[Ip-health] Wall Street Journal: High Court Further Limits Scope of Patents

Tue Jun 10 03:35:02 2008

http://online.wsj.com/article/SB121301837061657159.html

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The Supreme Court relaxed the grip that patent owners hold over third-
party uses of their inventions, continuing a recent recalibration of
intellectual-property law intended to foster competition and innovation.

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In a unanimous opinion, the justices disagreed. Citing a doctrine
called patent exhaustion, the court said LG had no right to control
the "downstream" use of a patent it had licensed to a manufacturer.

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Justice Thomas wrote that the opinion was part of the court's
longstanding position limiting the control that patent holders have
over a product's use after sale, citing an 1853 decision holding that
"when the machine passes to the hands of the purchaser, it is no
longer with the limits of the monopoly" a patent bestows.

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Last year, the justices ruled that the Federal Circuit had made it too
easy for "obvious" inventions to receive patent protection; had
incorrectly given software manufacturers the power to restrict the
installation of their products into computers assembled overseas; and
erred when it decided that a company that agrees to pay a royalty to a
patent holder loses the right to challenge the patent's validity.

In 2006, the justices junked a Federal Circuit doctrine that
essentially gave patent holders an automatic right to enjoin
infringing uses, ruling instead that trial courts could impose more
lenient remedies, such as requiring a mandatory royalty, to reflect
market needs or other interests. The year before that, the court found
that drug companies have a broad exemption from infringement when
using compounds developed by others for early-stage research.

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Justice Thomas, in a passage that could be directed at the Federal
Circuit, cited a 1917 Supreme Court case to stress that "the primary
purpose of our patent laws is not the creation of private fortunes for
the owners of patents but is 'to promote the progress of science and
the useful arts,'" as the Constitution provides.

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High Court Further Limits Scope of Patents
By JESS BRAVIN
June 10, 2008; Page A4

WASHINGTON -- The Supreme Court relaxed the grip that patent owners
hold over third-party uses of their inventions, continuing a recent
recalibration of intellectual-property law intended to foster
competition and innovation.

The opinion delivered Monday involved a U.S. patent for computer
chipsets, which South Korea's LG Electronics Inc. licensed to Intel
Corp., of Santa Clara, Calif. Intel made the chips and sold them to
computer manufacturers. When one of those manufacturers, Quanta
Computer Inc. of Taiwan, used them in its products, LG sued for
infringement, arguing Quanta needed a separate license from LG to
install them in computers.

In a unanimous opinion, the justices disagreed. Citing a doctrine
called patent exhaustion, the court said LG had no right to control
the "downstream" use of a patent it had licensed to a manufacturer.

Writing for the court, Justice Clarence Thomas observed that the chips
have no use other than being installed in a computer -- and that such
installation, which LG claimed was a patented method, isn't unique to
the chips at issue but identical for any chip that might be used in
the same way. To agree with LG, Justice Thomas warned, could expose
not only manufacturers like Quanta to liability, but retailers,
consumers and anyone else who might later acquire or use the computer.

Patent-holding companies largely filed friend-of-the-court briefs
siding with LG, which purchased the patents at issue in 1999. Consumer
groups and a variety of businesses that use a multitude of components
in their products -- including eBay Inc., Hewlett-Packard Co. and
Nokia Corp. -- filed briefs backing Quanta.

Justice Thomas wrote that the opinion was part of the court's
longstanding position limiting the control that patent holders have
over a product's use after sale, citing an 1853 decision holding that
"when the machine passes to the hands of the purchaser, it is no
longer with the limits of the monopoly" a patent bestows.

The decision is consistent with a series of recent rulings correcting
what the justices perceive as the overreach of a specialized federal
court that hears patent appeals.

That body, the U.S. Court of Appeals for the Federal Circuit, was
created in 1982 to develop expertise and centralize doctrine in
several complex areas of law, including patents. In its rulings, the
Federal Circuit has tended to interpret patent rights broadly, giving
patent holders control over wide categories of use and powerful
remedies to wield against infringers.

For most of the past quarter-century, the Supreme Court was content to
leave patent issues to the Federal Circuit. But as the 21st century
began, the justices began to take interest in petitions seeking review
of Federal Circuit decisions. In recent years, the court has heard a
series of appeals contesting patent-law rulings and in every instance
has reversed the Federal Circuit.

Last year, the justices ruled that the Federal Circuit had made it too
easy for "obvious" inventions to receive patent protection; had
incorrectly given software manufacturers the power to restrict the
installation of their products into computers assembled overseas; and
erred when it decided that a company that agrees to pay a royalty to a
patent holder loses the right to challenge the patent's validity.

In 2006, the justices junked a Federal Circuit doctrine that
essentially gave patent holders an automatic right to enjoin
infringing uses, ruling instead that trial courts could impose more
lenient remedies, such as requiring a mandatory royalty, to reflect
market needs or other interests. The year before that, the court found
that drug companies have a broad exemption from infringement when
using compounds developed by others for early-stage research.

Patent protections, like other forms of intellectual-property law,
attempts to balance the incentives for innovation with society's
interest in new technology and creative works.

Justice Thomas, in a passage that could be directed at the Federal
Circuit, cited a 1917 Supreme Court case to stress that "the primary
purpose of our patent laws is not the creation of private fortunes for
the owners of patents but is 'to promote the progress of science and
the useful arts,'" as the Constitution provides.

Separately, the justices agreed, for the third time, to review a $79.5
million punitive-damages award against Altria Group Inc.'s Philip
Morris USA unit. Last year, the high court ordered the Oregon Supreme
Court to reconsider the award to ensure it was based only on the harm
to the late smoker who filed the suit, not that suffered by others not
party to the case.

Philip Morris contends that the Oregon court ignored the Supreme Court
when it declared the tobacco giant couldn't challenge the verdict
because it failed to comply with procedural rules regarding jury
instructions in the case.

Write to Jess Bravin at jess.bravin@wsj.com9

URL for this article:
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Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
thiru@keionline.org

Tel: +41 22 791 6727
Mobile: +41 76 508 0997