law Update
In the past three years, the Federal Trade Commission and the National Research Council have proposed changes to the U.S. patent system. Microsoft and Cisco and other companies have also called for patent reforms due to the perceived number of questionable patents and the perceived increase in patent litigation.
In addition, the Patent Reform Acts have been proposed in Congress and the NTP v. RIM case (regarding the Blackberry devices) further accentuated the notion of patent trolls.
It is in this climate that the Supreme Court granted certiorari in three patent cases: KSR v. Teleflex, MedImmune v. Genentech and Microsoft v. AT&T. The rulings in these cases will likely have a significant impact on technology companies.
MedImmune
The court on Jan. 9 ruled in MedImmune v. Genentech that a licensee can file for a declaratory judgment on the validity of a patent already licensed from the patent owner without having to first stop making license royalty payments and default on the license. The Supreme Court decision emphasizes the public interest in challenging questionable patents.
The holding will impact both licensees and licensors. For small or startup technology companies faced with a threatening patent, the decision makes it possible to enter into a license at a time when the cost of litigation would be prohibitive and challenge the patent later at a time when the company can afford to challenge the patent, while still paying royalty fees and avoiding the possibility of some infringement remedies.
On the other hand, after MedImmune, the future licensor, the patent holder or assignee, faces the risk of litigation. In order to counter those risks, the future licensor may either increase the license up front payment in order to obtain insurance against a later declaratory judgment of patent invalidity, may consider alternate royalty fee structures taking into account licensing know-how or alternatively, may consider litigation in lieu of license settlements.
Any one of those actions would impact the cost of obtaining a license and the generation of new business due to licenses.
KSR
In KSR v. Teleflex, the Federal Circuit held valid a claim for adjustable gas pedals (in automobiles) with electronic controls as being “unobvious.” The issue presented by KSR to the Supreme Court is whether the Federal Circuit’s “teaching-suggestion-motivation” (TSM) test is a valid test of obviousness – in other words, whether a teaching or suggestion or reason to combine is needed in order to demonstrate obviousness.
The Supreme Court visited the obviousness question in patent law in three cases from 1966 to 1976. In Graham v. John Deere (1966), the Supreme Court provided a general framework to determine obviousness. After Graham, the Supreme Court considered obviousness in Anderson’s-Black Rock v. Pavement Company (1969) and Sakraida v. Ag-Pro (1976).
In those two cases, the Supreme Court held that a combination including only old elements and which “did not produce a `new or different function’ is precluded from patentability for reasons of obviousness.” While Graham has been widely quoted, the holding in Anderson’s-Black Rock and Sakraida have not been applied.
A holding by the Supreme Court in KSR that would be contrary to the TSM test may reverse most of the present day obviousness jurisprudence (on which the present-day counter arguments to obviousness in patent prosecution are based).
Such a holding may result in a much more difficult path for obtaining a patent unless a new and different function is produced (which may result in stronger patents). This is so because most inventions consist of previously known parts.
The present safeguard against hindsight (one of the justifications of the TSM test) would be absent. This would render a large number of existing patents vulnerable to an invalidity attack for reasons of obviousness.
Another possible holding by the Supreme Court in KSR would be to make the TSM test just one factor in the obviousness analysis. A holding that uses the TSM test as one factor in the obviousness analysis will make the path to obtaining a patent a more difficult path, but not a significantly more difficult path. Such a holding would retain a large portion of the current obviousness jurisprudence.
Both of the above possible holdings would make the so-called “secondary indications” (commercial success, failure by others, etc.) of non-obviousness more important than they are today (although at present such considerations are important in appeals to the U.S. Patent and Trademark Office Board of Appeals and in court proceedings).
Microsoft
The remaining case, Microsoft v. AT&T, relates to a portion of the Patent Code (35 USC §271(f)), which creates infringement liability when one or more components of a patented invention are supplied from the United States to a location outside of the U.S. in order to incorporate the components into an infringing product covered by a U.S. patent, or use such component(s) in a process covered by such patent.
The Federal Circuit found Microsoft liable for providing software generated in the U.S. for copying abroad, where the copied software was found to infringe an AT&T patent and was copied and incorporated in product to be sold outside of the U.S.
The issues presented by the Microsoft case are (1) whether software is a “component” for the purpose of 271(f), and (2) whether copies made outside the U.S., from a master supplied from the U.S., are components supplied from the U.S.
A decision by the Supreme Court that software is not a component could weaken the protection of software by means of patent. (Some consider such a decision unlikely since the Supreme Court had declined hearing a prior case with only that issue.)
A decision that copies are components when made outside of the U.S. from code supplied from the U.S. could encourage the development of the software outside of the U.S., and could greatly increase the damages for infringing a U.S. patent.
A decision against Microsoft on the second issue would provide additional protection for smaller enterprises that cannot afford to file for international patent protection. Although the Microsoft case relates to software, other technologies, such as biotechnology, would also be affected by this decision.
While we wait for patent reform from Congress, these Supreme Court decisions will have an impact on how we prosecute, enforce and license patents.
Orlando Lopez is an attorney in the Intellectual Property/SciTech Group at the Boston-based law firm Burns & Levinson LLP. He also holds a Ph.D. in electrical engineering. He can be reached at 617.345.3243 or [email protected].
