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Patently Ridiculous

Tuesday, December 12, 2006

The patent office has given protection to clever filers who haven't really innovated, creating a huge and expensive mess. Now, the Supreme Court has a chance to clean things up.

It's a familiar story: productive companies are forced to spend millions of dollars in court to defend themselves against trumped up claims. Most of these frivolous lawsuits fail, but the successful ones net eye-popping payoffs, attracting more ambitious lawyers in pursuit of ever-larger jackpots.

Of course, that describes the campaigns in recent years against the manufacturers of vaccines and breast implants. But it also describes the more recent flood of frivolous patent lawsuits that have plagued the technology industry. Last month, the Supreme Court heard oral arguments in the case of KSR v. Teleflex. The case presents the 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, a small firm headed by patent lawyer David Stout. NTP has no employees or products, but it holds patents that allowed the firm to extort $612 million from Research in Motion, makers of the wildly popular BlackBerry. I say "extort" because last December, in the midst of high-stakes negotiations between the firms, the 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. The Patent Office pledged to formally invalidate the patents in subsequent months, but the wheels of bureaucracy turned too slowly to help RIM. The BlackBerry maker settled in March to avoid a threatened shutdown of its entire network, which would have ruined the company.

By effectively emasculating the obviousness rule, the Federal Circuit has given a green light to the patent law equivalent of ambulance chasing.

NTP never alleged that RIM's BlackBerry technology was in any way derived from the designs disclosed in NTP's patents. 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 although it's possible that some aspects of NTP's design for a wireless email system were not obvious, the mere idea of checking one's email via a wireless connection is indisputably obvious. Email and wireless communications were both well-understood concepts when NTP's patent applications were filed in the early 1990s, and it was only a matter of time before it became economically feasible to combine them.

Unfortunately, the Court of Appeals for the Federal Circuit, which has jurisdiction over patent cases, has seen things differently. It has held that when a patent covers the combination of two elements, it can only be declared obvious 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.

There are numerous other examples. 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 sites like eBay were running online auctions for years before the patent was filed was not sufficient to prove that the patent was obvious.

Many of these patents merely claim a combination of two or more features that would not, in and of themselves, be patentable. A particularly egregious example is Microsoft's recent dispute with Guatemalan programmer Carlos Amado. The patent in question was little more than a laundry list of features that Amado's database software happened to have. None of the features was worthy of patent protection by itself, but listing the features in combination was enough to earn Amado a patent—and a $6.1 million judgment against Microsoft.

Which brings us to last month's oral argument before the Supreme Court. A company called 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, the Federal Circuit could not declare the invention obvious.

That argument was not so well received by the Supreme Court—especially its conservative members. Justice 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 Roberts retorted "which way does that cut? That just indicates that this is profitable for the patent bar." Justice 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.

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