31 October 2008

The Three Cases That Changed Patent Law

Three important court cases, one each in 2006, 2007 and 2008 have dramatically changed patent law for the better.

In December of 2005, at a time when a patent dispute threatened to shut down the entire Blackberry wireless PDA system, the Los Angeles Times argued on its editorial page that:

[T]he U.S. patent system is profoundly flawed. Too many patents are issued for "innovations" that are obvious, vague or already in wide use. Too many patent holders try to extend their claims to devices and services that weren't even contemplated when the patents were granted. And it's a difficult, costly exercise to overturn a questionable patent after it has been awarded.

Compounding the problem, federal courts have been quick to hand patent holders a sledgehammer when their patents have been infringed. The appeals court in Washington takes the position that, except in exceptional circumstances, courts must issue permanent injunctions to stop infringers from using the inventions in dispute.

Research in Motion, which owns the Blackberry patent, ultimately caved and settled the patent case against it for more than $600 million. But, the law soon changed.

A few months after the Blackberry case settled, the U.S. Supreme Court issued a unanimous ruling in eBay Inc v. MercExchange, L.L.C., 547 U.S. 388 (2006). The ruling reduced the availablity of injunctive relief in patent law cases by holding that:

[A]n injunction should not automatically issue based on a finding of patent infringement, but also that an injunction should not be denied simply on the basis that the plaintiff does not practice the patented invention. Instead, a federal court must still weigh the four factors traditionally used to determine if an injunction should issue whenever such relief is requested.

The following year, the Supreme Court came to a unanimous decision in KSR International v. Teleflex, that broadened the definition of "obviousness" for patent law purposes beyond the narrow test previously applied by the U.S. Court of Appeals for the Federal Circuit. Since "obvious" inventions can't be patented, this narrowed the scope of matters which can be patented.

The "obviousness" test is particularly important in business method cases, because many are borderline obvious. As I explained at the time:

The SCOTUS analysis in KSR holds that patents must be reviewed to see if the proposed solution is obvious to solve any problem, not just the problem identified in the patent. It holds that "prior art" includes not just prior efforts at solving the problem identified in the patent, but also prior efforts to solve similar problems in other fields. And, finally, it ruled than when there are only so many ways to solve a problem which a skilled person in the field might have considered, that all of those possibilities are obvious, because that solution would have been "obvious to try" for a skilled person in the field, even though a skill person in the field would not have known just which solution would work best until a little experimentation was conducted.

Yesterday's en banc decision of the U.S. Court of Appeals for the Federal Circuit, which has exclusive jurisdiction over patent appeals, was no doubt emboldened by the two previous unanimous decisions of the U.S. Supreme Court. The In re Bliski decision further narrowed the scope of patentability, primarily in business patent cases, that have come under attack for allowing ideas like tax planning strategies to be patented. It basically reversed a 1998 decision in the State Street Bank case that had opened the door to business method patents. Under the new rule, a business method patent is available only if it is (1) tied to a particular machine or apparatus, or (2) transforms a particular article into a different state or thing. Thus, a purely procedural or mental business method cannot be patented now.

These three cases, taken together, will take a lot of heat away from the legislative effort to reform patent law, led by those who saw junk patents on business methods, a patents of small, mildly innovative elements of a complex high tech device discovered independently, as a threat to innovation.

As indicated by the amicus briefs in the Bliski case, the leading proponents of big business are divided on the issue, even within particular industries. Legislators are rarely able to take such decisive action in an area usually delegated to specialists, in the face of well financed lobbies on both sides of an issue. Legislators have even less incentive to do so now that the courts have changed their course and artfully addressed public concerns about patent law using the existing statutes.

Off stage, so to speak, in the Patent and Trademark Office, improved training and increased resources devoted to the examination of patents, funded in part with increased patent application fees, has also improved the rigor with which weak patents are weeded out in advance.

The new case law also discourages "counter-revolution" because the reforms wraught by these cases will be implemented slowly. Patents last a couple of decades once issued, and the most liberal interpretations of patent law have been in place for only a decade, so patents issued under the old law have many years left to run on them. Barring a major administrative effort, few patents which were issued under the old law, but are doubtful under the new law, will be revoked after they have been issued.

A recently enacted "pro-IP" law (see here and here) primarily concerned itself with remedies in copyright cases and "orphan copyright" situations where copyright owners cannot be located. But, it could indirectly impact IP law by creating an "Intellectual property czar" in the White House office. However, there is little indication that a President Obama will appoint someone to this post who will upset the apple cart that the U.S. Supreme Court and U.S. Court of Appeals for the Federal Circuit have carefully put in place in these three cases.

Existing patent holders have an incentive to let sleeping dogs lie. An unrevoked patent has considerable legal value because it is entitled to presumptive validity in litigation. But, the new law will still discourage holders of dubious patents from enforcing them, because the patentability and obviousness defenses that can be asserted in litigation will be much more likely to prevail, and because it will be harder for plaintiffs to obtain injunctions if they prevail, which can richly reward a patent law plaintiff (usually a "patent troll" assignee of the true inventor with no active trade or business) with a far larger share of the profits than would have been obtained if negotiations took place before the invention had shown economic success.

Economists who are sometimes oblivious of these legal developments may bemoan an apparent decline in American innovation as demonstrated by a reduced number of patents issuing in the wake of these decisions. But, in fact, by reducing uncertainty, patent law better protects innovators who can never know for sure if their inventions and ideas are non-infringing, because it is impossible to adequately index ideas that patents embody.

The consensus heartland of patent law, like patents on genuinely new drugs and inventions, remains largely unaffected by these cases. But, the nebulous gray areas of patent law, which so distress businesses in the high tech area and civil liberties proponents (the ACLU filed one of the amicus briefs in the Bliski case in favor of the side that ultimately won), can rest easier now.

With the patent law problems that existing at the end of 2005 largely solved, it is now time to examine the more familiar, but also more difficult question of how to prevent copyright laws from creating innovation gridlock in our economy. The greater detail found in the statutory and intentional treaty framework of copyright law, the greater number of players who understand it, and the greater number of forums in which it plays out all combine to make this a thornier problem to address.

No comments: