[Ip-health] Wall Street Journal: Patent Holders' Grip Weakens

Tue May 1 04:50:09 2007

Patent Holders' Grip Weakens
High Court Curtails Power
Amid Innovation Debate;
More Disputes May Arise
By JESS BRAVIN
May 1, 2007; Page A3

WASHINGTON -- The Supreme Court made it harder to get new patents and
to defend existing ones, giving new force to the law that denies
patents to inventions deemed "obvious."

In a unanimous decision, the justices yesterday sided with critics who
argue that lower-court rulings have given patent holders more power
than Congress intended, potentially stifling innovation.

The ruling, the latest to roll back patent holders' clout, comes amid a
sharp debate over how to maintain the nation's competitive edge while
protecting those who labor to design cutting-edge inventions. Many of
the developments that drive the economy are governed by patent law, an
arcane field that has become a battleground in the larger debate about
U.S. industrial strength.

The opinion could have especially big implications for technology
companies, whose software programs typically are built through small
improvements in prior designs. Also affected will be the growing and
much-disputed field of "business method" patents, which are granted for
abstract processes rather than specific devices.

In a separate, and less sweeping, decision also delivered yesterday,
which involved AT&T Inc. and Microsoft Corp., the court limited the
enforceability of U.S. patents for software installed overseas.

Yesterday's rulings are sure to influence pending patent cases while
opening an unknown number of existing patents to challenges. Weaker
patents that survived under lower-court precedents are more likely to
be invalidated, putting their inventions in the public domain.

With challengers emboldened to resist infringement claims, more
disputes could head to court. But patent holders, assessing their
weakened position, could be inclined to settle disputes on more
generous terms rather than risk a court judgment that could invalidate
their patents outright. Investors that buy up patents with the aim of
obtaining royalties from alleged infringers -- known as patent trolls
-- are sure to find slimmer pickings.

In its ruling, the court said the U.S. Court of Appeals for the Federal
Circuit, a specialized court overseeing patent law, had been too
generous toward patent holders, allowing them to claim a patent
monopoly for incremental advances. The decision swept aside the test
used by the court to determine whether an invention was "obvious" --
and therefore ineligible for a patent.

Patent law aims to strike a balance that provides an incentive to
inventors by guaranteeing a limited-time monopoly, currently 20 years,
on an invention's use, while ensuring that intellectual-property rights
are flexible enough to allow research and innovation based on prior
discoveries.

While any federal district court can hear a patent suit, all patent
appeals are funneled to the Federal Circuit, set up in 1982 to
centralize legal doctrine in several specialized fields. In the first
two decades that followed the Federal Circuit's creation, the Supreme
Court took few patent cases.

In recent years, the high court has repeatedly stepped in to correct
Federal Circuit rulings it found skewed the balance toward patent
holders by failing to take into account the fluid nature of the modern
economy.

"What they're starting to put together here is a model for a
21st-century patent system," said David Kappos, who oversees
intellectual-property law at International Business Machines Corp.,
Armonk, N.Y. "Closed proprietary innovation remains important," he
said, but the court seems to be saying that patent law "can also
accommodate 21st-century models that are more open, more
collaborative."

High-technology companies have been particularly aggressive in seeking
to reduce what they regard as abuse of the patent system, which makes
it more costly to design and sell new products. "What we have is a
patent system that has evolved from a focus on protecting innovation to
becoming a litigation lottery," said Mark Chandler, senior vice
president and general counsel of Cisco Systems Inc., the San Jose,
Calif., maker of networking equipment.

Patent laws came under widespread criticism following the huge windfall
won by little-known patent-holding company NTP Inc. in March 2006 from
Research in Motion Ltd., maker of the popular BlackBerry wireless email
device. Faced with a court-ordered shutdown of its services in the
U.S., RIM, of Waterloo, Ontario, agreed to pay $612 million to NTP,
whose patents had never been applied to an actual product.

The most important of yesterday's cases involved an almost textbook
example of old industry -- the design of an accelerator pedal built for
General Motors Corp. trucks. KSR International Corp., Ridgetown,
Ontario, designed the pedals by adding an electronic sensor to a
previously developed system. Rival Teleflex Corp., Limerick, Pa., had
made a similar device for Ford Motor Co. trucks and claimed that KSR
infringed its patent. A federal district court dismissed Teleflex's
suit on obviousness grounds, but the Federal Circuit reversed the
decision.

In its cases, the Federal Circuit worried that in hindsight, any
invention might seem obvious, particularly when combining previously
existing designs. To guard against that, it fashioned a test in which
something could be deemed obvious if it was foreshadowed by some prior
"teaching, suggestion or motivation." Critics complained that some
combinations were so obvious that no one would have thought, for
instance, to publish an article on the topic.

Writing for the court and ruling for KSR, Justice Anthony Kennedy said
combining a digital sensor with a mechanical pedal would have been
obvious to a skilled engineer. The Federal Circuit was too narrow in
its definition of "obvious," he wrote, saying it should be measured
against such factors as changing marketplace pressures and the
progressive increase in overall knowledge. "Granting patent protection
to advances that would occur in the ordinary course without real
innovation retards progress," he wrote.

The other case concerned the classification of U.S.-designed software
installed on computers assembled overseas. AT&T contended that
Microsoft had infringed its patent for voice-compression software when
it sold its Windows operating system to foreign computer makers. The
Federal Circuit agreed, only to be overturned by the Supreme Court on
narrow grounds relating to the difference between "supplying" and
"copying, replicating or reproducing."

The same legal theory used by AT&T has been used by nearly all of the
45 patents suits pending against his company, said Brad Smith,
Microsoft's general counsel.

"Simply by winning this decision today, we reduce the liability
exposure in these various lawsuits by something close to 60%," Mr.
Smith estimated.

--Don Clark and Christopher Rhoads contributed to this article.

---------------------------------
Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
voice +41.22.791.6727
fax +41.22.723.2988
mobile +41 76 508 0997
thiru@keionline.org