Supreme Court Isn't Done Re-Shaping Patent Law

The U.S. Supreme Court altered the intellectual property landscape last week by making it harder to obtain and defend a patent, a decision certain to ripple through the IT industry. Some of the most closely watched and controversial patent cases involve technology companies, including Verizon's recent lawsuit against Vonage, IBM's against Amazon.com, and Research In Motion's $612.5 million settlement with NTP last year. Last week's ruling isn't likely to be the end of the court's interest either, as the justices do their part to update the patent system to govern more iterative, collaborative, and global business innovation.

The case, KSR v. Teleflex, addressed a core principle of patent law: whether an invention (in this case a type of adjustable brake pedal) is obvious and therefore not deserving of protection. In a unanimous decision, the Supreme Court rejected a "narrow, rigid" reading of what factors should be considered in deciding obviousness. Instead, the court said many factors--including market demand for a combination of technologies or whether it's common practice in an industry to look for such combinations--could lead to a conclusion that an invention is obvious.

It's a significant precedent. "It raised the bar a notch or two," says David Kappos, the IBM VP and assistant general counsel who directs the company's intellectual property strategy. "The trivial patent filings, the mild engineering advancements, will no longer be patentable." Some think its impact is more dramatic than that. "There's this concern that all patents are less valuable," says Steven Rubin, an intellectual property attorney with the firm WolfBlock.

Some of the most controversial patents of recent years have been "business method" patents, such as when a company claims to have invented a particular way of doing business online. One example is a long-running case involving eBay and its Buy It Now feature, which a jury decided violated a patent held by a small company, MercExchange. (MercExchange disputes characterizations of its patent as a business method.) Business method patents already are difficult to get, says Marc Brown, a patent lawyer with McDermott Will & Emery, and this ruling will make them even more so. "They're going to be much more prone to attack," he says.

For business technology managers, high-stakes patent disputes can cripple the products they use, or influence what's available. In the RIM case, a tiny patent holding company, NTP, had a very real chance of getting RIM's BlackBerry network shut down over patent infringement, until RIM forked over $612.5 million. In Verizon v. Vonage, Vonage's existence is at risk, as a court ruled it violated Verizon's patent for connecting IP calls to conventional phone numbers.

WHO OWNS WHAT?

Internet patents are a particularly thorny trail, and the struggle over who owns the Net's innovations is playing out in full force before us. In IBM v. Amazon, the companies are disputing e-commerce technology we now take for granted. IBM says Amazon infringed on one of its patents with Amazon's engine to recommend books based on similar purchases by other customers. Two years earlier, Amazon was sued by Cendant over the same feature; the companies settled. Amazon has fired back, charging that IBM's WebSphere application server uses patented Amazon technology for refining searches.

MercExchange v. eBay has wound its way through the courts since 2001, all the way to the Supreme Court last year, when the justices heard arguments about the use of injunctions in patent cases. MercExchange was seeking an injunction against eBay. The justices ruled that patent litigation doesn't automatically necessitate an injunction blocking the use of infringing technology--as RIM faced. A judge can instead levy penalties. It was a landmark ruling, since an injunction can shut down a business, giving the patent holder considerable leverage when threatening litigation. The case returns to court June 11, to again argue the merits of an injunction with the new ruling as the backdrop.

The Supreme Court has shown a keen interest in patent cases the past two years. The high court ruled in another case last week over whether Microsoft infringed on AT&T's patented digital speech compression technology when selling Windows overseas. Microsoft already had been found guilty of violating AT&T's patents in the United States. The court ruled in favor of Microsoft, which had argued that holding it liable would have improperly extended U.S. patent law overseas and put U.S. software companies at a competitive disadvantage.

Another case the Supreme Court could consider is Quanta Computer v. LG Electronics. LG has patents it says cover combinations of processors and chipsets with other components such as buses and memory. Intel licensed the technology. But LG wants royalties from Intel's computer maker customers as well, such as Quanta, which argues it's a question about how far up and down the supply chain a company can extract royalties for patented technology. The high court has asked the solicitor general for input on the case, a sign it may take it up.

The cases show the Supreme Court justices taking to heart public criticism of the U.S. patent system, and the attention's likely to continue, says Harold Wegner, a patent attorney with Foley & Lardner. The court is working to update the system, says IBM's Kappos, to accommodate forces such as globalization, greater collaboration, open source innovation, and changing business models. "The court is realizing it's not just about the patents, it's about how people work," he says. "The court realizes there's more incremental innovation occurring all the time."

There's also patent reform legislation pending in the House and Senate. Many independent inventors and small companies oppose that legislation, saying it would make it easier for big companies--IBM has received the largest number of patents, by far, for 13 straight years--to use their deep pockets to bully them out of the process. Kappos says IBM's starting a wiki this week, calling it an Innovator's Forum, to give small companies a platform on patent reform.

The KSR decision's real impact is yet to be determined. Wegner considers it a "very moderate" opinion, making it a bit harder to get a patent and making it a bit easier for a jury to invalidate a patent. Thomas Woolston, the CEO of MercExchange, says he isn't worried. While the Supreme Court broadened the tests to prove a patent's nonobviousness, courts still must rely on evidence, not a "feeling" that something's obvious. That's all inventors want, he says. "All inventions are obvious in hindsight," Woolston says. Kappos likes the KSR decision because it will make it easier to distinguish the good patents from the bad ones.

So, is this a ruling that big and small inventors--two opposing camps on patent reforms--both can like? It seems so. That's the one thing everyone agrees on--that we need better, stronger patents. Because every inventor thinks his creation bears the mark of originality and genius.