In November, the U.S. Supreme Court heard oral arguments in the case of KSR v. Teleflex. The case presents the High Court with an opportunity to put a damper on abuse of the patent system, reducing a serious drag on one of our nation’s most productive industries.
The poster child for patent reform is NTP Inc., a small firm headed by patent lawyer David Stout. NTP has no employees or products, but last March it was able to extort $612 million from Research in Motion, makers of the wildly popular BlackBerry.
I say “extort” because in the midst of high-stakes negotiations between the firms, the U.S. Patent and Trademark Office took the unusual step of declaring that none of the five patents NTP cited in the case should have been granted. But the wheels of bureaucracy turned too slowly to help RIM. Before the USPTO could formally invalidate the NTP patents, RIM settled to avoid a shutdown of its network.
NTP never alleged that RIM’s BlackBerry technology was derived from NTP’s designs. Rather, NTP claimed that the mere fact that BlackBerrys have the combination of features described in NTP’s patents–essentially, the ability to retrieve email via a wireless connection–was enough to trigger liability. That’s problematic because the law prohibits granting patents that are “obvious,” and the mere idea of checking one’s email via a wireless connection seems quite obvious.
Features in Combination
Unfortunately, the Court of Appeals for the Federal Circuit, which has jurisdiction over patent cases, saw things differently. It held that when a patent covers the combination of two elements, it can be declared obvious only if someone can produce another patent, an academic paper, or other formal documentation that pre-dated the patent application and had a specific “teaching, suggestion, or motivation” to combine the elements in the manner described. Often, no such documentation is available, even for inventions that are widely regarded as obvious.
The result has been a flood of lawsuits based on patents of dubious quality. The software industry has been hit particularly hard. In 2002, Microsoft was sued by a company called Burst.com, which had obtained an extremely broad patent on the concept of streaming multimedia files over the Internet. The patent was little more than a description of basic Internet functionality dressed up in legal jargon, but Microsoft still had to cough up $60 million to settle the case. Burst.com turned their legal guns on Apple in April.
In August, Microsoft was forced to pay more than $140 million for infringing a patent that covered the concept of deterring piracy by asking the user for a registration password. In October, a bond-trading firm won a $38.4 million judgment against a competitor for infringing its patent on the idea of auctioning bonds on the Internet. Apparently, the fact that eBay pre-dated the patent filing was not sufficient to prove the patent was obvious.
Which brings us to November’s oral argument before the Supreme Court. Teleflex holds a patent that covers connecting a car’s gas pedal to its engine throttle electronically, rather than mechanically. The defendant, KSR International, argued that simply connecting two well-understood components was too obvious to merit a patent. The Federal Circuit ruled for Teleflex, holding that without specific documentation describing the connection of a gas pedal to an electric throttle, it could not declare the invention obvious.
That argument was not so well received by the Supreme Court, especially its conservative members. Justice Antonin Scalia called the Federal Circuit’s rule “irrational” and “gobbledygook.” When Teleflex’s attorney noted that his position is supported by the major patent bar associations, Chief Justice John Roberts retorted, “Which way does that cut? That just indicates that this is profitable for the patent bar.” Justice Samuel Alito pointed to the Federal Circuit’s infamous 1999 decision upholding a patent on painting garbage bags to resemble jack-o-lanterns.
These justices are right to be skeptical. By effectively emasculating the obviousness rule, the Federal Circuit has given a green light to the patent law equivalent of ambulance-chasing. Patent attorneys have a strong incentive to file patents on extremely broad concepts like wireless email or Internet video streaming and then wait until another company has the misfortune of inventing a product described by one of their patents. The result is a transfer of wealth from innovative businesses to rapacious patent attorneys.
The Supreme Court should strike down the Federal Circuit’s absurdly lax obviousness rule, so that companies like Apple and Microsoft can focus on building the best products rather than hiring the best patent lawyers.
Timothy B. Lee ([email protected]) is a policy analyst at the Show-Me Institute. This article originally appeared in The American, the online magazine of the American Enterprise Institute.
