Changes Afoot in U.S. Patent Law

A series of Supreme Court decisions over the last 18 months has started to change the dynamics of patents and patent lawsuits in the United States. While some large companies hail the rulings as much-needed reform that will weed out bad patents and cut down on nuisance lawsuits, others contend they weaken patent protection and threaten U.S. innovation and competitiveness. And what the Supreme Court has started, Congress may extend even further if a major patent reform bill passes this fall.

One of the most significant Supreme Court decisions was KSR International Co. versus Teleflex Inc. The April 2007 ruling broadened the definition of obviousness as applied in patents. Previously, an invention could be deemed obvious and therefore not patentable only if “teachings, suggestions or motivations” that would prompt the invention existed in prior literature. The court discarded that standard, essentially giving patent examiners, as well as judges, flexibility to use their own judgment over whether combinations of previously existing technologies were obvious.

The ruling is already having an impact, says Robert Greene Sterne, founding director of Sterne, Kessler, Goldstein & Fox PLLC, which is among the top 10 patent law firms in the United States and which had argued against the decision. “We are already seeing that it is harder to get a patent at the Patent Office,” he says. The decision impacts utility patents, which protect the functionality, operation or architecture of a project, as opposed to design patents, he notes.

Because the ruling makes it harder to prove that an invention is novel and not obvious, companies may file fewer marginal applications, says James Foster, patent attorney at Wolf Greenfield & Sacks P.C. In general, companies will be less confident about what is patentable and therefore more cautious in deciding what inventions to patent, agrees Bill Heming, chief IP counsel at Caterpillar Inc. “Up til now, the courts had a well-understood rule to apply in these cases,” he says.

Foster also advises companies to think twice before bringing a patent infringement lawsuit because KSR will embolden defendants to resist infringement accusations more vigorously. In fact, Stern says the ruling will actually encourage infringement because of the higher bar for obtaining and maintaining patent protection on some inventions. “The net result is that innovators are going to be more exposed to poaching of their innovations,” he says. “Copiers and cloners and companies that do minor tweaks to popular products are going to have a field day.”

And design engineers may get drawn into more patent lawsuits as expert witnesses, Heming says, because such lawsuits are likely to become “a battle of the experts” with one side arguing that a design is obvious while the other seeks to prove it’s not.

Another major decision by the Supreme Court, in May 2006, gave judges more discretion in deciding whether to issue an injunction against a patent infringer, rather than automatically issuing one upon a finding of infringement. The ruling, in Ebay versus MercExchange, was a victory for companies who are the targets of so-called patent trolls — entities that don’t make products but hold patents and squeeze licensing fees from others that they claim infringe those patents. The decision will make it harder for these “non-practicing entities” to get an injunction to stop an alleged infringer from selling the product.

Before the decision, fear of an injunction sometimes led companies to settle even if their opponent’s patent infringement case was weak, says Foster. But Sterne points out this ruling could also encourage infringement. Plenty of legitimate companies base their business model on licensing a design, rather than manufacturing it. Such companies will find it hard to stop an infringer from copying their designs, he claims. Fabless semiconductor companies, for example, are extremely concerned about this ruling, Sterne says. “If you don’t have the injunction option, your market gets eroded very quickly because you spend all your time in court as opposed to licensing your design,” he explains. “It creates a major change in your business model.”

It will take years for the full impact of the Supreme Court decisions to filter through the patent system. That’s a good reason to hold off on patent reform legislation that would make further major changes, according to opponents of the proposed patent reforms before Congress. The bill proposes a “first-to-file” patent system, which would harmonize the U.S. system (now based on first to invent) with most other countries in the world. It also would more narrowly define willful infringement, apportioning infringement damages to the economic value of the patent and create a post-grant review to challenge issued patents.

“The innovation community is very worried about this so-called reform because it could further weaken and diminish the value of their patent portfolios,” says Sterne.

The bill has been championed by the Coalition for Patent Fairness, a group of large technology companies, including Intel and Microsoft, as well as large financial firms. Those opposing the bill include pharmaceutical companies, small high-tech companies, universities, venture capitalists and independent inventors. These groups are particularly concerned over damages apportionment and post-grant review provisions. Designed to give judges more guidance on how to figure infringement damages, the damage-apportionment provision would limit the ability of a patent holder to receive adequate monetary relief, they contend. And the bill’s creation of a new administrative process for challenging a patent’s validity would open the floodgates to endless patent challenges, they say.

“The bill would turn the patent system into a king’s sport by making it so expensive to defend a patent and it would lower the potential for any recovery of investment by individual inventors,” says Ronald Riley, founder and president of the Professional Inventors Alliance USA.

“People are worried about harassment. They are afraid there would be very few limitations on how or why people can bring those challenges,” says Heming, who is also on the steering committee of The Coalition for 21st Century Patent Reform, a group of 40 large corporations from a variety of industries that opposes the current bill.

Although the bill had strong bi-partisan approval, the opponents gained some powerful allies over the summer, when a group of labor unions, including the AFL-CIO and the United Steelworkers, came out against the bill. In a July letter to Congress, the AFL-CIO's legislative director William Samuel expressed concern that patent reform could undermine U.S. innovation and the jobs that innovation creates. “At a time when the Chinese government is constantly being challenged to live up to its intellectual-property obligations,” he wrote,  “we do not want to take actions that may weaken ours.”