Three months after the Supreme Court handed down what many called a landmark patent decision, judges have begun to rule in favor of companies defending themselves against infringement lawsuits -- in one case dismissing a suit and in another ordering a review.
Last week, a federal judge in San Francisco who previously had allowed a patent-infringement lawsuit to proceed against RealNetworks Inc. changed course and dismissed the case, citing the Supreme Court's April ruling in KSR v. Teleflex. The case is believed to be the first in which a trial-court judge has reversed his position and dismissed a case in the defendant's favor, citing the KSR decision.
RealNetworks was sued in 2003 by Friskit Inc., a patent-licensing company based in San Francisco, over technology for organizing and playing video and audio files. The judge ruled that Friskit's patent claims were nothing more than obvious combinations of elements publicly available, including RealNetworks' own Internet products. Judge William Schwarzer concluded that "the idea of integrating these different components was not novel."
The KSR decision turned on the notion of "obviousness," one of the bedrock doctrines of patent law. The Supreme Court laid out the obviousness doctrine in 1851, saying that a patent requires more "skill and ingenuity" than that of "an ordinary mechanic acquainted with the business." Since virtually every litigated patent case includes an assertion of obviousness, and since the U.S. patent office examines patent applications for obviousness, many legal commentators have called KSR the most important patent case in decades.
"Patentees have long had the upper hand in patent litigation but the KSR case has shifted that balance of power back to defendants," said Dennis Crouch, a law professor at the University of Missouri.
In KSR, the Supreme Court rejected a "rigid" application of existing tests for obviousness in favor of a more "expansive and flexible approach" that would give judges more discretion. If a person of ordinary skill in the relevant subject area would "be able to fit the teaching of multiple patents together like pieces of a puzzle" then the patent is obvious, the Supreme Court ruled.
Some experts in law and economics think affording judges discretion in analyzing an obviousness defense is not a good thing. "Flexibility has an Achilles' heel, which is that people with the biggest lobbying and litigation budgets, and the best public relations, win," said Scott Kieff, a law professor at Washington University in St. Louis, who has argued for predictable rules in the patent system. "Flexibility really means that the company that can fight the hardest and shout the loudest wins the attention of the person with the flexibility to use his own discretion."
Technology and financial services companies were particularly hopeful after the Supreme Court ruling. These companies in recent years have faced a flood of costly patent-infringement lawsuits, often brought by patent-licensing and -holding companies often derisively called "patent trolls" -- that buy up patents with the aim of obtaining royalties from alleged infringers. These companies and other patent holders argue that courts should vigorously protect ownership rights or companies will be unwilling to take the risks necessary for innovation.
More decisions like the RealNetworks case could give companies leverage against patent-holding firms and pressure those firms to settle disputes rather than risk a court ruling invalidating their patents outright. Though only one case at the trial-court level, it was handed down in the San Francisco Bay Area, where many patent-infringement disputes are heard because of the heavy concentration of technology companies. The court is known as being more defendant friendly in these cases as opposed to, say, the Eastern District of Texas, which has become famous for big plaintiff-friendly jury verdicts.
The KSR ruling has also affected the U.S. Patent and Trademark Office, whose examiners review every patent application for obviousness. After KSR, the patent office issued a short memorandum to its examiners suggesting that the decision wouldn't have a major impact on the examination process. Still, an appeals panel at the patent office has cited KSR in at least three recent rulings upholding an examiner's rejection of a patent on the grounds of obviousness.
Meanwhile, companies defending patent lawsuits are invoking KSR with mixed results, and it's still too early to tell whether the RealNetworks case will be a forerunner to similar decisions.
| • | How a patent ruling Is changing court cases
The Wall Street Journal, Tuesday, July 31, 2007 Byline: Peter Lattman |
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