Jeff and Claw, where r u?
Technology Companies Win as High Court Limits Patents (Update3)
By Greg Stohr
April 30 (Bloomberg) -- The U.S. Supreme Court gave businesses new protections from patent suits in two rulings, siding with technology companies including Microsoft Corp. and Intel Corp. and extending a trend toward limits on patent owners' rights.
The justices today made it harder for those applying for patents, as well as patent holders seeking to win infringement suits, to show they that have developed a genuine innovation. In a second ruling, the court limited suits over software exports, saying Microsoft doesn't owe damages to AT&T Inc. for copies of the Windows operating system installed on computers overseas.
Both rulings are victories for software companies, Web-site operators and other technology businesses that are frequent targets of patent litigation. Microsoft, Intel, Cisco Systems Inc., Time Warner Inc., Viacom Inc., Yahoo! Inc. and Amazon.com Inc. were among the companies that urged new patent restrictions in at least one of the two cases.
``These are dramatically important developments,'' said Emery Simon, a lawyer with the Business Software Alliance, whose members include Microsoft and Intel. He said the rulings would ``rebalance the law,'' which he said had tipped too far in favor of patent holders.
The ruling concerning patent validity overturned a decades- old test used by the lower court that handles all patent appeals. The case centered on the requirement that an invention be ``non-obvious'' and not simply combine prior inventions.
Too Much Power
The justices unanimously said the federal appeals court that handles patent cases had given too much power to developers of trivial technological improvements.
``Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress,'' Justice Anthony Kennedy wrote for the court.
The ruling threw out a Teleflex Inc. lawsuit that accused KSR International Inc. of using a patented invention for adjustable gas pedals. Automakers General Motors Corp., Ford Motor Co. and DaimlerChrysler AG backed KSR, along with the technology companies.
Other companies, more concerned about protecting their own patents, took the opposite side in the case. General Electric Co., 3M Co., Procter & Gamble Co., DuPont Co., Johnson & Johnson and trade groups for the brand-name drug and biotech industries signed briefs backing Teleflex in the case.
Putting Inventions Together
The U.S. Court of Appeals for the Federal Circuit had required challengers to show a ``teaching, suggestion or motivation'' -- typically in writing -- to put the earlier inventions together.
Kennedy said that test was too ``formalistic'' and doesn't account for industries in which ``market demand, rather than scientific literature,'' drives innovation.
The ruling didn't specifically lay out a new test, saying ``common sense'' should be a guiding principle for patent examiners and judges.
``The decision gives our examiners more flexibility to use their considerable technical skills to reject obvious changes to existing technology,'' said Jon Dudas, director of the U.S. Patent and Trademark Office.
The disputed Teleflex patent covered an electronic sensor combined with gas, brake or clutch pedals that adjust to the height of the driver. Teleflex said its method took less space than previous combinations.
Areas of Technology
Under today's ruling, ``the ability to obtain patents in all areas of technology in the U.S. will go down and the cost and time to get them will go up,'' said Teleflex lawyer Robert Sterne of Sterne Kessler Goldstein Fox in Washington.
Teleflex, based in Limerick, Pennsylvania, sold its auto- pedal business in 2005 to DriveSol Worldwide, an affiliate of Sun Capital Partners Inc., a private investment firm. Sun Capital has taken over the case.
KSR, based in Ridgetown, Ontario, makes adjustable pedals for GM's Chevrolet and GMC trucks and sport-utility vehicles.
The Supreme Court in recent years has limited the power of patent holders. In a decision last year involving EBay Inc., the nation's highest court said companies that have infringed a patent don't necessarily have to change their products.
``To say the decisions are anti-patent is too strong a word, but the decisions, on balance, disfavor patent owners,'' said Gene Lee, a patent lawyer with Ropes & Gray in New York. ``They are something of a reaction to a widespread perception that patents need to be reined in a little.''
Narrowing the Law
In the Microsoft case, the court voted 7-1 to narrow a law that applies U.S. patent rights beyond the country's borders in some circumstances. The Federal Circuit had sided with AT&T, which sued Microsoft for infringing a patent covering digital voice transmissions.
``If AT&T desires to prevent copying in foreign countries, its remedy today lies in obtaining and enforcing foreign patents,'' Justice Ruth Bader Ginsburg wrote for the majority.
Justice John Paul Stevens dissented. Chief Justice John Roberts, who owns Microsoft stock, didn't participate.
Yahoo, Intel and Amazon.com backed Microsoft in the case. Other software companies, including Oracle Corp. and Sun Microsystems Inc., had joined Microsoft in pressing Congress to enact similar changes to federal patent law.
AT&T had support from patent-holders including Royal Philips Electronics NV and the University of California.
Expired Patent
The fight concerned an AT&T patent, now expired, that covered a way to send voices digitally without making them sound like machines. The decades-old technology is part of the global cellular phone standard. AT&T said Microsoft lacked permission to use the invention in the NetMeeting and TrueSpeech programs, which are part of Windows.
AT&T, the largest U.S. phone company, at one point sought as much as $300 million from Microsoft, the world's largest software maker. The two companies settled much of their dispute in 2004, leaving open the question that was before the Supreme Court.
Microsoft said it will use today's ruling to ask judges to cut more than $1 billion from jury verdicts it lost in two other patent cases. The company is fighting a record $1.52 billion verdict in a case won by Alcatel-Lucent, and a $521 million verdict in a case filed by the University of California and an Illinois company.
``It's a great ruling that will reduce substantially our exposure and potential exposure in these patent cases,'' said Andy Culbert, Microsoft's chief patent counsel. ``We have 45 pending cases, and I would say this case affects at least 43 of them.''
1984 Law
The issue at the Supreme Court concerned a 1984 law aimed at preventing companies from circumventing U.S. patent rights by shipping components overseas to be assembled into an infringing product. The export law says supplying those components constitutes patent infringement.
The court majority said that provision doesn't apply because the versions of Windows Microsoft sends to foreign computer makers -- either on ``golden master'' disks or as encrypted digital files -- don't end up on computers. Computer makers instead create copies of Windows for installation.
``The copies of Windows actually installed on the foreign computers were not themselves supplied from the United States,'' Ginsburg wrote.
AT&T said Microsoft's position would effectively exempt the software industry from the export provision.
The Bush administration largely backed Microsoft at the Supreme Court, saying the reasoning of the Federal Circuit court would have put U.S. software companies at a competitive disadvantage.
The cases are KSR International v. Teleflex, 04-1350, and Microsoft v. AT&T, 05-1056.
To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net .
Last Updated: April 30, 2007 18:33 EDT
