Supreme Court Rulings Affect Patent Holders

By Marvin N. Benn

On April 30, 2007, the U.S. Supreme Court issued two decisions that will substantially affect the rights of patent holders—and not necessarily for the better.

In KSR International v. Telefax Inc., the Supreme Court addressed the teaching-suggestion-motivation (TSM) test adopted by the U.S. Court of Appeals for the Federal Circuit for determining whether a patent is invalid for "obviousness." In its decision, the Supreme Court said that the TSM test should not be applied in a narrow and rigid manner that is inconsistent with §103 of the U.S. Patent Act and the 1966 U.S. Supreme Court decision in Graham v. John Deere. Before the ruling on April 30, in order to show that all "elements" of a claimed invention were “obvious” from the teachings of the relevant prior art, the federal courts employed a TSM test. Under this test, a patent could be proven “obvious” only if the prior art, when viewed by a person having ordinary skill in the art, revealed some “teaching, motivation or suggestion” to combine the prior art references. This is no longer a rigid preventative rule for determining the "obviousness" of an asserted invention.

The Supreme Court—in holding that the Federal Circuit’s test of “obviousness” was “narrow and rigid” and “inconsistent” with §103 of the U.S. Patent Act—stated that the “courts can and should consider the inferences and creative steps a person of ordinary skill in the art would employ….Although the TSM test is one test, it is not the only test.” The court held that granting patent protection to “advances that would occur in the ordinary course, without real innovation, retards progress and may, for patents combining previous known elements, deprive prior inventions of value and utility.” In the KSR case, several prior art references showed all the elements of the invention—an adjustable gas pedal with a support bracket sensor. Although the references were intended to address different problems than those being solved by the patentee, the court held that the design step that was necessary to arrive at the invention was “well within the grasp of a person of ordinary skill in the relevant art, and that the benefits of doing so would be obvious.”

Effect of KSR Ruling

In light of the recent Supreme Court decision, the TSM test, although useful, will no longer be the only standard for determining when prior art references can be combined and cited against a patent application or an issued patent to determine “obviousness.” The test for “obviousness” is broader and further includes assessing whether the advancement taken by the inventor was “well within the grasp of a person of ordinary skill in the relevant art” and whether design incentives or market forces suggest using prior art applied in one field of endeavor as a predictable variation for the problem involved in the asserted invention.

As a result, it will be easier to find issued patents “obvious,” and hence invalid, in a courtroom. It will also be more difficult to overcome an “obviousness” rejection by the United States Patent and Trademark Office (USPTO) in patent application proceedings. Furthermore, the decision will likely encourage litigation that contests the validity of issued patents and, once again, place a premium on having experienced legal counsel when seeking a patent from the USPTO.

The second case decided on April 30 was Microsoft Corporation v. AT&T Corp. In this situation, Microsoft was sending by disk a master copy of its operating system, which infringed on the claims of an AT&T patent, but only when it was inserted into a computer. Microsoft was providing these master copies to its foreign manufacturers, who would make copies and then install them on computers that were sold outside of the United States. Because the U.S. patent laws do have some extraterritorial protection under 35 U.S.C. §271(f), which provides that infringement occurs “when one supplies, from the United States, for combination abroad, a patented invention’s combination,” AT&T tried to obtain damages based on those foreign sales.

The question for the court was whether this current situation invoked §271(f). The Supreme Court said “no,” the reason being that copies were made outside the United States and only became infringing when installed in products. The court held that the foreign-made copies do not trigger liability when combined abroad to form the patented invention at issue. The court further held that if AT&T desires to prevent copying abroad, its remedy would lie in obtaining and enforcing foreign patents, not through §271(f) of the U.S. Patent Act.

Effect of Microsoft Ruling

Where before, one could argue that downloading a master copy of software for insertion in a foreign-made computer or device would infringe on a U.S. patent, that protection is no longer accessible under §271(f). The court stated that absent a reference to copying in the statute, replication abroad of a master dispatch from the United States is not a violation of §271(f) The court suggested that this "loophole" in the law is best left for Congress to consider and close. In effect, the Microsoft ruling weakens U.S. patents while encouraging U.S. patentees to obtain foreign protection. Because patents are "territorial," a patentee with a U.S. invention can, and should, seek corresponding protection in foreign countries.

The Upshot

These and other recent cases have effectively lessened the power of a U.S. patent. In addition to the KSR and Microsoft decisions, eBay, Inc. v. MercExchange LLC now requires a showing of “irreparable injury” to obtain a permanent injunction, even when there was a finding of validity and infringement. Likewise, MedImmune, Inc. v. Genentech, Inc. allows a licensee to invoke the Declaratory Judgment Act in order to challenge a patent without breaching the license agreement. In light of these cases, it is clear that 2007 has been a tough year for the rights of the patent owner, making it simultaneously more difficult to obtain a patent and easier to challenge the validity of one.

Marvin N. Benn, Chair of the firm's Intellectual Property practice group, handles all types of IP litigation and protection. He has a broad consulting and license-drafting practice with an emphasis on matters related to patents, trademarks, and computer hardware and software. Marvin can be reached at 312.521.2770 or mbenn@muchshelist.com.

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