Special Report: A Quick Summary Of The New US Supreme Court Decisions On Patents

For the past ten years, the United States Supreme Court has steadily chipped away at patent rights. But this term, the court abruptly reversed direction. In two weeks, the high court issued rulings in three patent cases, and in every one upheld the legal rights of inventors. It is unclear, however, how big a win this really was for patent rights.

The most important victory for patent owners came on 9 June, when the Supreme Court issued its decision in Microsoft Corp. v. i4i Ltd. [pdf], unanimously upholding a strong presumption of patent validity.

The US Patent Act states that issued patents are “presumed valid.” The courts have interpreted this as providing an unusually powerful presumption; in order to attack a patent in litigation, a party must prove the patent is invalid by “clear and convincing evidence.” This is far tougher than the “preponderance of evidence” standard typically used in civil litigation. As a result, it is quite difficult to prove a patent is invalid.

Microsoft argued, in this case, that the presumption of validity is too strong. The company asserted the courts should adopt a preponderance standard, at least for evidence of invalidity that had not previously been considered by the USPTO.

The Supreme Court firmly rejected this argument, on a 8-0 vote. (Justice Roberts, who owns Microsoft stock, recused himself from the case.) Writing for seven members of the court, Justice Sonia M. Sotomayor held that when Congress passed the Patent Act of 1952, the legislature codified the existing case law, which required patent invalidity to be proved by clear and convincing evidence. Only Congress, not the courts, could change this standard, Sotomayor wrote.

Justice Clarence Thomas, in a separate concurrence, stated that Congress did not codify the case law. However, he agreed with the majority’s result because he found that a 1934 Supreme Court ruling, Radio Corp. of America v. Radio Engineering Laboratories, Inc., supports the clear and convincing standard.

Had the court ruled in favor of Microsoft and adopted a lower standard of presumption, it would have been a dramatic blow to patent owners in the US. “It would have substantially undercut the value of patents and made the ability to enforce those patents much more unsure,” said Christopher Larus, a partner in the Minneapolis office of Robins, Kaplan, Miller & Ciresi.

The ruling was thus a major victory for patentees. But the victory may be qualified. “The notion that this decision does away with the issue of invalidity challenges to patents … may not be correct. There’s a lot of room for defendants to work with this decision,” said Anthony Fitzpatrick, a partner in the Boston office of Duane Morris.

For instance, Justice Sotomayor stated that courts can give extra weight to evidence of invalidity not previously considered by the USPTO. This isn’t a novel doctrine. It accords with existing precedents. But depending on how it is interpreted by the lower courts, this could provide a powerful means to attack the validity of existing patents.

Who Owns the Invention?

The issue in Stanford University v. Roche Molecular Systems, Inc. was who could claim patent rights in an invention. In most countries, a patent for an invention goes to the first person to file an applicable patent application. In the US, however, a patent is awarded to the person who first created the invention, regardless of who first filed an application with the USPTO.

In this case, Stanford University argued that Congress had created an exception to the country’s first-to-invent rule. The Bayh-Dole Act of 1980 provides that when the US government helps fund research conducted by others, the government obtains certain rights in any inventions that result from this research and the organizations receiving government money obtain other specific rights in the inventions. Stanford asserted that one of the rights given to research organizations was the right to patent any invention created by an employee whose work was funded (in part) by the government. The research institution, not the employee-inventor, can patent the invention.

The Supreme Court disagreed, holding 7-2 that the Bayh-Dole Act does not change an inventor’s well-established right to patent an invention. If the inventor assigns his or her rights to a research institution, however, Bayh-Dole specifies which rights the institution has and which ones the government has.

The Supreme Court’s 6 June decision in Stanford ruling may have little practical effect. If universities and other research institutions require all employees to sign iron-clad agreements assigning their inventions to their employers, the research institutions will own all the patent rights regardless of the court’s decision.

However, writing iron-clad agreements may be difficult, as may getting all relevant employees to sign such agreements. Thus, some experts fear, many researchers will assign patent rights in federally-funded inventions to private companies, and these companies will be able to exploit these inventions for private gain. “Much of the research funded by the government won’t benefit the public the way [Bayh-Dole] intended,” said Prof. Rochelle Dreyfuss of New York University Law School.

Inducing Infringement

The Supreme Court found for the patentee in Global-Tech Appliances, Inc. v. SEB S.A., ruling that Global-Tech was guilty of inducing patent infringement. But the ruling may be bad news for patentees overall, because the court’s May 31 decision raises the bar for proving a defendant induced another to commit patent infringement.

In this case, Hong Kong-based Global-Tech reverse engineered a deep fryer made by SEB and sold copies of these fryers, in China, to US companies. Global-Tech knew these buyers intended to sell the fryers in the US.

Global-Tech obtained an opinion letter from a US attorney, stating that the company’s fryers did not infringe any US patents. However, Global-Tech failed to inform the attorney that it had copied the fryer’s design from an SEB product, and the attorney failed discover that SEB had a US patent on this product.

When SEB learned that Global-Tech’s fryers were being sold in the US, SEB sued the company for, among other things, inducing its US marketers to commit patent infringement.

Section 271(b) of the US Patent Act states that “Whoever actively induces infringement of a patent shall be liable as an infringer.” Global-Tech argued that it did not actively induce infringement because it was unaware the fryer was patented in the US. The SEB fryer it had purchased in Hong Kong had no US patent markings and Global-Tech’s US patent counsel had not raised any red flags.

The Federal Circuit Court of Appeals (often called the nation’s “patent court”) ruled Global-Tech hadn’t taken sufficient steps to determine if its fryer was infringing (failing, for instance, to inform its US patent counsel that the fryer had been copied). The company was thus “deliberately indifferent” to the risk that it was inducing others to infringe – and was liable for inducing infringement.

The Supreme Court upheld the Federal Circuit’s conclusion that Global-Tech was guilty of inducement, but rejected the “deliberately indifferent” standard. The high court held that in order for a defendant to induce infringement, the party must know that the induced acts constitute infringement.

Global-Tech essentially knew it was inducing others to infringe because, according to the court, Global-Tech’s actions had demonstrated the company “subjectively believed there was a high probability that SEB’s fryer was patented … [and] took deliberate steps to avoid know­ing that fact” (by, for instance, withholding information from its patent counsel). Such “willful blindness,” the court held, does not enable a defendant to escape liability for inducing infringement.

The Supreme Court’s “willful blindness” standard is tougher than the Federal Circuit’s “deliberate indifference” standard. So although the patentee won this time, patentees in future cases may have less success.

“This makes it a lot harder to prove inducement,” says Jeffrey I.D. Lewis, a partner in the New York office of Patterson Belknap Webb & Tyler. “Some infringers will now slip through the cracks.”