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

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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.

Copyright Reform Part 2

by: Professor Jessica Litman
Professor of Law, University of Michigan Law School

In part 1, I explained some of the appeal of seeking to begin a copyright reform process by agreeing on a set of copyright principles to guide lawmakers in their drafting. In the intensely polarized environment that has come to characterize the copyright bar, confining a group’s attention to copyright principles may be one way to begin a productive conversation.

Last spring, Boalt Professor Pamela Samuelson recruited a group of copyright experts with diverse views to come together and discuss copyright reform, with the ultimate goal of producing such a set of copyright principles. I’m a member of that group. One of our first homework assignments was to write and circulate individual drafts of appropriate copyright principles. In this initial stage, the goal was not for each of us to come up with a comprehensive Restatement of wise copyright law. Rather, we agreed that each of us would write down one or more principles that we believed should be reflected in the group’s final work product.

The draft that I sent to the other members of the group follows. The draft does not represent what I would write if I could use a magic wand to replace the words in title 17 with words of my choosing. It is, instead, an attempt to articulate principles on which copyright experts across the copyright political spectrum might be able to agree. I agreed to post the draft here, because I’m interested in your comments.

Preliminary draft of copyright principles

The copyright law grants exclusive rights that are bounded in time, subject matter and scope. Some ambiguity in the location of those boundaries is probably inevitable, since technological progress introduces new possibilities, and the prospect of lobbying to expand or contract extant rights is always on the horizon. To the extent possible, boundaries should be clear, since ambiguities can deter investment in and exploitation and enjoyment of copyrighted works.

A functioning copyright system requires that there be easy ways for people who want to make lawful licensed uses of works to find out to whom they need to apply for permission. The U.S. law used to rely on indivisibility, notice, registration, and recordation to perform those functions. It has also introduced a variety of compulsory licenses to obviate the need to seek permission to use some works in some markets. Other jurisdictions rely on limited alienability or/and a multiplicity of collecting societies to perform these functions. The copyright system needs some mechanism or mechanisms to do this job.

Exclusive rights that are ambiguous in scope exacerbate the problems posed by rights holders who are difficult to identify, and vice versa.

The exclusive rights granted by copyright law should encourage creation and dissemination of works by ensuring that copyright owners have meaningful opportunities to control the direct commercial exploitation of their works. Copyright owners should not necessarily be entitled to control all incidents of direct exploitation of their works. Resale of books and paintings, for example, is direct commercial exploitation of copyrighted works that has traditionally been sheltered from copyright owner control by the first sale doctrine.

The exclusive rights granted by copyright law should encourage reading, viewing, watching, listening to and learning from copyrighted works by preserving individuals’ freedom to read, view, watch, listen to and otherwise enjoy copyrighted works as they want to without being subject to pervasive copyright owner control of reading, viewing, etc. Reading freely, however, is not necessarily the same thing as reading for free.

The exclusive rights granted by copyright should encourage investment in new markets and modes of enjoying copyrighted works by excluding most indirect exploitation of copyrighted works from copyright-owner control. The makers and sellers of trumpets have built their business model on the foundation of band music that was written and is controlled by someone else. The availability of trumpets has increased the market for and popularity of band music, to the benefit of composers, trumpet players, and trumpet music fans. Insofar as possible, the copyright law should neither give the owners of band music copyrights the right to control the design, manufacture or sale of trumpets, nor give the makers and sellers of trumpets the right to control the sale or performance of band music.

The public invests in the copyright system both by granting rights to copyright owners through the enactment of copyright laws, and by complying with the laws its Congress enacts. If the public perceives copyright law to give it a poor return on its investment, it may well respond by divesting – either pressing its elected representatives to enact additional limitations and privileges or simply failing to comply with rules it no longer perceives as legitimate. Enforcing copyright law in an atmosphere of public cynicism about the legitimacy of the law is a difficult task. A public that complies with copyright only because it’s afraid of the copyright police will soon find ways to evade or restrain the copyright police. (Recent efforts to enforce copyrights against individual consumers alleged to have infringed copyrights over peer-to-peer file sharing networks, for example, have garnered significant press coverage. Insofar as people are able to make accurate measurements, these efforts do not seem to have reduced the volume of unauthorized peer-to-peer file sharing, nor to have significantly increased public respect for copyright law.) The long-term health of the copyright system, thus, requires that members of the public believe that their investment in copyright is well spent.

One key feature of copyright laws that have public confidence is a balance between the copyright owners’ exclusive rights to control the exploitation of their works and the public’s freedom to enjoy those works. (In general, countries other than the U.S. that phrase their exclusive rights in broader terms than the United States does have needed more numerous explicit exceptions for members of the general public.) The public appears to believe that copyright exclusive rights are already very broad, and decades of public relations efforts don’t seem to have persuaded people that copyright gives creators and disseminators too little. If copyright is to retain or regain its legitimacy, any broadening of exclusive rights probably needs to be balanced by an increase in personal freedom to enjoy copyrighted works.

Copyright Reform Part 1

by: Professor Jessica Litman
Professor of Law, University of Michigan Law School

If you hang out among copyright lawyers, you’ll notice widespread agreement that the current copyright statute, enacted more than 30 years ago in 1976 and amended piecemeal in the years since, isn’t working very well. (That doesn’t mean that copyright lawyers agree on which parts need fixed.)¹  The statute treats dissemination of works over digital networks especially poorly. That’s unsurprising; extensive use of digital networks post-dates the statute’s enactment. Yet, you’ll also notice widespread discomfort with the prospect of asking Congress to undertake the project of wholesale copyright revision.

That discomfort is only partially due to the fact that copyright revision is lengthy and expensive. The number of interests affected by copyright is huge, and the complaints those interests have with the current regime are diverse. Overhauling the copyright statute took more than 20 years the last time Congress tried it, and there’s no reason to think it could happen more quickly today.

More importantly, the large role played in copyright lawmaking by lobbyists for important copyright actors has in the past produced statutes that are neither models of clarity nor well-designed to weather the pressures of technological progress. It is difficult to look at section 114 of the current copyright statute,²  for example, and come up with anything nice to say about it.

Moreover, history teaches that in the course of any major copyright revision, new copyright-affected players will pop up and demand that the law be reshaped to accommodate their needs. In the revision process that culminated in the enactment of the 1909 copyright act, the manufacturers of phonographs and phonograph records nearly derailed the entire effort until they were satisfied with the statute’s treatment of them. Multiple attempts to modernize the copyright law during the 1920s and 1930s foundered because new players ASCAP and radio broadcasters could not agree on anything. In the revision process that led to the 1976 Act, broadcast television and then cable television showed up and demanded special treatment; copyright revision ground to a halt until they got it. The prospect of the upstart new copyright interest may be especially scary today because there are tens of millions of ordinary people whose use of YouTube and peer-to-peer file sharing networks means they have direct personal interests in the copyright law. Nobody has succeeded in mobilizing them into a significant political force, but the majority of them are over 18, and many of them vote. It’s entirely possible that over the course of a multi-year, highly publicized copyright reform effort, the interests of ordinary voters could end up playing a more than a nominal role. One can imagine circumstances in which a new awareness on the part of Congress that voters care about copyright could move the law pretty far from where current players would like to see it go.

Thus, it is unsurprising that the perceived need for copyright reform combined with widespread reluctance to involve Congress in the effort, at least at the outset, has generated a host of extra-legislative copyright reform efforts. Some of these efforts have involved taking adventurous positions in litigation, in the hope of persuading courts that the law already means what one wishes it did.³  Some of these efforts have involved using private agreements to contract around inconvenient statutory defaults.⁴   Some have involved committing the United States in trade negotiations to take particular positions on copyright enforcement, and then seeking to import those commitments as a gloss on the meaning of current law.⁵

A different approach seeks to generate a menu of principles to guide later congressional reform. A group may draft copyright principles as part of an advocacy effort⁶ or as an effort to steer legislative drafting in particular directions or away from others.⁷

The copyright bar has grown increasingly polarized over the past 15 years.⁸  Precisely because of that polarization, a project designed to gather a group of copyright experts and charge them with generating a list of copyright principles has features that make it appealing across the copyright political spectrum. First, because the effort involves articulating principles of copyright law, the power and money imbalance between different interests looms smaller, blunting the influence of what Larry Lessig has called “all the money in the world.”⁹  Second, even those with well-developed lobbying muscles have reasons to prefer conversing with other copyright specialists rather than a more general crowd. There’s probably some truth to the charge that we who practice, teach, or write about copyright law for a living have all drunk the copyright Kool-Aid®.¹⁰  Copyright lawyers, as a group, are less likely to challenge the received copyright wisdom, and less likely to propose that copyright-affected players adopt radically new business models. Finally, casting a project as a pursuit of copyright principles allows participants to try to ferret out the issues on which they agree and paper over or vague out the issues on which agreement proves impossible.

One sign that copyright reform is on the horizon is that copyright principles projects are springing up, trying to figure out a way to generate something that will prove useful. I don’t mean to impugn such projects – indeed, as I’ll explain in the next post, I’ve been working with one myself.

Editor: Part 2, in which Professor Litman attempts to "articulate principles on which copyright experts across the copyright political spectrum might be able to agree," will publish tomorrow.

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¹  Compare, e.g, Pamela Samuelson, Preliminary Thoughts on Copyright Reform, Utah L. Rev. (2007) with, e.g., David Nimmer, Codifying Copyright Responsibly, 51 UCLA L. Rev. 1233 (2004) and Protecting Copyright and Innovation in a Post-Grokster World: Hearing Before the Senate Comm. On the Judiciary, 109th Cong. (Sept. 28, 2005) (testimony of Marybeth Peters, Register of Copyrights).
²  17 U.S.C. § 114 (“Scope of Exclusive Rights in Sound Recordings”).
³  See, e.g., Capitol Records v. Bertelsmann, 377 F. Supp. 2d 796 (N.D. Cal. 2005); Viacom International v. YouTube, Inc., No. 07-CV-2103 (S.D.N.Y. filed March 13, 2007); Capitol Records, Inc. v. Thomas, No. 06-CV-1497 (D. Minn. 2007).
⁴  CBS, Inc. et. al, Copyright Principles for User-Generated Services (Oct. 18, 2007); the GNU General Public License (June 29, 2007); Microsoft, Inc., Microsoft Windows Vista Home Basic English End User License Agreement (visited Nov. 12, 2007); see generally Prof. Margaret Jane Radin, The Evolution of Contracts in the Digital Era (Seminar, Fall 2007).
⁵  See, e.g., Brief Amicus Curiae Americans for Tax Reform in Cartoon Network, LP v. Cable News Network, LP, No. 07-1480-CV(L) (2d Cir. filed July 11, 2007) at 15-16.
⁶  E.g., Adelphi Charter on Creativity, Innovation and Intellectual Property (Oct. 13, 2005); CBS, Inc. et. al., Principles for User-Generated Content Services, supra note 4; Center for Democracy and Technology, Protecting Copyright and Internet Values: A Balanced Path Forward (Spring 2005); EFF et. al., Fair Use Principles for User-Generated Video Content (Oct. 31, 2007).
⁷  See National Information Infrastructure Task Force Working Group on Intellectual Property, Public Hearing on Intellectual Property Issues Involved in the Information Infrastructure (Nov. 18, 1993), (testimony of Gary J. Shapiro, Home Recording Rights Coalition); id. (testimony of Ronald J. Palensky, Information Technology As’sn of America).
⁸  See Jessica Litman, War and Peace: The 34th Annual Donald C. Brace Lecture, 53 J. Copyright Socy 1 (2006).
⁹  LAWRENCE LESSIG, FREE CULTURE 241 (2004).
¹⁰  Kool-Aid® is a registered trademark of Kraft Foods. :-)