Patent Litigation Alert
Patents Continue to be Supreme IssueThe last few years have seen an unusual flurry of activity relating to patent law at the United States Supreme Court. During this time, the Court has decided several important patent cases, including last term’s eBay v. MercExchange decision clarifying the standard for granting or denying permanent injunctions in patent infringement cases. Last month, the Court picked up where it left off by hearing arguments in another important patent case. A second important patent case is slated to be argued this month, and the Court recently decided to hear a third patent case this term. This article discusses each of these cases: Medimmune v. Genentech, KSR International v. Teleflex, and Microsoft v. AT&T. Medimmune v. Genentech: When Can a Licensee Sue?The first case, argued on October 4, 2006, is Medimmune, Inc. v. Genentech, Inc. The issue in Medimmune is how far a patent licensee must go before it can file a preemptive lawsuit on a patent to which it took a license. Specifically, must a licensee refuse to pay royalties or otherwise materially breach a license agreement before it can sue to obtain a declaratory judgment that the patent is invalid, unenforceable, or not infringed? Article III and the Declaratory Judgment ActArticle III of the Constitution limits the possible jurisdiction of the federal courts to “cases" and "controversies.” The Declaratory Judgment Act allows a party to file a lawsuit to try to defeat a claim on which it fears being sued. This gives the prospective defendant an opportunity to choose the time and place of the lawsuit. Even though a declaratory judgment lawsuit is preemptive in a sense, the Constitution still requires that a “case" or "controversy” exist before a federal court can hear the suit. The Declaratory Judgment Act thus requires an “actual controversy” within a federal court’s jurisdiction before that court can make a declaratory judgment on a claim. Courts have interpreted this to mean that a potential defendant must have a “reasonable apprehension” of being sued before it can raise that claim in federal court as a declaratory judgment plaintiff. The Medimmune DisputeThe dispute in Medimmune arose when the patentee informed the licensee that one of the licensee’s products was covered by a licensed patent and thus subject to royalties under the license agreement. The licensee objected and filed a suit asking for a declaratory judgment that the patent is invalid or unenforceable. The licensee, however, continued to pay the license royalties to the patentee. The Federal Circuit held that the licensee could not bring a declaratory judgment suit to challenge the patent in these circumstances. For the court, the key fact was that the licensee had continued to pay royalties on the patent and did not otherwise breach the license agreement. The court found that this meant the patentee could not terminate the license and the licensee was therefore running no risk of being sued by the patentee on a licensed patent. For this reason, the court concluded, the licensee lacked the “reasonable apprehension” of being sued by the patentee that would allow the licensee to take matters into its own hands under the Declaratory Judgment Act. The licensee is asking the Supreme Court to rule that it can sue to neutralize the patent while still abiding by the license agreement in case its suit does not succeed. Medimmune Decision May Affect Balance of Power between Patentees and LicenseesThe Supreme Court’s decision may affect the balance of power between patentees and licensees. If the Supreme Court allows licensees to sue without first breaching the license agreement, then licensees may be able to attack licensed patents without themselves being vulnerable to claims for breach of contract or patent infringement by the patentee. If the Supreme Court affirms the current Federal Circuit rule, then licensees will still face the risk of contract and/or patent liability if they wish to free themselves from royalty obligations through a declaratory judgment lawsuit. KSR International v. Teleflex: When Is a Claimed Invention Obvious?Also on the Court’s docket this term is KSR International Co. v. Teleflex Inc. This case is scheduled to be argued on November 28, 2006. The issue in KSR is whether the Federal Circuit is applying the right test for deciding whether a claimed invention is obvious. Specifically, must there be a proven “teaching, suggestion, or motivation” that would have led a person of ordinary skill in the art to combine prior art references in the manner claimed by a patent before an invention can be deemed obvious and thus unpatentable? The “Graham Factors” for Deciding Whether an Invention Is “Obvious”The Patent Act says that an obvious invention cannot be patented. In particular, under 35 U.S.C. § 103, a patent claim is invalid when the differences between the claimed invention 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.” In a 1966 case called Graham v. John Deere, the Supreme Court identified four factors that guide the inquiry into whether a claimed invention is obvious. These “Graham factors” are: (1) the scope and content of the prior art; (2) the skill level of a person of ordinary skill in the art; (3) the differences between the claimed invention and the prior art’s teachings; and (4) any objective indicia of non-obviousness, such as commercial success. Federal Circuit Also Applies “Teaching-Suggestion-Motivation” TestWhen an obviousness argument is based on multiple prior art references, the Federal Circuit also requires proof of a “teaching, suggestion, or motivation” that would have led a person of ordinary skill in the art to combine the references in the manner claimed by the patent. This requirement is often referred to as the “teaching-suggestion-motivation test.” The Federal Circuit has applied this test for more than 20 years. In KSR, the Federal Circuit held that the district court did not correctly apply the teaching-suggestion-motivation test in invalidating a patent claim as obvious. The Federal Circuit said that the district court needed to make specific findings concerning what would have led one of ordinary skill in the art, without knowledge of the claimed invention, to combine prior art in the manner claimed by the patent. Before the case was sent back to the district court, the defendant took the case to the Supreme Court to challenge the teaching-suggestion-motivation test itself. KSR Decision May Affect Ease of Obtaining Patent and Defending It from Obviousness ChallengesThe Supreme Court’s decision may affect how easy or difficult it is to obtain a patent and defend it from an obviousness challenge. If the Supreme Court rejects the teaching-suggestion-motivation test and does not replace it with an equally or more stringent test for invalidating a patent, then some patents will likely be more difficult to obtain and easier to invalidate. Of course, as last term’s eBay case showed, other outcomes between unqualified rejection and simple acceptance of the Federal Circuit’s rule are possible. In all events, while the attention it receives may not be quite so widespread, KSR is likely to rank with eBay as one of the most closely watched patent cases at the Supreme Court in years. Microsoft v. AT&T: When Can Software Exports Infringe a Patent?On October 27, 2006, the Supreme Court decided to hear Microsoft Corp. v. AT&T Corp. This case raises two important questions relating to the scope of patent infringement liability based on exported software products that are replicated outside the United States. Both questions involve the interpretation of 35 U.S.C. § 271(f). Section 271(f) imposes liability in certain situations where a component or components of a patented invention are supplied in or from the United States for use in assembling the invention outside the United States. The first question is whether software may be a “component” of a patented invention under section 271(f). The second question is whether software is “supplied from the United States” when it is replicated abroad from a master version that was exported from the United States with the intent that it be replicated. The Federal Circuit answered “yes” to both questions. The Supreme Court’s decision may affect a patentee’s ability to recover damages under section 271(f) based on certain sales that take place outside the United States. Arguments are expected to be heard in this case in early 2007. Decisions in Medimmune, KSR, and Microsoft are expected before the end of June 2007.
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