Supreme Court reins in patent power

WASHINGTON — Patents should not be ironclad protection for inventors because some inventions aren't unique, the Supreme Court ruled Monday.

In a pair of decisions, one in a high-profile case that pitted Microsoft against AT&T, the court limited the legal rights of inventors and gave judges more flexibility in dealing with patent lawsuits.

"If a company has a portfolio of patents, they're less valuable today than they were a year ago," said Dennis Crouch, a visiting law professor at Boston University and author of a popular patent-law blog.

The U.S. patent system has been under fire for issuing too many dubious patents in response to a flood of applications triggered by the growth of new technologies over the past two decades.

At the same time, the computer industry has learned patents can be more trouble than their worth.

Laptops and other gadgets can be built on thousands of patented components, and a dispute with one small patent holder can lead to expensive lawsuits that drive up prices or force products off the market.

"U.S. patent law needs to encourage an innovation environment," said Mark Chandler, general counsel and senior vice president for Cisco Systems. "Lately it's been encouraging a litigation environment."

The Supreme Court has tried to recalibrate the system for the 21st century, largely backing the computer industry's approach in contrast to the more restrictive view of patent-holder rights advocated by pharmaceutical and biotechnology companies.

The latter argue patents should be strongly protected because a drug can cost billions of dollars to bring to market and usually is based on a exclusive medical advance.

One of Monday's rulings makes it easier to challenge patents on grounds that they don't protect truly one-of-its-kind innovations. The other limits the reach of U.S. software patents abroad.

In another ruling last year, in a case involving eBay, the high court made it harder for judges to order disputed products off the market.

"All of them reflect a concern at the Supreme Court that the patent system has strayed too far to the side of patent owners," said Philip Swain, a patent attorney with Foley Hoag in Boston. "They're trying to push the pendulum back toward the middle."

Congress is considering major changes to the patent system as lawsuits have soared in the past decade, threatening popular products such as the Research in Motion's BlackBerry e-mail device.

On Monday, the Supreme Court ruled 7-1 that Microsoft didn't violate AT&T's patented digital speech-compression technology in Windows software sold overseas.

U.S. patents aren't valid abroad, but a 1984 law prevents companies from circumventing inventors' rights by simply assembling products in foreign countries from components produced here.

Microsoft argued that its software code wasn't a physical component, just a series of digital data. The justices agreed.

The decision could cut damages in patent suits dramatically because software companies sell about half their products abroad.

It could save Microsoft more than $1 billion as the company asks courts to review two recent jury awards against it that were based on worldwide sales.

The court's most significant decision Monday involved a dispute over adjustable automobile gas pedals. Teleflex, of Limerick, Pa., developed the pedal and got a patent.

Then its Canadian rival KSR International created a similar pedal. Teleflex sued.

A Michigan court ruled in 2002 that Teleflex's pedal was just an obvious combination of existing patented components and shouldn't have been granted a patent in the first place. The U.S. Court of Appeals for the Federal Circuit reversed the decision, saying the Michigan court didn't follow its strict test for determining when an innovation was "obvious."

The justices ruled unanimously that the appeals court's test was too "narrow" and "rigid" and tossed the suit.

Each invention sets a higher bar, meaning "the results of ordinary innovation," Justice Anthony Kennedy wrote, should not receive patent protection.

He added that standards for judging patents should be flexible to accommodate the needs of different industries.

David Kappos, assistant general counsel at IBM, said the court's decision means, "if you want a patent, you actually have to invent something."

The Supreme Court's recent interest in patent law — it has taken up a half-dozen cases in the past two years, an unusually large number — reflects the greater role patents play in the U.S. economy, as companies earn more revenue from licensing patents. Patent litigation has increased by 50 percent in the last 10 years.

IBM, which regularly tops the annual list of top U.S. patent recipients, receives approximately $900 million in revenue from licensing its patents and other intellectual property to other companies.

IBM's Kappos said that figure is an increase from the "low millions" in the early 1990s.

In its decision, the court rejected AT&T's position that it is entitled to damages for every Windows-based computer manufactured outside the United States using technology that compresses speech into computer code.

AT&T had said computers running the Windows operating system infringe on AT&T technology for a digital speech-coder system.

The decision could impact other lawsuits against Microsoft.

A jury hit Microsoft with $1.52 billion in damages earlier this year in a suit filed by Alcatel-Lucent, and a separate jury awarded Eolas Technologies and the University of California $521 million in damages from Microsoft. Both damage awards were calculated based on worldwide sales of Windows software.

The Supreme Court said software should be treated like exported blueprints and schematics, to which U.S. patent law does not apply.

Microsoft has said a loss in the courts would have pushed research jobs overseas to escape U.S. patent laws.

Material from The Associated Press was used in this report.