Rulings Weaken Patents' Power
High Court Decides On Two Key Cases

By Robert Barnes and Alan Sipress
Washington Post Staff Writers
Tuesday, May 1, 2007

The Supreme Court concluded a series of cases yesterday that weaken the protection given to patent holders, making it more difficult to get a patent and easier to challenge existing ones.

Patent experts said one of two cases decided yesterday -- KSR International v. Teleflex-- is the court's furthest-reaching ruling in the field for decades. The decision sends a clear message that the U.S. Patent and Trademark Office and lower courts must be more open in considering whether inventions are "obvious," a common ground for denying an application.

"Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress and may, in the case of patents combining previously known elements, deprive prior inventions of their value or utility," Justice Anthony M. Kennedy wrote for a unanimous court.

In a separate case, the court ruled yesterday that Microsoft did not violate an AT&T patent when its Windows software was installed on computers manufactured overseas.

"The presumption that United State law governs domestically but does not rule the world applies with particular force in patent law," Justice Ruth Bader Ginsburg wrote in the 7 to 1 decision. Justice John Paul Stevens dissented, and Chief Justice John G. Roberts Jr. recused himself from the case.

Although the cases -- along with the earlier-decided MedImmune v. Genentech-- concerned different aspects of the law, experts said the cases collectively show a Supreme Court united in its belief that patent holders have received too much protection in the past.

"We now have a string of decisions that say the Supreme Court thinks we have too many patents and it's too hard to invalidate them," said Thomas C. Goldstein, a lawyer for Teleflex. "It's hard to miss that message."

The KSR and MedImmune cases together mean much less certainty for holders of thousands of existing patents, said John R. Thomas, a Georgetown University law professor who specializes in intellectual property. "The bottom-line effect is that interested parties have a greater ability to challenge patents and a greater possibility of prevailing."

The disputed patent in the KSR case was held by Teleflex and involved an adjustable gas pedal that combined two established elements, the pedal and an electronic sensor. KSR, a Canadian company, challenged the patent, and a lower court agreed.

But the U.S. Court of Appeals for the Federal Circuit, which was established to specialize in patent cases, said the combination was not obvious under its test that looked at whether some "teaching, suggestion or motivation" had anticipated it.

Kennedy said the appeals court's test was helpful but too rigidly applied.

Thomas said the court's ruling makes many existing patents vulnerable to court challenge because they were issued according to a standard the justices have now rejected. The KSR and MedImmune cases, which allowed companies that license technology to challenge the validity of the underlying patent, mean far more uncertainty for patent holders.

In particular, he predicted that generic drug makers would increasingly sue pharmaceutical companies.

Though the court has heard a series of patent disputes during the past two years, the KSR case is unique because it addresses the nature of patents themselves rather than questions about how patent disputes are litigated and resolved.

"KSR had to do with the fundamental issue that affects all patents: whether a patent should be issued in the first place. That touches all patents," said George Best, a patent expert and partner at the Foley & Lardner law firm who did not represent the parties involved in the three cases.

The case could "change the rules of the game from the way they've been for the last 20 years or so," he said, adding that the Supreme Court was not trying to set new law but rather saw its task as reining in the lower appeals court. Other patent lawyers and specialists also called the rulings yesterday the latest rebuke to the federal circuit.

Though the Supreme Court's decision in KSR was focused on the specific case -- "the most detailed technical discussion that's come out of the Supreme Court since the 19th century," according to Thomas -- the justices were intent on sending a broader message.

Microsoft v. AT&T centered on whether Microsoft's liability for infringing AT&T's patent on a speech processor extended to computers manufactured overseas and loaded with Windows software copied abroad. "Our answer is no," Ginsburg wrote.

She said that because the master disk Microsoft sends from the United States is never installed on any of the foreign-made computers, the law prohibiting the exportation of patented "components" has not been violated.

The court's decisions come as an effort to retool the patent system is gaining momentum on Capitol Hill. Members of Congress are grappling with some of the same basic issues about patent rights that the justices faced in these two cases, in particular the question of whether the protection for patents has grown too strong and the penalty for violating them too costly.

As part of the overhaul drive, many high-tech companies have been urging Congress to make clear that U.S. patent law cannot be applied to activities outside the country. But the court's decision seems to settle that.

"Today's Supreme Court decision is important for the entire information technology industry, adding clarity and balance to our patent system," said Brad Smith, Microsoft's general counsel.

Though the Microsoft case turned on a relatively narrow legal issue, Smith said the ruling was crucial for the future because it could affect the country's most innovative industries, in particular the computer and biotechnology sectors.

Stifel Nicolaus, a research firm specializing in technology and telecommunications, said in a report yesterday that a ruling in favor of AT&T could have caused far-reaching harm to other companies.

"The Federal Circuit decision would create massive liability for high-tech firms operating in the United States, including biotech, semiconductor, software and Internet companies that rely on information created in the United States that is transferred abroad by computer code," the research firm wrote.

Patent experts agreed that the ruling also could be relevant to biotech firms, such as those producing genetically engineered cell lines that are sent overseas to be converted into proteins for commercial use.

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