CyberLaw P.C. - Internet Lawyer, Intellectual Property Law Firm

Apple recently settled a patent dispute with Burst.com for $10 million. Burst alleged that Apple infringed four patents for transmission of compressed audio and video files in iTunes, iLife, QuickTime and the iPod. A similar suit was settled with Microsoft for $60 million previously.

The real story of this settlement is the relatively moderate amount of payment from Apple. Particularly given a previous settlement of nearly six times more, it seems that Apple may have received a real bargain with its most recent settlement.

Vonage, whose very existence was threatened due to numerous patent infringement complaints by several major telecommunications companies, finally appears to be reaching the light at the end of the tunnel, agreeing to settle another lawsuit with AT&T.

Vonage has become the poster child for a tenuous business model: total reliance on others’ networks to deliver its services. It was a business gamble, of course, but also a legal gamble, because no one could have predicted that Vonage would have continual unfettered access to others’ networks in the present or future. While Vonage eventually paid its way out of patent-infringement danger by settling the numerous patent suits, the result could have been much worse. Stricter rulings from courts or the infringement claimants’ unwillingness to settle might have made Vonage totally obsolete and bankrupt.

Even Vonage’s ability to wiggle out of its legal clutches was not without cost. Until this year, Vonage’s VOIP service was the largest competitor to traditional phone companies. As Vonage has dealt with its legal and financial troubles, large cable companies like Comcast and Time Warner have surpassed it in the total number of VOIP phone subscribers.

An article on the increasing lobbying pressure for patent reform provides a nice explanation of the “different sides of the aisle” when it comes to patent reform. On one side are pharmaceutical firms that prefer substantial penalties and roadblocks for patent infringers. The other side typically consists of technology firms that want fewer patent protections and less damages when infringement occurs. The article takes the view that the tech firms are winning. On the whole, this is true. Recent court decisions and proposed legislation have sought to create more fluidity in patent processes.

The correct policy, however, is understanding that different industries may need different rules. Tech firms deserve fewer protections, because the investment of time, money and other resources is usually substantially less than that of pharmaceutical developers. Drug companies, on the other hand, often invest billions and billions of dollars in research and development for the chance at a big payout. Drug companies follow the classic “high risk, high reward” business model. If there is less incentive, that is, less potential profits and protections, these firms will be less likely to take big chances at drugs that could help save lives and cure serious diseases.

Bottom Line: While having “one system” of patent protection may be preferable, such an arrangement ignores important differences in the business models, risks and interests of each industry. Legislators and courts would be wise to understand these differences and adjust policies to account for the differing needs of contradistinctive industries.

The House recently passed legislation that would lead to new reforms in determining ownership of patents. The legislation is intended to reduce patent litigation, which often turns on the identity of the innovator. Lawmakers are attempting to change the method via which courts determine the owner of a patent. Presently, the "true owner" of a patent is determined by identifying the first to invent. Proving the first to invent is often difficult and costly, particularly in litigation.

The proposed legislation relies on a "first to file" model. That is, the first person to register the innovation as their own would be the presumptive owner of the intellectual property.

This idea is not new. Many states use a similar method of defining ownership when it comes to determining the true owner of real property. Common law required that an individual attempting to determine ownership of property would have to follow "chain of title," often hundreds of years of documents, to determine the true owner. Many states now use a system that resolves conflicts by simply checking the state-maintained records. If there is a conflict about ownership the records on file with the state are the "tiebreaker" between the parties. Such laws are in place for two main reasons: (a) States want to encourage property owners to register their properties for tracking, tax, and realted purposes, and (b) having a simple-to-understand "tiebreaker" between conflicting parties helps to avoid litigations before they begin. Any potential litigant would immediately know whether he or she had a chance of prevailing in a matter with a simple check of the state or county records.

Bottom Line: While this legislation has not gone further than House approval, it is a proposal that has the potential to become law. Particularly given past successes with real property, there is little reason to doubt that the same principles could not be effectively applied to intellectual property matters as well.

As patent law begins to transform in the 21st century we see more and more discussions about appropriate patent policy. While there are many discussions about the merits of patent awards themselves, there is also a debate about appropriate relief for patent infringement.

One discussion centers on injunctive relief for patent infringement. A popular theory, the Lemley-Shapiro theoretical model of “patent holdup,” argues that the threat of a potential injunction often inflates royalty payments above and beyond an appropriate market rate. The theory also promotes the removal of injunctive relief as a presumption for patent infringement. On an elementary level, the Lemley-Shapiro model promotes a reduced role for injunctive relief while promoting monetary damages.

Gregory Sidak takes a different view, arguing that the problem is not potential injunctive relief, but the failure to create an appropriate marketplace to determine proper royalty rates in cases where infringement exists. Sidak sees a continued feature role for injunctive relief, but suggests that minor revisions will better serve rights holders and potential infringers.

Bottom Line: While this is the most elementary summary of the arguments, this current debate is a barometer of the ongoing discussions about patent rights in the new information economy. We can expect to continue to see academics, policy groups and industry passionately argue their beliefs and interests in a watershed time for decisions about the future of patents and other intellectual property rights.

The United States Patent and Trademark Office has unveiled its new program that allows the general public to provide feedback on pending patent applications. The program allows users to comment, support or oppose certain patent applications. The patent applications currently at issue are those in computer technology, which has become a “hot” area of patent law with the rise of the open source software movement. The current program is a test run, and will be reevaluated in a year. If the program is a success the USPTO plans to expand the program to other types of patent applications.

Bottom Line: The experiment has substantial promise. Still, there will unquestionably be attempts to undermine or promote patents in the public forums based on respective personal interests and other similar problems. If the program can survive these road bumps the IP community can expect this type of program to become the rule of intellectual property evaluation as opposed to its current exception status.

The Supreme Court recently handed down its opinion in KSR International v. Teleflex. The matter involved an adjustable pedal system for cars, which allows drivers to adjust the position of the gas and brake pedals themselves. KSR developed a model adjustable pedal and was selected by General Motors Corporation to supply the parts. Teleflex, who had previously registered a license for “a position-adjustable pedal assembly with an electronic pedal position sensor attached a fixed pivot point,” sued for patent infringement under § 103 of the Patent Act. That section provides:

“the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art.” 35 USC 103

The Supreme Court, reviewing the matter on appeal from the Federal Circuit, found that the inferior court had examined Teleflex’s claim in a manner that was “too rigid.” The Supreme Court found that if a person of ordinary skill in the art can implement a predictable variation, and the benefit of the variation is also apparent, §103 will bar its patentability.

The Court held that the “proper question was whether a . . . designer of ordinary skill in the art, facing the wide range of needs created by developments in the field, would have seen an obvious benefit to upgrading” the pedal.

Several important principles can be found in this opinion. First, it is worth noting that this opinion was unanimous, with all members of the Court agreeing with the outcome in the case. Unanimous opinions help to convey the message that “this is the way it’s going to be,” and are typically less likely to be subject to future challenges. Second, the Court clearly implied that intellectual property litigation based on mere minor improvements would not be viewed favorably.

Of course, this interpretation also indicates that the number of patents initially granted to those who apply for protections will likely fall. Applications for minor improvements on an existing invention will now be examined with a vengeful eye. The question remains: how does one determine “obvious?” The Supreme Court offered some guidance:

“One of the ways in which a patent’s subject matter can be proved obvious is by noting that there existed at the time of invention a known problem for which there was an obvious solution encompassed by the patent’s claims.”

A hypothetical example is as follows. A refrigerator, a patented idea, suffers from being dark when being opened for purposes of preparing a late night snack. The late night snacker has the idea of placing an automatic light switch in the refrigerator, to be activated when opened and shut, and obtains a patent for the idea. When a manufacturer also installs its own version of the automatic light switch, the patent holder sues. The patent holder can expect to lose this battle. There was an obvious problem at the time of the light switch patent: it was dark in the refrigerator. The problem was obvious at the time of the patent. The manufacturer’s version of the light will likely not be liable for infringement because, as the Supreme Court notes:

“Common sense teaches . . . that familiar items may have obvious uses beyond their primary purposes, and in many cases a person of ordinary skill will be able to fit the teachings of multiple patents together like pieces of a puzzle.”

The fact that the snacker had the idea first is of no matter because familiar items, such as a light and a simple sensor, and the obvious need to see the food in the fridge, led to the eventual improvement.

Bottom Line: The message is clear: minor improvements that fail to offer relatively significant new ideals should not be granted protection. Those that have already been granted are skating on the proverbial thin ice of intellectual property rights.

Microsoft prevailed in its defense of a patent infringement claim by AT&T related to copies of the Windows operating system sold overseas. The matter is Microsoft Corp. v. AT&T Corp., No. 05–1056. The technology at issue was codecs, which is software used to compress speech signals into data, in copies of Windows shipped and sold overseas. AT&T claimed that the codec infringed on its registered patents, and should result in damages paid to AT&T.

The law at issue was explained by the Court in its opinion:

It is the general rule under United States patent law that no infringement occurs when a patented product is made and sold in another country. There is an exception. Section 271(f) of the Patent Act, adopted in 1984, provides that infringement does occur when one “suppl[ies] . . . from the United States,” for “combination” abroad, a patented invention’s “components.” 35 U. S. C. §271(f)(1).

The Court came to three main conclusions. First, the Court held that “A copy of Windows, not Windows in the abstract, qualifies as a “component” under §271(f). Section.” Second, the Court found that Microsoft did not “supply” the technology at issue from the United States. Third, the Court noted the presumption in favor of foreign law for resolution of issues that arise in foreign lands.

The Court additionally addressed the concern that certain loopholes would exist for software manufacturers and distributors, apparently contemplating a circumstance where a domestic manufacturer could copy patented software, distribute it internationally, and force the patent owner to seek redress in numerous foreign lands. The resolution of this concern, however, was left to Congressional will.

The 7-1 opinion in favor of Microsoft, written by one of the Court’s more liberal members, Ruth Bader Ginsburg, hints at the likelihood that the Court will begin to take a more conservative view of patent infringement, particularly in the software world.

Software has long been a battleground for patent rights. Many commentators feel that software of almost any type is simply not unique or novel enough to protect under patent law, because of the elative ease of writing, developing, and modifying software technologies. This is in contrast to the classic contrary case of pharmaceuticals patents, where protections tend to be quite strong because of the substantial monetary and scientific resources invested in the development of new drugs.

The appeal to the Supreme Court came from U.S. Court of Appeals for the Federal Circuit, which handles many intellectual property matters, such as copyright and trademark disputes. Accordingly, the reversal of the Federal Circuit’s opinion will likely be felt in future matters heard in the Federal Circuit.

Bottom Line: Microsoft’s victory is likely the first in a line of upcoming victories for information technology defendants in patent infringement cases. In particular, software patent holders should be ready to accept broad defeats in patent infringement litigation barring extreme factual circumstances.