On Monday, April 30, 2007, the Supreme Court issued two widely anticipated decisions on patent law – KSR International Co. v. Teleflex Inc. and Microsoft Corp. v. AT&T Corp.

KSR International Co. v. Teleflex Inc.

The Court, in an opinion by Justice Kennedy, unanimously rejected the Federal Circuit’s rigid rule requiring that there be some teaching, suggestion or motivation (“TSM”) in order to combine or extend the teachings of the prior art to establish obviousness under 35 U.S.C. Section 103. Instead, the Court held that the more flexible standards established in the Supreme Court’s precedents be used to evaluate obviousness. No new test for “obviousness” was adopted by the Court.

In KSR, the Supreme Court reinstated the District Court’s summary judgment ruling invalidating as obvious Teleflex’s patent for an “Adjustable Pedal Assembly With Electronic Throttle Control”. The Federal had reversed the summary judgement, holding that the District Court had not rigorously applied the TSM test and the Supreme Court granted certiorari in order to review whether the TSM test was proper in view of the Court’s precedent. In restoring the District Court’s holding of invalidity, the Court held that the rigid TSM test developed by the Federal Circuit is inconsistent with the flexible approach established by Supreme Court precedent.  The Court said: “our cases have set forth an expansive and flexible approach [to obviousness] inconsistent with the way the Court of appeals applied its TSM case here.”  The Court reaffirmed that its 1966 decision in Graham v. John Deere continues to provide the proper framework for analyzing whether an invention is “obvious.”

While it was widely expected that the Supreme Court would reject the TSM test, some commentators believed that the Court would adopt strict requirements for patents that claim “combinations of old elements.”  For example, some Supreme Court cases were thought to require a showing of “synergy” as a test for patentability of combinations.  Rejecting any special test for combination patents, and acknowledging that the TSM approach sometimes provides “helpful insights,” the Court stated:

“a patent composed of several elements is not proved obvious merely by demonstrating that each of its elements was, independently, known in the prior art.  Although common sense directs one to look with care at a patent application that claims as innovation the combination of two known devices according to their functions, it can be important to identify a reason that would have prompted a person of ordinary skill in the relevant field to combine the elements in the way the claimed new invention does.”

The central rationale for the Federal Circuit’s rigid TSM test was to provide a framework to avoid the application of hindsight in evaluating the patentability of claims.  The Supreme Court acknowledged that hindsight was an important concern, noting that its decision in Graham warned against “slipping into the use of hindsight.”  However, the Court rejected the notion that the risk of hindsight required the adoption of “rigid preventative rules.”  As a way to address the problem of hindsight, the Court stated that an obviousness analysis “should be made explicit.”

The Federal Circuit had also reversed the summary judgment of invalidity, holding that there were material facts in dispute.  Noting that obviousness is a question of law, the Court held that a conclusory expert declaration was insufficient to create a disputed factual issue where the “content of the prior art, the scope of the patent claim, and the level of ordinary skill in the art are not in material dispute…”

Finally, the Court declined to address the question of whether presumption of validity is vitiated when one of the primary references was not before the patent examiner during prosecution.

Microsoft Corp. v. AT&T Corp.

The Court addressed the meaning of 35 U.S.C. Section 271(f), which was passed by Congress in response to the Supreme Court’s 1972 decision in Deepsouth Packing Co. v. Laitram Corp. holding that because U.S. patent law is strictly territorial the export of all of the components of a patented machine is not an infringement if the patented machine is assembled outside of the United States.  Congress then passed section 271(f) to cure what was widely perceived as a loophole, and included a provision creating infringement liability for the export of a “component of a patented invention.”

In Microsoft, the Court reversed the decision by the Federal Circuit holding that the export of “golden disks” of software used as master copies for manufacture of the Windows operating system software abroad constitutes infringement under 271(f).  Justice Ginsburg wrote the majority opinion, with a concurring opinion by Justice Alito, joined by Justices Thomas and Breyer, and a dissent by Justice Stevens.

The AT&T patent was directed to a computer for speech encoding and compression. The Microsoft Windows operating system, when loaded on a personal computer, was alleged to infringe. The Court first addressed the issue of what is a “component” under section 271(f), holding that a component must be something that is incorporated into a patented invention. The majority declined to expressly address the issue of whether intangible software can ever be a “component.”

The Court then went on to address the section 271(f) requirement that the component be “supplie[d] … from the United States.” Since the AT&T patent covered the combination of computer and software, it could not be infringed until the Microsoft operating system was loaded onto the computer.  The Court noted that the golden disks which Microsoft supplied from within the United States were never used to load the software onto a computer.  Instead, these disks were used to manufacture copies of Windows outside of the United States, which were then distributed and loaded onto computers outside of the United States.  Since the disks that were shipped from the United States were themselves never used as a component of an infringing combination, the Court held that section 271(f) does not apply.  The Court suggested that the export of golden disks was analogous to the export of design tools, such as “blueprints, schematics, templates…,” which are clearly not covered by section 271(f).

The Court emphasized that there is a presumption against giving patent law extraterritorial reach and, therefore, any ambiguity in the law should be resolved against any expansion of U.S. law to activities abroad.  The Court noted that AT&T could have obtained and enforced patents outside of the U.S.  The Court further noted, as it did in Deepsouth, that Congress has the power to amend the law and further refine section 271(f) if it believes that additional control over the export of components is needed.