Patent Sanity

Finally, the United States Congress and the United States Supreme Court take action to reign in a patent system gone haywire.

For years, many in the software industry have expressed concern over software and business method patents and the patent system. Imposed by judicial fiat instead of legislative action, the filing of patent applications on software and business methods skyrocketed, inundating an overwhelmed U.S. Patent and Trademark Office (USPTO) without the examiner or prior art resources to properly dispose of the applications. Add to this a court-imposed heightened standard to substantiate obviousness, and the system yielded thousands of questionable patents that would ultimately need to be litigated. Moreover, the court effectively extended the reach of U.S. patents on software to the ends of the earth.

In the last few weeks, both the U.S. Supreme Court and Congress have said, “Enough is enough.” The tide has finally started to turn.

Congress (Finally) Does Something

The new majority in the U.S. Senate and House committees overseeing intellectual property drew first blood. Collaborating both across the aisle and between the two houses, uniform patent reform bills were introduced in both chambers, and the bills, as introduced, address many of the concerns expressed by the software industry. Among the key provisions that help theindustry are:

  • Apportionment of damages. Damages would no longer be measured on the economic value of the entire infringing device but only on the contribution of the infringing feature or component. Had this standard been in place, you would not have seen a $1.5 billion judgment against Microsoft in the Alcatel case. Whatever one may think of Microsoft, that judgment will have a chilling effect on our industry if it stands.
  • Post-grant opposition. The bills provide for at least two different opposition periods, one immediately following the grant of a patent, and one when (a) the patent is asserted, (b) there is a showing of a threat of economic harm, or (c) the patent holder consents. It’s the latter window that is considered critical to many in the software industry, because of the plethora of questionable patents that are being asserted.
  • Willfulness. The standard for willfulness is more refined, reducing the instances of multiple damages. Willfulness will have to be established by clear and convincing evidence — that is, the burden is clearly shifted to the plaintiff, and it is more than a simple preponderance of the evidence. In addition, a simple assertion of infringement will no longer be sufficient to put a defendant on notice and thus provide a prima facie case for willfulness. A plaintiff hoping to get treble damages for willfulness would now have to plead sufficient particularities to support the infringement claim to allow the defendant to properly assess the merits of the claim, and the defendant would be allowed a reasonable period of time in which to conduct such an assessment.
  • Forum Shopping. The changes reduce a plaintiff’s ability to forum shop. This is of particular value to the small software venture with only a single office, and would prevent a plaintiff from hauling them into court anywhere the plaintiff wants (often a jurisdiction that has established a reputation for being plaintiff friendly).

Although there are other important new provisions included in the bills, these are probably the most critical to software developers. How each change fares during the legislative process remains to be seen, but the fact that they have made it into the bill in the first place is a good sign. Congress has given every indication that it is prepared to act on the legislation this year.

The Supremes’ Greatest Hits

In addition to this key legislative action, the U.S. Supreme Court has reasserted its authority over patent law, rolling back some of the more questionable opinions of the U.S. Circuit Court of Appeals for the Federal Circuit (CAFC). Two important decisions were rendered on April 30.

In KSR International v. Teleflex, the Supreme Court returned sanity to the obviousness standard, limiting the stringent “teaching, suggestion or motivation” test imposed by the CAFC as an absolute standard to a factor to be considered in arriving at a determination of obviousness. Under the CAFC approach, it was virtually impossible to prove that a claimed invention was obvious, especially in the software field. By allowing common sense (in the form of true consideration of obviousness in the eyes of one with ordinary skill in the art), the Supreme Court has restored balance to the system. In the short run, this will likely result in more frequent challenges to patent validity by infringement defendants. In the long run, it will likely mean fewer but stronger software patents.

In Microsoft v. AT&T, the Supreme Court effectively dispatched the application to software of Section 271(f) of the Patent Act. AT& T had argued, along lines that had precedent in other lower court and appeals cases, that all copies of software produced outside the U.S. from a gold master shipped from within the U.S. were subject to the reach of U.S. patent law for the purposes of determining damages, thus giving a U.S. software patent virtually universal reach. The Supreme Court nullified the application of 271 (f) to software gold masters (and electronic transmissions). At least one of the Supreme Court’s concerns was the extraterritorial reach of U.S. patent law and the corresponding interference with the patent laws of other jurisdictions.

Interestingly, the district court in the Alcatel v. Microsoft case ignored this ruling when, the day after this ruling came down from the Supreme Court, the district court reaffirmed its damage award against Microsoft, a damage award predicated in part on copies of Microsoft software produced outside the U.S. You can expect Microsoft to successfully appeal that judgment.

Back on Track

Work remains to be done to restoring balance to the patent system in the U.S. I, for one, remain hopeful that other national legislatures will take note of these decisions and the disruption that has occurred in the U.S. software industry as a result of a patent system gone haywire.

Although my personal preference would be for a complete repeal of coverage of software and business methods by U.S. patent law, it is encouraging to see the system experience a course correction.

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