The patent law and business communities spent much of 2007 waiting anxiously to learn whether the Patent Reform Act of 2007 would become law.  We now know the answer – it will not.  Though once again Congress has failed to adopt meaningful patent reform, patent law continued to evolve in 2007 through several significant decisions handed down by the United States Supreme Court and the Court of Appeals for the Federal Circuit.  Generally speaking, these several decisions improved the ability of an accused infringer to defend itself.

1.  In KSR, the Supreme Court lowered the bar for finding invalidity under the Section 103 obviousness standard.  One might say only half in jest that obviousness is now more obvious.  The Court eliminated what had been the Federal Circuit’s absolute requirement that there be a teaching or suggestion or motivation to combine two references in the prior art prerequisite to finding obviousness based on the combination.  KSR Int’l. Co. v. Teleflex, Inc., 127 S.Ct. 1727 (2007).


2.  In Microsoft v. AT&T, the Supreme Court in declining to stamp Microsoft an infringer adopted a narrow interpretation of Section 271 (f).  The Court held that software copied outside the United States from a master disk shipped from the United States was not itself a component shipped from the United States within the meaning of Section 271 (f).  The copy of the master disk software was treated as a separate component from the original software.  Therefore, the copied software could be installed on computers overseas without implicating the U.S. patent at issue.  This further restricts the extraterritorial effect of U.S. patents.  Microsoft Corp. v. AT&T Corp., 127 U.S. 1746 (2007).


3.  In Medimmune, the Supreme Court held a patent licensee need not breach its license agreement in order to maintain a declaratory judgment suit for invalidity.  The Court found that a case or controversy existed even though Medimmune continued to pay royalties and could not be sued for infringement.  Thus, certain patent licensees may find it possible to contest the validity of the licensed patent while maintaining the protection afforded by the license agreement.  Moreover, based on the Court’s reasoning, it is now generally more likely that a declaratory judgment suit can be brought and maintained.  Medimmune, Inc. v. Genentech, Inc., 127 U.S. 764 (2007).


The Federal Circuit also handed down several decisions which will no doubt prove helpful to accused infringers. 


1.  The Federal Circuit’s decision in In re Seagate altered the test to be applied in determining willful infringement and the award of enhanced damages.  The new standard eliminated an individual’s "affirmative duty to exercise due care to determine whether or not he is infringing."  Under the new standard a patent owner must prove by "clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent."  In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007).


2.  The Federal Circuit in In re Nuijten and In re Comiskey found several types of claims unpatentable for failing to qualify as one of the four statutorily recognized categories of patentable subject matter under Section 101: a process, a machine, an article of manufacture or a composition of matter.  The court found claims directed to an electrical signal (In re Nuijten) and claims directed to an arbitration process implemented solely by a mental process (without any machine interface) to be unpatentable. These decisions will lead practitioners to once again consider raising Section 101 invalidity defenses, especially against so called business method patents.  As held in Comiskey, business methods "standing alone and untied to another category of statutory subject matter" do not pass the threshold test of patentability.  In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007) and In re Comiskey, 499 F.3d 1365 (Fed. Cir. 2007).


3.  The remedies available to a successful patent owner (and the ability of an adjudged infringer in certain circumstances to continue selling infringing product) continued to evolve in light of the 2006 decision in the eBay case in which the Supreme Court held that permanent injunctions should not automatically be entered against an infringer.  Instead the Supreme Court directed that courts use the traditional four factor test applied by courts of equity when considering whether to award permanent injunctive relief.  Where a permanent injunction is not issued the question naturally arises as to how the infringer’s future sales should be treated.  The Federal Circuit addressed just this situation in the Toyota case.  In Toyota the Federal Circuit recognized the authority of a district court to impose continuing royalty obligations on an adjudged infringer for future sales of the infringing product in lieu of entering a permanent injunction.  eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 946 (2006) and Paice LLC v. Toyota Motor Corp., 504 F.3d 1293 (Fed. Cir. 2007).


Even though we are only several weeks into 2008, it looks like this will be another exciting year in the continuing development of patent law.  We start off with quite a show this week.  The Supreme Court will hear oral argument in the Quanta Computer v. LG Electronics, Inc. case.  The decision later this year will (hopefully) clarify certain aspects of the one hundred year old doctrine of "patent exhaustion."  This will no doubt be one of the most significant patent decisions of 2008.


Happy New (Patent) Year