Supreme Court Hears Case on Bad Patents With Tech and Pharma Firms Watching Closely

April 25, 2016, 12:54 PM UTC
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Patents are meant to promote innovation but, in recent years, critics say a glut of bad ones has harmed the U.S. economy. These weak patents can result in undeserved monopolies, and allow so-called patent trolls to shake down retailers and other productive companies.

In recent years the Supreme Court has heard literally dozens of patent cases as part of an effort to sort out the mess. On Monday the Justices will be at it again in a major case that is being followed closely by the auto and tech industries and by intellectual property lawyers.

The case, which pits a company against the U.S. Patent and Trademark Office, will examine—and could weaken—an important new tool to challenge bad patents. Here’s a plain-English guide to today’s case, Cuozzo v. Lee, including expert opinion on how it could turn out.

What’s the case about?

A company called Cuozzo acquired a patent for speedometer displays and sued automakers, including Chrysler and Ford (F), as well as device makers. In response, a GPS manufacturer in 2013 turned to a new appeals board of the Patent Office and asked it to knock out the patent claims on the grounds they were obvious. The board agreed to do so.

The patent owner sued the Patent Office, asking the federal Circuit Court of Appeals to vacate the decision. In a closely divided ruling, the court sided with the Patent Office and left the decision untouched. The Supreme Court agreed to hear the case last year.

Why is the case so important?

The case matters because it is the first time the Supreme Court will take a close look at the Patent Trial and Appeals Board (aka the PTAB), which Congress created as part of a 2011 patent reform law. Since it opened shop in 2013, the PTAB has offered companies a new way to challenge bad patents in a cost-effective way. Prior to the PTAB, the only option in most cases was to fight bad patents in federal court—where a company can quickly rack up millions of dollars in legal fees.

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Since 2013, the PTAB has invalidated thousands of patent claims at the behest of tech companies, led by Apple (AAPL) and others. In response, some patent owners have complained the board has been overzealous in wiping out valuable intellectual property, while supporters say the PTAB is doing its job by eliminating patents that should never have been issued in the first place. (A recent study provides data that suggests only a tiny proportion of patents have been affected).

If the Supreme Court rules in favor of Cuozzo, the PTAB could gets its wings clipped, and more power will shift to patent owners.

What are the legal issues?

The most important issue concerns how PTAB judges (who are patent specialists) should examine the claims that come before them. Should they use the “broadest reasonable interpretation” or the “person having ordinary skill in the art” standard?

Yes, this sounds arcane, but it matters because use of the “broadest” standard makes it more likely a patent claim will be found to describe something that is obvious or not new, and therefore invalid. That’s why Cuozzo is arguing the PTAB should use the “ordinary skill” standard; it makes patents harder to attack.

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To make its case, Cuozzo points out that federal courts use the “ordinary skill” standard. The company and its backers believe the PTAB’s approach should be consistent with that standard. On the other side, the U.S. government says the broad test makes sense because that is how patent examiners evaluate patent claims in the first place.

According to Thomas Makin, a patent lawyer at Shearman & Sterling in New York, patent owners like Cuozzo believe the current system lets accused infringers argue out of both sides of their mouth: They can argue for the broad standard at PTAB and then, if they lose, still claim the narrower standard in court so as to support a claim they didn’t infringe the patent in question. (Makin also added that, in practice, many would struggle to find much difference between the two standards.)

The case also involves two other very technical issues. One involves whether Cuozzo has standing to bring the case in the first place, and the other turns on when courts can review a decision by the PTAB to hear a review in the first place.

Are companies taking sides?

Yes. Apple, as well as trade associations representing the banking, tech, and retail sectors, are among those that have filed briefs in support of the U.S. government’s position. So has the consumer advocacy group Public Knowledge.

Meanwhile, biotech and pharma companies such as Eli Lilly, as well as Procter & Gamble and Caterpillar, have filed briefs in support of Cuozzo.

Who will win?

According to Makin of Shearman & Sterling, the Supreme Court is likely to side with the Patent Office on the issue of how to review the patent claims. He added it’s more of a toss-up in regard to the procedural issue of whether courts can review the PTAB’s ability to hear a challenge in the first place.

More broadly, the multiple issues and tricky procedural questions mean it’s possible the Supreme Court could decide the case on narrow technical grounds, and leave the claims construction issue for another day.

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