High court ruling may boost patent litigation

Anthony Kennedy/ Anthony Kennedy

WASHINGTON—Although the full impact of a U.S. Supreme Court decision exposing patents to broader legal challenges won't be clear for years, holders of existing patents may have a tougher time defending them in court, legal experts say.

At the same time, future patents issued in accordance with the high court's ruling in KSR International Co. vs. Teleflex Inc. would meet stricter criteria and thus be less likely to be voided, patent litigation experts note.

One thing that does seem certain is that last week's ruling, which scaled back patent protections, will have little if any immediate impact on the patent infringement insurance market. The market is a very small one that underwriters have shunned as they've suffered losses in recent years.

The case involved a dispute over a gas pedal that was produced by Canadian manufacturer KSR of Ridgetown, Ontario. The pedal combined two elements--the pedal itself and an electronic sensor. Limerick, Pa.-based Teleflex sued KSR, claiming the device infringed on a patent it held for a pedal equipped with a sensor. KSR countered that merging the two components was "obvious" and therefore not subject to patent infringement litigation.

A federal court in Michigan agreed with KSR, but the U.S. Court of Appeals for the Federal Circuit, which has sole jurisdiction over patent issues, disagreed and upheld Teleflex's claim. KSR appealed to the Supreme Court, which held in a technologically detailed opinion that the appeals court had applied too rigid a standard in upholding Teleflex's suit.

"As progress beginning from higher levels of achievement is expected in the normal course, the results of ordinary innovation are not the subject of exclusive rights under the patent laws," wrote Associate Justice Anthony Kennedy for the unanimous court. "Were it otherwise, patents might stifle, rather than promote, the progress of useful arts."

"KSR provided convincing evidence that mounting a modular sensor on a fixed pivot of the Asano pedal was a design step well within the grasp of a person of ordinary skill in the relevant art," he added.

Reacting to the ruling, Cynthia E. Kernick, a patent attorney who was not involved in the case said: "KSR addresses patents that are combination patents. The question is: Was it obvious to put them together? If it's obvious, it's not patentable." Ms. Kernick is a partner in Reed Smith L.L.P.'s Pittsburgh office.

"The standard now is very broad," said Ms. Kernick. She said the impact of the decision will take time to sort out. "It's an over time issue--in the near run, the first year or 18 months--there's still going to be a lot of sparring. There are a lot of cases in the pipeline."

"This is pretty bad actually for the patent owners," said Michael Fein, a partner at Cozen O'Connor P.C. in Philadelphia. "It's really weakening patents."

But what could be bad news for existing patent holders might be good news for those whose applications win approval under the Supreme Court's new guidance, said another patent attorney.

"Initially, the risk of a defendant in a patent litigation lawsuit may decrease slightly because current patents may be easier to invalidate and fewer pending patent applications may be allowed to become patents," said Chuck Warner, a partner in the Atlanta office of Powell Goldstein L.L.P. "In the long term, however, the risk of a defendant in a patent litigation lawsuit may increase slightly as those patents" which are issued may be stronger.

Although the decision is "very interesting," it "probably will not have a great impact on the market for intellectual property insurance," including patent infringement coverage, said Robert W. Fletcher, president of Louisville, Ky.-based Intellectual Property Insurance Services Corp., a managing general agent that represents one of the few markets for patent infringement coverage.

Mr. Fletcher said only about 10% of all patents issued are commercially feasible, and only 3% to 4% are actually marketable. "There's an awful lot of defensive patenting going on," he said.

George Stewart, another partner in Reed Smith's Pittsburgh office, said the decision should have an impact on the patent insurance marketplace eventually.

"I think that with the enhanced availability of this defense, you are going to see a decline in the number of patent infringement claims that are filed, and thus less in the way of underwriting loss experience over time," Mr. Stewart said. "One would think that one would see a corresponding decrease in the costs of premiums charged for policies that defend against claims would drop."

There's no short-term impact for the patent infringement insurance marketplace "because there isn't one," said Chad Milton, senior vp and national practice leader-media liability and intellectual property in Marsh Inc.'s Kansas City, Mo., office. "There is virtually no patent marketplace because of historical losses," he said.

Limits are low and tend to be attractive only to smaller companies, he said. The decision could, however, "help create one."

"There are some bits and pieces" of coverage available, noted John Brosnan, senior vp and director-media and intellectual property practice for Aon Corp. in Chicago. "It's certainly a very limited marketplace. I'm not anticipating that the decision's going to have any immediate impact on the current insurance offerings."

And risk managers seeking patent infringement coverage under commercial general liability policies could be in for a disappointment, Marsh's Mr. Milton said.

"The new versions of the CGL make clear that all intellectual property is excluded except for copyright infringement in advertising," he said. "Under new policies the CGL underwriters have made it clear there is no coverage for patent infringement," although "under older policies, it is ambiguous," he said.

KSR International Co. vs. Teleflex Inc. U.S Supreme Court. No. 04-1350. Decided April 30, 2007.