In a unanimous decision yesterday, the U.S. Supreme Court revised existing patent law, unleashing uncertainties that justices indicated are also intended to promote innovation.
The decision changes the balance of power between patent holders and the rest of the world, making it easier for businesses to defend themselves against accusations that they infringed on an existing patent, experts said.
The court's decision implied that the system needs correction because it had tilted too far in favor of granting patent protection, in many cases to ideas that were obvious and therefore not worthy of being patented.
"This is an activist court in respect to patent reform," said Lee Eulgen, a Chicago attorney specializing in intellectual property. "The court seems to be displeased with the snail's pace of patent reform chugging along and has taken it upon itself to push the law on key precepts that have been in place a long time."
Making it easier to challenge patents is expected to diminish the value of many existing patents, and that may require corporations to notify shareholders of reduced assets in their intellectual property holdings. Yesterday's decision also could be good news for Vonage Holdings Corp., which has been locked in a life and death patent-infringement struggle with Verizon Communications Inc.
The decision also could put a brake on patent applications that have tripled over the past two decades to about 440,000 a year.
One certainty that lawyers expressed about the new direction set by the court is an increase in patent litigation.
The case turned on a decision by the U.S. Court of Appeals upholding a patent for an adjustable gas pedal. KSR International Inc. was defending itself in a patent-infringement lawsuit brought by Teleflex Inc. The Supreme Court threw out the Teleflex patent claim, which relates to a system that combines sensor technology with a mechanism that automatically sets the height of vehicle control pedals to suit drivers of differing size.
Combining the two concepts was obvious, the justices ruled.
In the other case, the high court ruled that AT&T Inc. couldn't collect damages against Microsoft Corp. for patented software sold in other countries.
The two decisions taken with an opinion earlier this year allowing businesses to challenge a patent's validity even as they pay royalties to patent holders shifts power away from patent holders.
"Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress and may ... deprive prior inventions of their value," wrote Justice Anthony M. Kennedy.
Both decisions won praise from technology and software companies that are frequent targets of patent-infringement lawsuits.
"These decisions are a clear victory for promoting patent quality and more equitable damages standards," said Robert Holleyman, chief of the Business Software Alliance trade group.
For Vonage, which is appealing a patent-infringement suit brought by Verizon, the high court made it easier to argue that Verizon's patents should be invalidated because they combine well-known concepts of Internet telephony with wireless phone networks.
"Vonage is trying to invalidate Verizon's patents," said John Fuisz, a Washington patent lawyer. "I'm sure the KSR decision will help them."
While the patent system is intended to foster innovation by protecting intellectual property, critics say it can stifle innovation if taken too far. Many technology companies argue that the proliferation of marginal patents and infringement lawsuits makes it difficult to do business.
"In the past decade, patent judges have been vigorously expanding the scope of U.S. patent law," said Ben Klemens, an economist who wrote Math You Can't Use, a book about patenting software. "The Supreme Court has made it clear they wish to put an end to that expansion."
In recent years patents have been granted that cover mathematical algorithms and business practices. Processes such as using a computer mouse to make an online purchase have been covered by numerous patents.
Some patents are quite broad, Klemens said. One held by Acacia Research Corp. covers virtually all online media. The firm has sought royalty payments from universities that use the Internet for distance learning.
"These patents cover things, like the Internet, that are so obvious no one else bothered to apply for a patent," Klemens said.
Patent proliferation has spawned businesses called "patent trolls" that use their broad patents to threaten businesses with lawsuits if they don't pay royalties, said Cynthia Kernick, a Pittsburgh-based patent attorney.
The decision could discourage enforcement of marginal patents, Kernick said. "Now that it's easier to dispute a patent using obviousness, lawyers may be less willing to represent patent trolls on a contingency basis," Kernick said.
Steve Szczepanski, an intellectual property attorney in Chicago, said the anti-patent decision "has introduced a lot of uncertainty. There will be a lot of litigation. The court has thrown out the existing standard without replacing it. I'm not sure how the patent office will deal with it."
Because patents granted under the old standard are now vulnerable to challenge, companies with large intellectual property portfolios will have to reassess the value of their patents, said Alan Thiele, an intellectual property attorney based in San Antonio. "Under the Sarbanes-Oxley law, any substantial decline in value must be reported," Thiele said. "Companies could be held liable under Sarbanes-Oxley if they fail to look at the record of each patent to determine its vulnerability."
Jon Van writes for the Chicago Tribune.