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Monday, December 3, 2007

The Supreme Court's Recent Patent Decisions from the Perspective of a New IP Associate

by: Ming Shui, MTTLR Alum

The state of patent law today has significantly changed in the two years since I graduated from law school. In fact, the changes are such that I would estimate that around half of what was taught in my patent classes is no longer good law.

Beginning in 2006 with eBay v. MercExchange,1 the Supreme Court has heard and agreed to hear a significant number of patent cases relative to recent years. eBay signaled that the Court was beginning to push back against what some would argue as too many patent-friendly decisions coming from the Federal Circuit which were beginning to stifle rather than spur innovation.

eBay was found to be infringing a patent held by MercExchange. MercExchange sought to enjoin eBay from using its product. Under the Federal Circuit doctrine prevailing at the time, an injunction was virtually guaranteed once infringement was found. The Supreme Court in eBay, however, held that courts should consider the traditional four-factor test for issuance of an injunction, and should not issue injunctions automatically.

The result is that patent holders potentially lose one of the most powerful weapons they have against infringers -- the ability to exclude. Whether this is a good result is debatable, and there are many good arguments for each side that I will not repeat here. But the effect has been that although in most cases the injunction still issues, the District Courts have greater flexibility to decide whether to issue injunctions in specific cases.

In KSR v. Teleflex,2 the Supreme Court weighed in on one of the most litigated areas in patent law: obviousness. The issue in obviousness is whether a person of ordinary skill in the art (POSITA) would have found the patented invention to be obvious. The Federal Circuit for many years used a test commonly referred to as teaching/suggestion/motivation (T/S/M) to determine if an invention that combines two or more items is obvious. The T/S/M test asks if there is some teaching, suggestion, or motivation in the prior art to combine those two items. If yes, then the invention is obvious.

The Supreme Court held in KSR that the Federal Circuit's rigid application of the T/S/M test, which Justice Scalia referred to as "gobbledygook",3 is inconsistent with the Court's holding in Graham v. John Deere.4 The Court essentially invalidated the T/S/M test and held that courts should follow Graham's "expansive and flexible framework" in determining if an invention is obvious. The "expansive and flexible framework" leaves a lot of room for lower courts to develop new tests and standards for determining obviousness. Where it will end up, nobody is exactly sure. However, one thing is clear: since KSR, a lot more patents have been found to be invalid for obviousness.

The court has also accepted for this term Quanta Computer v. LG Electronics,5 a case that questions whether a patent holder can seek royalty fees from more than one company in the supply chain that uses the patented product. This has the potential for profound impact on the possible damages in a patent case. The basic facts are LG licensed to Intel the right to produce and sell the patented chip. But license agreement Intel has with LG only authorizes Intel to combine the chips with other Intel products. Quanta uses the chip and combines it with non-Intel products. Can LG sue Quanta for infringement damages?

This was argued under the exhaustion doctrine at the Federal Circuit which is similar to the first sale doctrine in copyright law. The textbook example is if you buy a book, you are then free to resell the book to someone else without having to pay the copyright owner royalties for your sale of the book. The District Court found there to be an exhausting sale. The Federal Circuit reversed. Oral arguments are scheduled for January 16, 2008.

Finally the USPTO recently made final several changes to the way patents are prosecuted.6 Some notable changes include: an applicant may only make one request for continued examination after a final rejection, an applicant is limited to two continuing applications, and an applicant is limited to 5 independent and 25 claims total. These changes were to take effect on November 1, 2007. However, the United District Court for the Eastern District of Virginia issued an injunction on October 31, 2007 barring implementation of the rule changes.7

These cases and rule changes will have a profound effect on how patents are prosecuted, defended, and sold for the foreseeable future as practitioners adjust to the new framework the lower courts and USPTO will establish over the next few years.8

1  eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2007).
2  KSR v. Teleflex, 127 S. Ct. 1727 (2007).
3  Transcript of Oral Argument at 41, KSR v. Teleflex, 127 S. Ct. 1727 (2007).
4  Graham v. John Deere Co., 383 U.S. 1 (1966).
5  Quanta Computer, Inc., et al. v. LG Electronics, Inc., 453 F.3d 1364 (Fed. Cir. 2006), cert. granted, 128 S. Ct. 28 (Sept. 25, 2007) (No. 06-937).
6  See Department of Commerce, Patent and Trademark Office, Changes to Practice for Continued Examination Filings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications: Final Rule (Aug. 21, 2007).
7  Tafas v. Dudas, No. 1:07cv846 (JCC), (E.D. Va. Oct. 31, 2007).
8  Microsoft v. AT&T, 550 U.S. ___, is another interesting patent case that the Supreme Court decided in 2007. While the issues and holding are important, they are less relevant to general day-to-day patent practice and so I'll simply mention that this is another case to explore if interested.

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