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Big Patent Year Pending

By Steve Seidenberg

March 21, 2006, 11:20 am CST

Traditionally, if the U.S. Supreme Court handles one patent law case each term, that’s a lot. This term, however, the court has agreed to hear at least four cases. It’s the largest amount of patent litigation to come before the court in 40 years.

It’s not just the number of cases that is impressive. The cases before the court raise fundamental issues in patent law, including what types of inventions can be protected and, if so, how.

The cases could produce a sea change in patent law. “Some people are suggesting this may be the most important Supreme Court presence in patent law since the court’s 1965-66 term; some say since the 1800s,” says Arti Rai, who teaches patent law at Duke University.

Forty years ago, the court issued rulings in seven patent cases, among them Graham v. John Deere Co., 383 U.S. 1 (1966), which established the test for deciding whether a claimed invention is obvious.

The court already has heard two patent-related cases this term, including Illinois Tool Works v. Inde­pendent Ink, No. 04-1329, focusing on patent rights and antitrust law. (See “Ink and IP,” November 2005 ABA Journal, page 20.)

This month, the court is expected to hear two cases testing fundamental issues of patent law: Lab­ora­tory Corp. of America Holdings v. Metabolite Laboratories Inc., No. 04-607, and eBay Inc. v. MercExchange LLC, No. 05-130.

The court’s sudden interest in this area of law is no accident, according to experts. Patents have become a far more important and visible part of the country’s economy. From 1995 to 2004, the number of patents granted per year shot up from 113,834 to 181,302, an increase of almost 60 percent, according to the U.S. Patent and Trademark Office. Patent law has similarly risen in importance. “Patent law policy is much more salient than 10 or even five years ago,” Rai says.

As patents have become more important economically, they also have become more controversial. During the last decade, businesses, scholars and practicing attorneys have repeatedly castigated the PTO for issuing patents of dubious legality, and many have criticized the courts for enforcing too many of these patents.

The FTC Weighs In

In 2003, the Federal Trade Commission joined the chorus calling for change. The agency issued a report finding that questionable patents were harming innovation and hindering competition in the U.S. The report offered 10 recommendations for improving the nation’s patent system, including toughening the standards for what inventions may be patented.

Still another controversy feeding the growing interest in patent law involves the U.S. Court of Appeals for the Federal Circuit. Created in 1982, the circuit was designed to hear all appeals of patent law decisions, whether from the PTO or federal district courts. Many critics say that recent Federal Circuit rulings have resulted in a proliferation of dubious patents and a boom in litigation. Before this term, the Su­preme Court was unwilling to look too closely at what the Fed­eral Cir­cuit was doing.

“The Supreme Court wanted to give the Fed­eral Circuit time to establish itself before it inter­vened too much,” Rai says. But now that the Fed­eral Cir­cuit has been in operation for 24 years, the high court apparently feels it is safe to act, she adds.

The Metabolite case, sched­uled to be argued March 21, may wind up overturning some of the Federal Circuit’s most important patent rulings, those concerning the types of inventions that may be patented.

The issue before the court is whether a patent owned by Metabo­lite should be struck down because it is too vague.

However, experts believe the court took the case because it wants to make a pronouncement on a much bigger issue: what types of inventions are patent­able. “The court has realized that what has been issued as patents has gotten out of hand,” says Philip Swain, a Boston patent attorney and co-chair of the Ethics and Professional Responsibility Committee of the ABA’s Section of Intellectual Property Law. Many believe the court wants to address recent Fed­eral Circuit rulings that have significantly expanded the scope of patentable subject matter. Rai points to the circuit’s watershed 1998 decision, State Street Bank & Trust Co. v. Signature Financial Group Inc., 149 F.3d 1368, which held that business methods may be patented.

Since then, “the Federal Circuit has been issuing decisions that seem to test the limits of Supreme Court cases on the patentability of subject matter—if not contradict those cases,” Rai says. “Cases like State Street Bank are really in severe tension with previous Supreme Court cases, which held that laws of nature and abstract ideas are not patentable. The Federal Circuit has pretty much read those doctrines out, ruling instead that so long as an invention is useful, it is patentable.”

Experts are all over the map on how the court might rule. Some expect the court will issue a relatively narrow ruling that excludes vague claims from patentability. Some expect the court will reaffirm and strengthen the doctrine that laws of nature can’t be patented. Some believe the court will go further. “The court might go as far as knocking out business method patents,” Swain says.

As important as Metabolite may be, many experts say that eBay will be even more significant. According to Harold Wegner, a Washington, D.C., patent attorney who teaches patent law at George Washington University Law School, “EBay is more important than any patent case in perhaps the last 50 years.”

The case, which will be argued March 29, centers on an issue that has riven the American business community: whether injunctions should automatically be granted against patent infringers. Such injunctions have been routinely granted since 1908, when the Su­preme Court held in Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405, that the only right a patent owner has is the right to exclude others from using the patented invention, so the courts shouldn’t water down that right.

Pharmaceutical and biotech companies believe the current law on injunctions is vital to keeping their industries afloat. Without injunctions, they say, no one would be willing to spend the years and the millions of dollars it takes to come up with innovative drugs and biotech inventions. “If you spend $500 million to develop a patented drug, you must be able to get injunctive relief against infringers,” Wegner says.

On the other hand, software, e-commerce and IT companies are contending that this ability to obtain injunctions is threatening their viability. Unlike pharmaceutical and bio­tech products, which may contain one or two patents, a new IT product may contain thousands of patented innovations. If even a tiny aspect of the new product infringes someone else’s patent, the owner of that one patent may obtain an injunction that stops the entire product in its tracks.

This empowers patent trolls—companies that make money by licensing their patents to others—and puts enormous pressure on companies to settle even dubious patent infringement claims, says Emery Simon, counsel for the Washington, D.C.-based Business Software Alliance.

The case before the court is a prime example of the problem, according to some. Here, a district court found that online giant eBay has infringed a patent owned by the small Great Falls, Va.-based MercExchange, and the Federal Circuit ruled that this infringement entitles MercEx­change to an injunction against eBay. According to Scott Robertson, an attorney for MercExchange, such an injunction would stop eBay from operating its Web site as currently configured—all because of an infringement affecting just one aspect of the site, the “buy it now” feature.

It is unclear how the high court will handle the issue of injunctions. “The real Solomon-like test,” Wegner says, “is to find a way to protect companies like eBay against patent trolls while also sufficiently protecting the pharmaceutical industry.”