July 2007 Newsletter
LEYDIG, VOIT & MAYER, LTD. REPORT
Volume 8 Issue 3
Supreme Court continues to rule on patent law
The U.S. Supreme Court continued its attention to patent law in April, ruling in one case that a generally accepted test for obviousness was too rigid and in another that software codes are not components of computers and may therefore be copied and sold overseas.
The decision on obviousness, handed down in KSR International v. Teleflex, is likely to have the broader effect, as it leaves a certain measure of unpredictability in its wake.
At issue in the case was whether combining an existing gas pedal and an existing electronic control resulted in a new, patentable product or whether the combination was a logical — or obvious — result of prior art. Obvious products, or those that a person of ordinary skill in the art could develop with the same information, are not patentable.
In similar cases in the past, the Court of Appeals for the Federal Circuit has applied its teaching-suggestion-motivation (TSM) test for obviousness. Unless prior art includes a teaching or suggestion that motivates a person of ordinary skill to combine known elements, the court has ruled, the resulting product is not obvious.
In KSR, however, the Supreme Court said that the TSM test was too restrictive: “Analysis should be explicit. But it need not seek out precise teachings directed to the challenged claim’s specific subject matter, for a court can consider the inferences and creative steps a person of ordinary skill in the art would employ…A person of ordinary skill is also a person of ordinary creativity, not an automaton.”
The full effect of the decision will not be evident for some time, but it could be significant.
“Obviousness can sometimes be difficult to prove, and people have shied away from pursuing this invalidity defense,” says Michael Hartmann, a member in LVM’s Chicago office. “With this decision, they may be more emboldened in litigation.”
Adds Steve Sklar, a member in LVM’s Chicago office, “We may have to look at prior art with a new eye, and in patent prosecution matters, convince patent examiners that inventions aren’t obvious. This ruling could conceivably reduce the number of patents that issue.”
In another patent-related decision handed down in April, the Supreme Court ruled that sending computer software to a foreign manufacturer that is copied for installation on computers made and sold abroad was not a patent violation in the United States.
In Microsoft v. AT&T, AT&T sought to enforce a patent on technology now used in the Windows computer operating system, arguing that when Microsoft supplied master disks of the system to overseas manufacturers for copying and distribution with computers, it was circumventing U.S. patent law.
U.S. patents cannot be infringed overseas, under 35 USC §271(f) unless a company makes components for its products in the United States and then assembles the products overseas. Microsoft supplies master disks of its Windows system to overseas manufacturers, and the manufacturers copy the disks for use in the computers they make.
Because Microsoft does not export copies of its Windows system already installed in computers, the Supreme Court ruled, the master disks are not components of the computers and therefore not in violation of §271(f).
Additionally, the court noted that U.S. law has limited reach. “The presumption that United States law governs domestically but does not rule the world applies with particular force in patent law,” the court said.
U.S. patent law does, however, continue to govern the way in which processes patented in the United States are used overseas.
“In the pharmaceutical industry, for example, it is still an infringement for companies to formulate drugs overseas using processes patented here and then import the finished products into the United States for sale,” says Robert Green, a member in LVM’s Chicago office. “The Supreme Court’s decision in the Microsoft case doesn’t give a free pass for all activities carried out abroad. It remains important to seek legal advice during development of drug products that will be manufactured outside the United States.”
Congress considers landmark patent reform
Landmark patent reform legislation that is pending in both houses of Congress could more closely align United States patent law with that of other countries if it is approved.
The Patent Reform Act of 2007 would replace the “first to invent” provision of current U.S. patent law with a “first to file” status that is in keeping with foreign practices and could simplify some aspects of patent ownership.
Today, if two or more inventors seek patents on substantially the same invention, the Board of Patent Appeals and Interferences must determine who was first to come up with the invention. The inventors must give evidence in a proceeding known as an interference to demonstrate when they invented the product or method — regardless of when they first sought to patent it.
“Interferences are very expensive, and administratively they can be very difficult,” says John Augustyn, a member in LVM’s Chicago office. “It takes experience, foresight and an intimate knowledge of the law to prevail.”
The new law would award disputed patents to the inventor who first filed a patent application, which could easily be proved by the time/date stamp on the paperwork.
“This is something that’s been talked about for a long time, but this bill has a higher public profile than have previous proposals,” says Jeremy Jay, a member in LVM’s Washington, D.C., office. “This will be seriously considered, because there’s a feeling that Congress is unlikely to revisit the matter any time soon and it’s being pushed. It’s been publicized much more than any of the previous proposals.”
Another significant — and controversial — change in the proposed legislation is the creation of an administration post-grant opposition review procedure. Under current U.S. law, once a patent issues it is presumed valid and anyone who wants to challenge it must file suit against the patent holder or seek re-examination in the patent office.
In some other countries, however, patents may be challenged for a set period of time after they issue. For example, patents granted via the European Patent Office can be opposed for up to nine months after they issue. The new legislation, which is identical in both houses, would allow challengers to file petitions for cancellation with the U.S. Patent and Trademark Office up to a year after patents issue.
Other provisions of the legislation include:
- Ensuring damages are proportionate to the value of the appropriate component rather than that of the entire product. If, for example, a software program was found to be infringing, the damages would be based on the cost of the software, rather than the cost of the entire computer, as recently happened.
- Making it more difficult to prove claims of willful infringement, or intentional patent infringement. The new legislation would not allow a finding of willful infringement if the infringer had “an informed, good-faith belief” that the patent was invalid or unenforceable.
- Requiring the losers of patent litigation to shoulder the cost of that litigation, and reducing the possibility of forum shopping by litigants who view a particular judicial district as more favorable to patent actions.
“Many of these are long-standing reform proposals that have been bandied about for years,” Jay says. “But with all the current publicity and the large backlog at the PTO, this legislation has taken on weight. We expect it will generate debate and some of the reforms might be passed at this time.”
TTAB focus on fraud jeopardizes trademark registrations
Continuing its four-year march against fraud, the Trademark Trial and Appeal Board (TTAB) ruled in April that trademark applicants and their attorneys share responsibility for making sure applications are correct in every respect before they are submitted.
In its precedential decision in Hachette Filipacchi Presse v. Elle Belle, the TTAB rejected Elle Belle’s assertion that the company owner’s limited knowledge of the English language contributed to inaccuracies in its trademark registration. The Board said the owner’s attorney had no such lack of language skills.
At issue was the Elle Belle mark for men’s, women’s and children’s clothing, although Elle Belle used and required the mark only for certain women’s clothing. That, the TTAB ruled, is fraud. Elle Belle’s attempt to amend the registration to include just the appropriate apparel fell flat, as the TTAB cancelled the entire registration.
“Before 2003, people brought trademark claims sparingly, because the Board did not look favorably upon them,” says Claudia Stangle, a member in LVM’s Chicago office. “Now fraud claims are increasingly being prosecuted, and a lack of understanding or a good-faith mistake is no defense. Along the same lines, the Board is demonstrating a stricter interpretation of fraud. At the same time, courts tend to be reluctant to find fraud and invalidate a registration based on an innocent mistake.”
The tide on fraud began to turn with the 2003 TTAB ruling in Medinol v. Neuro Vasx, which cancelled Neuro Vasx’s trademark on stents and catheters after it was demonstrated that the mark had never been used on stents. Although Neuro Vasx asked to cancel the registration on stents but continue it on catheters, the Board said the company had committed fraud in obtaining its registration and cancelled the entire registration.
Since that ruling, the TTAB has been more rigid in interpreting trademark fraud. The reason for the sudden shift is unclear, but it has raised awareness of the importance of accuracy in trademark registration applications.
“These documents are signed under oath, under penalty of perjury,” says Mark Liss, a member in LVM’s Chicago office. “We need to be careful that what we tell the U.S. Patent and Trademark Office is as accurate as possible.”
But has the PTO gone too far? Perhaps, Liss says.
“Sometimes people make good-faith mistakes,” he says. “I think the PTO wanted to instill some needed discipline regarding these documents, but one good-faith mistake and you’re out seems harsh. This trend toward strict liability is a mistake.”
Mistake or not, trademark registration applicants would do well to pay attention, Stangle says.
“When you file your statement of use, you need to be sure the mark is actually in use for everything that’s listed,” she says. “You can’t go back and cancel part of it once a proceeding has been instituted against you.”
Digital audio royalty debate boils into Congres
A simmering dispute between record labels, recording artists and online broadcasters has gained visibility in Washington as wrangling intensifies over the royalties digital broadcasters should be required to pay for music.
In its first substantive decision since being formed about a year ago, the Copyright Royalty Board (CRB) in March set a rate structure that becomes effective July 15, retroactive to 2006 and extending through 2010. It will essentially double the royalties record labels and artists collect from digital broadcasters such as XM satellite; Yahoo!, AOL and other streaming radio; and traditional radio stations that simulcast their programming on the Internet.
“Immediately after the CRB decision the Webcasting community proclaimed July 15 as ‘the day the music dies’,” says Kevin Parks, of counsel in LVM’s Chicago office. “They said the new rate structure would put many Webcasters out of business. Then they started looking to Congress for assistance.”
As a result, legislation has been introduced in both houses of Congress to replace the CRB-ordered royalties with a structure that would allow at least small digital broadcasters to pay a percentage of their revenue in royalties, rather than paying on a per-play basis.
“At the urging of the House Judiciary Committee, Soundexchange, which represents the music industry, has offered to delay implementation of the new rates and allow Webcasters with revenues of less than $1 million to pay on a percentage basis,” Parks says. “But no agreement is in place and there has been no discussion of making changes for large Webcasters.”
The issue is larger than whether the public will continue to have free access to online broadcasts, he adds. It is whether labels and artists will be able to claim royalties from traditional broadcasting as well. Under current U.S. law, songwriters and music publishers receive royalties from traditional radio broadcasting, but labels and recording artists do not.
“This skirmish in the digital arena is the prelude to a larger debate that is beginning to be heard around Washington,” says Parks. “Traditionally, radio stations have said they’re promoting sales rather than actually selling albums. But as digital streams continue to replace CDs, the streaming becomes the sale and that argument begins to lose vigor.”
With the potentially huge sums of money at stake, he notes, the debate over full performance rights is likely to echo in the halls of Congress sooner rather than later.
Leydig announces
Leydig, Voit & Mayer is pleased to announce that the following students are summer associates with the firm:
- Christopher Leach is a student at the University of Illinois College of Law, class of 2008.
- Kate Lesciotto is a student at the Washington University School of Law, class of 2009.
- Elias Soupos is a student at the John Marshall Law School, class of 2008.
- Jessica Tyrus is a student at Chicago-Kent College of Law, class of 2009.
- Michael Victor is a student at Chicago-Kent College of Law, class of 2008.
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