It is clear that the Supreme Court’s ruling in KSR Int’l Co. v. Teleflex Inc. (Opinion 04-1350; Decided April 30, 2007) was meant to make it easier to challenge a patent on the grounds that the idea was obvious or showed no real innovation. The question is, does this mean bad news for pharmaceutical and biotech companies?

Biotech and pharmaceutical companies are heavily dependent upon on patents for new drugs and they typically rely on just a few patents which remain vital for the life of the patent. On the other hand (but not always), high-tech companies are not as dependent on patents as the chemical/biotech/pharma industries and their products generally have a short life span to obsolescence. It’s also true that the high-tech industries have really been hit hard with suits predicated on very weak, if not completely spurious, patents that have caused a lot of harm and expense.

If you think of patents as merely a form of blackmail, as many see the RIM v. NTP settlement of the current Vonage case, then the KSR higher standard is a good thing. As one analyst remarked, “NTP gets $612 million for coming up with a fairly obvious idea, patenting it and suing a company too arrogant to settle early on.” In these cases, their complaints are not trivial in any way.

But, the biosciences have always had difficulty with obviousness rejections (and don’t get me started on restriction requirements) and the KSR opinion sets the standard even higher — even if we don’t know exactly how high yet. This hurdle will be especially problematic in terms of some of the smaller advances, such as controlled-release drugs, polymorphs, etc., that are extremely important advances but might now prove more difficult in overcoming an obviousness rejection with a new, higher standard.

Derek Lowe, of In the Pipeline, agrees that it’s going to be harder to do the sort of patent-extending ploys that drug companies are used to (right or wrong), such as new dosages and formulation, enantiomers, etc., but believes that we would all be “better off without incentives to dink and tweak existing drugs to extend their patent lives.”

In addition, as others have pointed out, the net effect is difficult to calculate. While some inventions may now be unpatentable, companies may benefit if they are now able to enter markets that would have been blocked to entry. If a company is spared even one lawsuit of limited (or frivolous) merit, even greater benefits may be had by not spending vast resources on litigation and perhaps unwarranted damage awards.

My biggest issue with the KSR opinion is that it does set us back a bit and it will now take years for cases to make their way to the CAFC for better definition of how to determine obviousness. The current case seems to take the little guidance we had (TSM) and put that on a lower level than an overall subjective “gut reaction” standard that is difficult to define. Therefore, the net effect of the decision won’t really be known for some time. This means there will be a certain period of uncertainty for companies in every industry, for example, in making determinations of patent validity.

The Supreme Court originally set out the test for obviousness in the case of Graham v. John Deere Co. in 1966: (1) the scope and content of the prior art; (2) the skill level of a person of ordinary skill in the art; (3) the differences between the claimed invention and the prior art’s teachings; and (4) any objective indications of nonobviousness, such as the commercial success of the invention.

Meanwhile, the Supreme Court has not heard an obviousness since Sakraida v. AG Pro, before the Federal Circuit was established. In Sakraida, the Court held that a combination that “simply arranges old elements with each performing the same function it had been known to perform” is precluded from patentability (no “synergism” of the elements). The Federal Circuit has since established the teaching, suggestion, or motivation (TSM) test in order to set a threshold for obviousness in order to prevent hindsight from invalidating patents.

Now, the Supreme Court has cited Sakraida, as well as Black-Rock, favorably indicating the Court is clearly interested in predictability in this new, flexible standard, i.e., “more than the predictable use of prior art elements according to their established functions” as well as demanding “common sense” and “real innovation” in an invention. The Court stated that patentability will require more than “the results of ordinary innovation.”

Granted, while the Supreme Court knocked the Federal Circuit’s teaching, suggestion, or motivation (TSM) test down a notch, it didn’t reject it outright. So, the same factors will come into play — albeit in a smaller role. Therefore, many of the arguments of patentability that would come into play under the TSM test will still be necessary in terms of the new, higher standard for combinations of known elements.

I don’t believe that we will know the net effect for some time. However, one immediate result from this decision could be a push to increase settlements.

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