On April 30, 2007, the Supreme Court announced decisions in two much-anticipated patent cases, KSR Int’l Co. v. Teleflex Inc. and Microsoft Corp. v. AT & T Corp., which are expected to have a significant impact on the issues of patent validity and infringement damages under Section 271(f) of the Patent Act. The following discussion provides a brief overview of the fundamental aspects of these cases and their potential effects on those seeking to obtain and enforce patent rights.

KSR Int’l Co. v. Teleflex Inc., No. 04-1350, 2007 WL 1237837 (April 30, 2007)

In a unanimous decision, the Supreme Court unequivocally overruled the Federal Circuit’s application of the “teaching-suggestion-motivation” (“TSM”) test for determining whether patent claims are obvious under 35 U.S.C. § 103. KSR Int’l Co. v. Teleflex Inc., No. 04-1350, 2007 WL 1237837 (April 30, 2007). In so doing, the Supreme Court reaffirmed its longstanding interpretation of the obviousness doctrine established in Graham v. John Deere Co. of Kansas City, 383 U.S. 1 (1966) and has likely made it more difficult to obtain and enforce patent rights.

KSR involved a patent, owned by Teleflex Inc., directed to automobile pedal assemblies. After Teleflex filed for infringement, KSR counterclaimed that the patent claim was invalid as being obvious under Section 103 of the Patent Act. Id. The district court granted summary judgment for KSR and the Federal Circuit vacated the judgment and remanded the case. The Supreme Court granted certiorari on one question: whether a patent can be found to be obvious in the absence of some proven teaching, suggestion, or motivation that would have led a person of ordinary skill in the art to combine relevant prior art teachings. See KSR Pet. for Cert. at i. The Court’s answer to the question was an emphatic NO, holding that the claimed subject matter was obvious and stating that the Federal Circuit “analyzed the issue in a narrow, rigid manner inconsistent with § 103 and [the Court’s] precedents.” KSR, 2007 WL 1237837, at *19.

Grounding its decision in the framework established in Graham and its progeny, the Court stated that “[t]he obviousness analysis cannot be confined by a formalistic conception of the words teaching, suggestion, and motivation, or by overemphasis on the importance of published articles and the explicit content of issued patents.” Id. at *14. The Court faulted the Federal Circuit for restricting its analysis exclusively to the motivation of the patentee and whether the claimed subject matter was obvious to the patentee. Id. at *15.

Aside from reaffirming the Graham analysis, the Court provided little guidance as to how the patent office or the courts should determine whether an invention is “obvious.” Although it rejected the “rigid” application of the TSM test in this case, the Court did not expressly reject the test per se. Indeed, the Court appears to approve of the Federal Circuit’s approach in Dystar Textilfarben GmbH & Co. Deutschland KG v. C.H. Patrick Co., 464 F.3d 1356 (2006) and Alza Corp. v. Mylan Labs., Inc., 464 F.3d 1286 (2006), in which the Federal Circuit applied a more flexible version of the TSM doctrine to find the asserted claims invalid. Id. at *16. Essentially, the Court’s decision indicates that TSM may remain part of the analysis of “obviousness” (especially when being used to render a patent claim obvious), but the obviousness inquiry should not be limited to TSM alone. Said differently, when there is an TSM, that may establish that a claim is obvious, but the lack of a TSM is not sufficient to establish non-obviousness.

The KSR decision effectively removes (or at least reduces the significance of) the somewhat objective, analytical framework for obviousness previously embodied in the TSM test, and fails to offer a new analytical framework in its place. At a minimum, KSR’s mandate for a “flexible” approach to the question of obviousness introduces a new level of uncertainty in obtaining and enforcing patent rights. As a practical matter, under KSR, the United States Patent and Trademark Office now has a lower bar for making and sustaining obviousness rejections, thereby making it more difficult to obtain patent protection in the future. In addition, the flexibility embraced by KSR will likely make it easier for parties accused of infringement to challenge the validity of issued patents as being obvious during litigation.

This does not mean that valid patents cannot be obtained and enforced for important inventions. It does suggest, however, that a patentee should be prepared to justify the issuance of a patent and defend the validity of an issued patent with evidence showing that an invention is not obvious. Such evidence may include: commercial success of the invention, prior art references teaching away from the invention, effects of demands known to the design community or present in the marketplace, long felt but unsolved needs addressed by the invention, failure of others to develop the invention, etc. See KSR, 2007 WL 1237837, at *13; Graham, 383 U.S. at 17-18. The value of such “secondary considerations” of non-obviousness are not new under KSR, but the need to present this type of evidence to overcome an obviousness rejection (or an invalidity defense presented during litigation) will become increasingly important in far more cases.

Microsoft Corp. v. AT & T Corp., No. 05-1056, 2007 WL 1237838 (April 30, 2007)

In a 7-1 decision, the Supreme Court overruled the Federal Circuit holding that 35 U.S.C. § 271(f), enacted to limit the exportation of “components” of patented inventions, does not cover foreign duplication of software from a master copy shipped from the United States. AT & T is the assignee of “a patent on a computer used to digitally encode and compress recorded speech.” Microsoft Corp. v. AT & T Corp., No. 05-1056, 2007 WL 1237838, at *4 (April 30, 2007). In the appeal to the Supreme Court, there was no dispute that Microsoft’s Windows software, when installed on a computer in the United States, infringed AT & T’s U.S. patent. However, AT & T also asserted that Microsoft was liable for infringement based on copies of Windows that were both made and installed outside the U.S. In this case, Microsoft’s U.S. based activity was limited to the writing of the code and the exportation of a “golden master” from which the foreign copies of Microsoft Windows were made. The Court held that “[b]ecause Microsoft does not export from the United States the copies actually installed, it does not ‘suppl[y] . . . from the United States’ ‘components’ of the relevant computers, and therefore is not liable under § 271(f) as currently written.” Id.

The Court’s decision is consistent with prior Supreme Court decisions limiting the extraterritorial reach of U.S. patent law and further defines the language of Section 271(f) of the Patent Act. See Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972); 35 U.S.C. § 271(f) (originally enacted to respond to the decision in Deepsouth). In rejecting AT & T’s appeal, the Court found that “a copy of Windows, not Windows in the abstract, qualifies as a ‘component’ under § 271(f).” Microsoft, 2007 WL 1237838, at *9. Although it did not address whether software in the abstract, or any other intangible, could ever be a component under Section 271(f), the Court found that if the claimed invention is of a tangible subject matter, its “components” under Section 271(f) must also be tangible. See id. at *9 n.13. Further, the Court found that “copying” abroad is not “supplying” from the U.S. under Section 271(f). See id. at *9. Under Section 271(f), only the components (physical items in this case), and not copies thereof, trigger liability. Therefore, foreign manufactured copies of software from a “golden master” shipped from the U.S. does not trigger liability under 271(f). To the extent this creates an unintended “loop hole” in U.S. patent rights, the Supreme Court noted that it was the job of Congress, and not of the courts, to close the “loop hole.” Id. at *11.

The Court’s holding does not impact the enforcement of U.S. patents against the domestic manufacture, sale, or offer for sale of products, including software. However, U.S. based companies that develop software in the U.S. may now be able to limit patent infringement liability for foreign software sales by arranging for the software to be copied, distributed, and installed overseas. This being said, if a patent includes claims directed to “software in the abstract,” which may include method claims, a party could still be found liable under § 271(f), since this question was expressly left unanswered by the Court. See id. at *9 n.13. In view of this open question, applicants seeking to secure patent rights for software related inventions should seek claims directed to “software in the abstract,” in an effort to keep the door open to infringement under § 271(f). However, when such claims are not available, patent applicants seeking recourse in this situation must obtain and enforce patent rights in each of those countries where they expect significant market demand for their invention