New England Biz Law Update
Federal legislators the last three years have introduced bills designed to reform the U.S. patent system, only to see them die in committee.
But the U.S. Supreme Court stepped in this past term and made its own changes to the system.
The justices ruled in KSR International Co. v. Teleflex, Inc. that the Federal Circuit’s approach of determining a patent’s “obviousness” by using the teaching, suggestion or motivation test was too rigid.
The decision “has the potential to be the biggest case we’ve seen in decades,” said J. Matthew Buchanan, a patent attorney at Dunlop Codding & Rogers in Oklahoma City, Okla. “Obviousness has been something we have struggled with in patent law for a long time.”
But the ruling is just a piece of the puzzle.
“You can’t look at [it] in a vacuum,” said patent attorney Cynthia Kernick, who practices at Reed Smith in Pittsburgh. This is “part of a trend by the court to reform the patent system.”
Matthew I. Kreeger, a patent attorney in Morrison & Foerster’s San Francisco office, said “the Supreme Court is addressing the issue of patent quality and is trying to make changes by repeatedly reversing the Federal Circuit and pushing back on the Patent Office.”
The justices have clearly been focused on patent issues for some time, granting certiorari in several notable cases over the last few terms, and hearing three cases in the 2006-2007 term alone.
Earlier this year, the court ruled a patent licensee in good standing may challenge the validity of the patent, and is not required to first breach the agreement in order to sue. (MedImmune v. Genentech, No. 05-608.)
In a separate case, the justices held that software code that infringes United States patent rights and is shipped overseas for installation doesn’t violate patent law. (Microsoft Corp. v. AT&T Corp., No. 05-1056.)
Gas pedal technology
In the most recent case, KSR International, No. 04-1350, Teleflex sued KSR, a competitor, for allegedly infringing on its patent for the technology for an adjustable gas pedal used in cars and trucks. A U.S. District Court granted summary judgment for KSR, invalidating Teleflex’s patent because it was “obvious.”
The Federal Circuit reversed, ruling the trial court applied an incomplete version of the “teaching-suggestion-motivation” test.
But in a unanimous opinion authored by Justice Anthony M. Kennedy, the Supreme Court rejected the Federal Circuit’s “rigid approach.”
Instead, the court said judges should look to “interrelated teachings of multiple patents; the effects of demands known to the design community or present in the marketplace; and the background knowledge possessed by a person having ordinary skill in the art, all in order to determine whether there was an apparent reason to combine the known elements in the fashion claimed by the patent at issue.”
The court said KSR had “provided convincing evidence that mounting a modular sensor on a fixed pivot point of [an existing] pedal was a design step well within the grasp of a person of ordinary skill in the relevant art. Its arguments, and the record, demonstrate that [Teleflex’s patent claim] is obvious.”
The impact
The decision could potentially affect patent law in three major areas, explained University of Richmond School of Law professor Christopher Cotropia.
“It could dramatically heighten the standard for obtaining a patent in the first place, it creates the possibility that more patents will be found invalid or unsuccessfully enforced in an infringement action, and patents issued under the previous standard could face serious devaluation,” he said.
Cotropia said the decision doesn’t radically change the law, but adds to the existing standard for obviousness, using undefined terms like “common sense.”
Kernick added: “We now have a framework, with factors to be considered, which is significantly different from the teaching-suggestion-motivation test.”
For practitioners, that means there will be a “wait-and-see” period while the Federal Circuit and the Patent Office begin to interpret the terms and apply them in real cases.
On May 3, Patent Office Deputy Commissioner Margaret A. Focarino issued a memo to all patent examiners in response to the decision, stating the court did not “totally reject” the use of the “teaching, suggestion, motivation” standard as a factor in an obviousness analysis.
In addition, she emphasized the obviousness analysis “should be made explicit,” adding that “in formulating a response under 35 U.S.C. § 103(a), based upon a combination of prior art elements, it remains necessary to identify the reason why a person of ordinary skill in the art would have combined the prior art elements in the manner claimed.”
The heightened standard for obviousness will affect industries differently, with mechanical and business method/Internet-related patents suffering the most, predicted Buchanan, who authors an IP policy blog, www.promotetheprogress.com.
“Companies that have built their patent portfolios on incremental advances” face a real challenge, he said, as small changes to existing patents may be deemed an “ordinary innovation.”
The decision will have less of an impact on the pharmaceutical industry, Kreeger predicted.
According to Kernick, some types of patent litigation may increase – more parties appealing a rejection of a patent, for example – while other areas of litigation may decrease, such as enforcement cases.
“If I am a business considering whether to sue a competitor for infringement, I have to make the decision to put my patent at issue,” she said. “Who wants to take that risk?”
In addition, said Kernick, because many patent infringement suits are handled on a contingency fee basis, lawyers might be hesitant to take on a case with less potential for success.
Legislative potential?
Despite its past lack of success, Congress is again considering patent reform legislation, which took a step forward this year when identical bills were introduced in the House and the Senate. (In each of the prior two years, different bills were introduced separately.)
But passage of the legislation remains uncertain.
For one thing, the Senate Judiciary Committee has had its hands full with hearings on the firing of several U.S. Attorneys, Kernick noted.
And one of the goals of the legislation was to minimize so-called “bad patents,” Buchanan noted, something the KSR decision should affect.
“KSR is that huge decision we’ve been waiting for that could make those [bad] patents go away,” he said. “It might make sense to let it percolate for a few years, because it might very well address the problem.”
But Kreeger said legislation is still important because it can address areas the Supreme Court can’t.
For example, the measure in Congress includes a switch from the current first-to-invent system to a first-to-file system, which would bring the United States into accord with the rest of the world.
Other changes include an administrative reevaluation process, which would provide a cheaper alternative to challenging a patent in U.S. District Court, and new jurisdictional rules that would require patent suits be filed in a court that has some connection to the patent – i.e., the patent holder’s primary place of business – in an attempt to decrease forum shopping.
Because this year’s patent reform legislation focuses on fewer issues, it “may have more of a chance because it aims smaller,” Kreeger said.
Cotropia agreed.
“I would be shocked if we don’t see some form of legislation get passed,” he said.
The bills can be found in the important documents section at www.newenglandbizlawupdate.com.
