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April  30, 2007

Today the Supreme Court issued three decisions, described below, of interest to the business community.

KSR International Co. v. Teleflex Inc., No. 04-1350 (previously discussed in the June 26, 2006 Docket Report). In this case, the Supreme Court unanimously overruled the Federal Circuit's test for determining whether a patent is invalid on "obviousness" grounds under Section 103 of the Patent Law, 35 U.S.C. 103. In particular, the Court rejected the Federal Circuit's "teaching-suggestion-motivation" ("TSM") test for obviousness.

The patent claim at issue involved adjustable gas pedals and accompanying electronic sensors. In 1998 KSR began to develop, at the instance of Ford Motor Company, one such pedal system for various automobile lines. Teleflex sued KSR for infringing claim 4 of their "Engelgau" patent, which disclosed a pedal configuration containing a bracket-mounted, electronic pedal-position sensor. Relying on the TSM test, the district court determined that the Engelgau patent was obvious in light of the prior art. The Federal Circuit reversed, ruling that the district court misapplied the TSM test by failing to make a specific finding as to the understanding or principle that would have prompted a skilled artisan to attach the electronic control to the support bracket.

The Supreme Court began by rejecting the Federal Circuit's "rigid approach" to obviousness, holding that subject matter may be obvious even if there is no express teaching or suggestion to combine the prior-art elements involved. The Court underscored "the need for caution in granting a patent based on the combination of elements found in the prior art. For over a half century, the Court has held that a patent for a combination which only unites old elements with no change in their respective functions * * * obviously withdraws what is already known into the field of monopoly and diminishes the resources available to skillful men." Thus, to determine obviousness, federal courts must consider the "inferences and creative steps that a person of ordinary skill in the art would employ." Based on this standard, the Court held that the TSM test was overly rigid.

The Court made four additional observations. First, it explained that "any need or problem known in the field of endeavor" may provide a reason to combine prior-art elements, and that the Section 103 inquiry must focus on what combinations would have been obvious to persons having ordinary skill in the art, not on what combinations were obvious to the patentee. Second, the Court noted that an inventor seeking to solve a problem may reasonably be expected to combine prior-art elements other than those targeting that exact problem, and that such combinations would still qualify as obvious. Third, the Court explained that a patent claim may be obvious simply because a combination of elements was "obvious to try." Finally, the Court noted that the Federal Circuit's application of the TSM test overcorrected for the "hindsight bias" inherent in an obviousness inquiry.

Applying its test, the Supreme Court determined that a person having ordinary skill in the art would have combined the prior-art elements and would have appreciated the benefits of having done so; it thus held that the relevant aspect of Teleflex's patent was invalid.

The Court's decision permits obviousness challenges based on any showing that persons having ordinary skill in the art might have had to combine prior-art elements, eliminating the Federal Circuit's limitation on such contentions. The decision, however, provides no new definition of a "person having ordinary skill in the art" and, in light of the increased significance of that legal construct, lower courts will almost certainly be confronting its exact application to these types of obviousness inquiries.

Microsoft Corp. v. AT&T Corp., No. 05-1056 (previously discussed in the October 27, 2006 Docket Report). The Patent Act, 35 U.S.C. 271(f) bars any person from "suppl[ying] * * * from the United States * * * the components of a patented invention" and "actively induc[ing]" the assembly of those components abroad, and provides that violations of the prohibition give rise to infringement liability. In this case, the Supreme Court held that Section 271(f) was not triggered by Microsoft's practice of sending software master CDs abroad to be copied and distributed, even though the copied CDs could infringe a domestic patent.

With Justice Ginsburg writing an opinion for seven justices, the Court reversed the Federal Circuit and found that the Microsoft master CDs, sent abroad to be copied and distributed, were not "components" under Section 271(f). The parties agreed that, once installed on a computer, the software at issue--Windows--would violate an AT&T patent for speech processing. But, the Court held, software in the abstract could not be a "component[] of a patented invention." Here, the master CDs were used only for creating additional copies of the Windows CD, not for installing Windows on computers. Thus, the Court explained, Microsoft did not violate Section 271(f) because it did not supply "components" as that term is defined in the statute.

Justice Alito, in a concurrence joined by Justices Thomas and Breyer, questioned whether a software CD would qualify as a "component" of a patented invention even if that CD was used to install the software. Justice Stevens dissented, arguing that Congress intended Section 271(f) to apply more broadly. Chief Justice Roberts was recused.

This decision limits patent holders' ability to obtain damages in U.S. courts based on claimed extraterritorial infringement. Paired with KSR Int'l Co. v. Teleflex Inc., this case reflects the Court's willingness to reconsider the Federal Circuit's traditional generosity toward the claims of patent holders.

United Haulers Association, Inc. v. Oneida-Herkimer Solid Waste Management Authority, No. 05-1345 (previously discussed in the September 26, 2006 Docket Report). In C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383 (1994), the Supreme Court held that a local ordinance that required all municipal solid waste within a town to be delivered to a privately owned facility impermissibility discriminated against interstate commerce and was invalid under the dormant Commerce Clause. This case concerned the constitutionality of an ordinance requiring local waste to be delivered to a publicly owned waste management facility.

In a fractured 6-3 decision, the Court held that the ordinance did not violate the dormant Commerce Clause. The Court reasoned that Carbone was not controlling because the Court did not address "the public-private question" in that case, and "[c]ompelling reasons justify treating [laws that favor public facilities] differently from laws favoring particular private businesses over their competitors." Furthermore, a plurality of the Court, in an opinion authored by Chief Justice Roberts and joined by Justices Souter, Ginsburg, and Breyer, concluded that the ordinance satisfied the balancing test set forth in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), because the public benefits of the ordinance outweighed any burdens on interstate commerce. Justice Scalia concurred in part, opining that the dormant Commerce Clause does not reach ordinances that benefit public entities performing a traditional government function and treat all private entities equivalently. Justice Thomas concurred in the judgment, stating that, although he joined the majority opinion in Carbone, he now believes that it was wrongly decided and that he "would discard the Court's negative Commerce Clause jurisprudence" entirely. Justice Alito, joined by Justice Stevens and Justice Kennedy, dissented, adopting the petitioners' argument that the ordinance under review was indistinguishable from the ordinance invalidated in Carbone.

The Court's decision could encourage local governments to institute measures requiring the delivery of locally generated waste to publicly owned local facilities that charge premium rates. The decision also may embolden governmental entities to monopolize other types of services that might otherwise be provided by the private sector. More broadly, the decision suggests that the new Court may be more skeptical of claims that state or local regulations violate the dormant Commerce Clause. Mayer Brown represented the petitioners in this case.

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Mayer Brown Supreme Court Docket Reports provide information and comments on legal issues and developments of interest to our clients and friends. They are not a comprehensive treatment of the subject matter covered and are not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed.

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