- The Washington Times - Monday, April 30, 2007

The Supreme Court yesterday delivered two decisions that analysts say weaken the value of patents, prompting criticism that technological innovation, particularly in the biotechnology and pharmaceutical sectors, could be hindered.

In the more important of the two cases, the court made it simpler for companies to challenge patents on the grounds that they cover products that are obvious combinations of existing technologies. Under U.S. law, an invention must be new, useful and not obvious to merit a patent. The case involved Canadian company KSR International Inc. and Teleflex Inc., based in Limerick, Pa.

In the second case, the court curtailed the reach of U.S. patent laws overseas, ruling in favor of Microsoft Corp. in its dispute with AT&T; Inc. over Microsoft’s sale of Windows software outside the United States that AT&T; said infringed its patents. The decision likely will reduce damage awards in patent cases by excluding patent infringement overseas from consideration.

Boston University law professor Dennis Crouch wrote on a popular Supreme Court blog, Scotusblog, that “because of KSR, patents will be more difficult to enforce and easier to invalidate.”

“The AT&T; case,” he added, “cuts in half the value of many of today’s most valuable software patents.”

The Supreme Court’s recent interest in patent law it has taken up a half-dozen cases in the field in the past two years, an unusually large number reflects the greater role patents play in the U.S. economy, as companies earn more revenue from licensing patents. Patent litigation has increased by 50 percent in the last 10 years.

IBM Corp., which regularly tops the annual list of top U.S. patent recipients, receives about $900 million in revenue from licensing its patents and other intellectual property to other companies. David Kappos, assistant general counsel at IBM, said that figure is an increase from the “low millions” in the early 1990s.

Microsoft is a big winner in the two decisions yesterday. The court’s ruling in the AT&T; case throws out the use of worldwide product sales as a basis for calculating damages in patent-infringement suits, a formula that has resulted in large judgments against the company in other cases.

A jury hit Microsoft with $1.52 billion in damages earlier this year in a suit filed by Alcatel-Lucent, and a separate jury awarded Eolas Technologies Inc. and the University of California $521 million in damages from Microsoft. Both damage awards were calculated based on worldwide sales of Windows software.

In addition, Microsoft and many other high-tech companies, including Cisco Systems Inc. and Intel Corp., had filed friend of the court briefs in the KSR case, urging the court to ease the standard for demonstrating that a new product is obvious. The court largely decided as the companies had urged.

The companies wanted a more flexible “obviousness” standard that would make it easier for patent examiners to reject applications for trivial innovations or obvious combinations of existing products. Spurious patents have contributed to the recent increase in patent litigation, they argued.

Mr. Kappos said that the court’s decision means, “if you want a patent, you actually have to invent something.”

The biotechnology and pharmaceutical industries, meanwhile, were on the losing end of the KSR case. Groups from both industries filed friend of the court briefs in support of the obviousness test that the court ruled was applied too narrowly.

Hans Sauer, associate general counsel at the Biotech Industry Organization, which represents companies such as Amgen Inc. and Gilead Sciences Inc., said a weaker patent regime can make it more difficult for new biotech companies to attract venture capital or other investment.

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