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The Impact of Recent Supreme Court Decisions on Patent Protection
Three recent decisions of the United States Supreme Court--Microsoft Corp. v. AT&T Corp., KSR International Co. v. Teleflex Inc., and eBay Inc. v. Mercexchange, L.L.C.--will affect, to varying degrees, the ability of patent holders to maintain the validity of their patents, protect their patents from infringement and obtain permanent injunctions as a remedy against proven infringers. These decisions of the Supreme Court will undeniably make it more difficult for patent holders to exclude others from infringing upon and unlawfully using their patented devices, processes and business methods, especially if the patent happens to cover a device or process in the area of computer software, biotechnology or chemistry. This client advisory will explain the law prior to these decisions and how these decisions have, and will likely, change the rights of patent holders.
KSR International Co. v. Teleflex Inc.
Under §103 of the Patent Act, an invention cannot be patented “if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.” The Supreme Court first interpreted this provision of the Patent Act in its 1996 case Graham v. John Deere Co, 383 U.S. 1 (1966). In Graham, the Supreme Court set forth a three-prong analysis that courts must apply when determining whether a patent meets §103’s originality requirement. Specifically, a court must look at: (1) the scope and content of the prior art; (2) the difference between the prior art and the claims at issue; and (3) the level of ordinary skill in the pertinent art resolved by the patent. 383 U.S. at 18. These factors became, and continue to be, the benchmark test used by courts around the country to determine whether particular claims in a patent, or the patented invention as a whole, meets the originality requirement necessary for patentability.
In or around 1982, the Federal Circuit, in an attempt to resolve the question of a patent’s or patent claim’s originality in a more uniform fashion, instituted the “teaching, suggestion, or motivation” (TSM) test. Under the TSM test, a patent is considered obvious if some implicit or explicit teaching, suggestion or motivation exists which would have compelled a person of ordinary skill in the art to combine the relevant prior art teachings which lead to the patented invention. If applied broadly and flexibly, as in the recent Federal Circuit cases of Dystar Textilfarben BMBH & Co. Deutschland KG v. C.H. Patrick Co., Alza Corporation v. Mylan Laboratories, Inc., and Boeing Company v. United States, application of the TSM test would lead to exactly the same result as application of the Graham factors. Indeed, the Federal Circuit in each of these cases applied both the Graham factors and the TSM test to the facts and circumstances present. As applied in these cases, the TSM factors are consistent with Graham and merely create a concrete test to ensure that the obviousness inquiry is conducted “at the time the invention was made” as mandated by §103.
Despite the preponderance of literature touting the severe consequences that will result from the Supreme Court’s decision in KSR International Co. v. Teleflex Inc., we believe that the decision may not have a serious effect on a patent holder's ability to prove the non-obviousness of its patented inventions and processes. The Supreme Court, did not, as some articles state, overrule the TSM test. Rather, the Court found that the Federal Circuit misapplied the test by narrowly and rigidly limiting its application. Specifically, the Federal Circuit misapplied the TSM test by: (1) looking only to the problem the patentee was trying to solve and not broadly at the needs and problems addressed by the patent and known within the field at the time of the invention; (2) assuming that a person of ordinary skill attempting to solve a problem would only look to prior art designed to solve the same problem; (3) concluding incorrectly that “a patent claim cannot be proved obvious merely by showing that the combination of elements was “obvious to try””; and (4) focusing too heavily on the risk of courts and patent examiners to fall prey to hindsight bias.
The Supreme Court stated that
In determining whether the subject matter of a patent claim is obvious, neither the particular motivation nor the avowed purpose of the patentee controls. What matters is the objective reach of the claim . . . One of the ways in which a patent’s subject matter can be proved obvious is by noting that there existed at the time of invention a known problem for which there was an obvious solution encompassed by the patent’s claims . . . The question is not whether the combination was obvious to the patentee but whether the combination was obvious to a person with ordinary skill in the art.
The main problem with the Federal Circuit’s application of the TSM test in KSR, is that the Federal Circuit by looking solely at the particular motivation or avowed purpose of the patentee in inventing the product or process, focused too heavily on what was obvious to the patentee, rather than what would have been obvious to an ordinary person skilled in the art. This inquiry transformed what would should have been an objective test of obviousness into a subjective one.
The Patent Office has issued a preliminary memo to patent examiners reaffirming the Graham factors and effectively stating that KSR merely rejected the “rigid application” of the TSM test, not the TSM test itself. Rejections of patent claims on the basis of obviousness are still required to explain why a person of ordinary skill would have combined particular prior art elements as claimed in the patent.
Because of the patent office’s advisory as well as the specific language of the KSR opinion, we feel that this case may not have a substantial impact on obviousness determinations, both in the courts and before patent examiners. The only finding in the KSR opinion which may adversely impact patent holders or those parties seeking to obtain patents, is the Courts statement that:
When there is a design need or market pressure to solve a problem and there are a finite number of identified, predictable solutions, a person of ordinary skill has good reason to pursue the known options within his or her technical grasp. If this leads to the anticipated success, it is likely the product not of innovation but of ordinary skill and common sense. In that instance the fact that a combination was obvious to try might show that it was obvious under § 103.
This finding appears to broaden the scope of what would be considered obvious to include not only those solutions mentioned in the prior art immediately associated with the invention, but also those techniques or processes outside of the associated prior art which would be considered obvious to a person of ordinary skill in the art. Only time will tell how narrowly or broadly, courts will interpret the reach of this “obvious to try” provision. The more broadly it is interpreted, however, the more difficult it will be for patent applicants to meet §103’s obviousness requirement and the easier it will be for opposing parties in litigations to establish that a patent is invalid for obviousness reasons.
Microsoft Corp. v. AT&T Corp.
Typically there is no patent infringement of a U.S. Patent when a patented product is made and sold in another country because the reach of the Patent Act’s jurisdiction is generally confined to actions which occur within the United States. An exception to this rule is §271(f) of the Patent Act, which makes it an act of infringement for a party to “supply . . .in or from the United States all or a substantial portion of the components of a patented invention . . .in such a manner as to actively induce the combination of such components outside of the United States.” This provision was drafted in response to the Supreme Court’s decision in Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972), in which the Court found that a party who manufactured within the United States all of the components of a patented product and then shipped those components overseas for assemblage was not guilty of infringement under the Patent Act because the language of the Patent Act specifically stated that the acts of infringement must occur “within the United States.”
Recently, there have been several litigations surrounding the appropriate application of this exception. In Microsoft Corp. v. AT&T Corp., the Supreme Court addressed the issue of whether computer software sent from the United States to a foreign manufacturer in the form of a master disk, then copied by the foreign recipient and installed on computers made and sold abroad constitutes infringement under §271(f). The Supreme Court, in holding that any software detached from an activating medium is “uncombinable” and therefore outside of the accepted meaning of “components” amenable to “combination” as set forth in the statute, created a loophole in the law, making the copying, use and creation of a patented process or product, so long as such actions occur abroad, unpunishable under the Patent Act.
This decision will likely have a large impact on the technology, biotech and chemical industries because the language of the decision makes it highly unlikely that a court will consider an intangible step of a patented method or process claim to be a “component” for purposes of infringement under §271(f). This means that patent holders in these areas will need to take further steps, in addition to applying for a U.S. patent, to protect their rights to exclusive use of their patented inventions. This will include filing for patent protection in each foreign jurisdiction where there is a market for the patented product. This procedure can be a bit complicated and expensive, but it is necessary to protect a patentee’s rights in a foreign country.
eBay Inc. v. Mercexchange, L.L.C.
Up until the Supreme Court decided this case, permanent injunctions were generally granted in patent infringement cases if the patent was adjudged valid and the defendant was found to have infringed upon the patent. The Supreme Court, in eBay, Inc. v. Mercexchange, L.L.C., rejected this general rule, stating that plaintiffs claiming infringement under the Patent Act must meet the traditional four-factor test typically applied by courts of equity to determine whether to award a permanent injunction. Now, to be awarded a permanent injunction as relief for infringement, a patent holder will have to establish that: (1) it has suffered an irreparable injury; (2) remedies available at law are inadequate to compensate for that injury; (3) the balance of the hardships between the patent holder if not granted an injunction and the infringer if an injunction is granted weighs in favor of granting the injunction; and (4) it is not against the public interest to issue an injunction.
This decision will make it far more difficult for patent holders to obtain a permanent injunction in patent infringement cases, unless the infringer is a direct competitor of the patent holder and the patent holder can show that monetary damages are insufficient to compensate for the patent holder’s loss. Oftentimes, however, this will not be the case and patent holders will have to settle for monetary damages.
The recent Supreme Court decisions discussed above will, to varying extents, impact the way patent holders and patent applicants need to think about enforcement and protection of their patent rights. It appears that the overall trend of the Supreme Court is to move further away from the stringent laws and protections that once existed for patent holders and more towards the balance between protecting the inventor’s rights and encouraging innovation that we have previously witnessed in Copyright law. As the laws shift, patent holders need to take a more proactive role in securing and protecting their rights.
Questions regarding this client advisory should be directed to Keith D. Nowak at (212-238-8610, email@example.com) or Pamela Shelinsky (212-238-8740, firstname.lastname@example.org).
 Courts may also consider “commercial success, long felt but unresolved needs, failure of others . . . to give light to the circumstances surrounding the origin of the subject matter sought to be patented.” Id.
 35 U.S.C. §271(a) provides that a person who “makes, uses, offers to sell, or sells any patented invention, within the United States . . . infringes the patent.” (emphasis added)
 See, e.g., Union Carbide v. Shell Oil Co., 425 F.3d 1366 (Fed. Cir. 2005); Eolas Technologies Inc. v. Microsoft Corp., 399 F.3d 1325 (Fed. Cir. 2005); Pellegrini v. Analog Devies, Inc., 375 F.3d 1113 (Fed. Cir. 2004).
 See, e.g., Mercexchange, L.L.C. v. ebay, Inc., 401 F.3d 1323, 1338 (Fed. Cir. 2005). vacated by 126 S.Ct. 1837 (2006) (“Because the right to exclude recognized in a patent is but the essence of the concept of property, the general rule is that a permanent injunction will issue once infringement and validity have been adjudged.”); Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1246-47 (Fed. Cir. 1989) (“It is the general rule that an injunction will issue when infringement has been adjudged, absent a sound reason for denying it.”).
Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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