Because cases involving patent law are rarely heard by the U.S. Supreme Court, the U.S. Court of Appeals for the Federal Circuit (CAFC) is often the final arbiter on issues of patent law. However, the nine Justices have heard several cases in the last two years, and they have reminded all of us that they reign supreme. In two recent decisions, discussed below, the Supreme Court has cautioned lower courts against applying the law too rigidly, evincing a more expansive and flexible application of the law. Together, these cases suggest that the validity of more patents will be challenged in the future.

On April 30, 2007, the U.S. Supreme Court handed down its highly anticipated decision in KSR International Co. v. Teleflex Inc., 550 U.S. __, 127 S. Ct. 1727 (2007). In KSR, the Court addressed the question of what is the legal standard for assessing whether an invention would have been obvious, and thus unpatentable, under the Patent Statute. Since the Supreme Court’s landmark decision on obviousness in Graham v. John Deere Co. of Kansas City, 383 U.S. 1 (1966), the CAFC has typically required that the “prior art” provide teachings, a suggestion, or motivation (TSM) to combine elements of the prior art to arrive at the claimed invention. In applying this “TSM test,” the CAFC sought to achieve consistency and uniformity. However, the CAFC’s narrow, rigid application of the TSM test was resoundingly rebuked by a unanimous Court in KSR in favor of a more expansive, flexible approach.

In the specific circumstances of the KSR case, Teleflex, Inc. sued KSR, alleging that KSR Inc. infringed one of its patents that was directed to an adjustable automobile pedal having an electronic sensor to control an automobile’s engine throttle. In response, KSR countered that the asserted patent claim was invalid on the grounds that it would have been obvious to combine an adjustable automobile pedal with an electronic sensor. Ruling in favor of KSR, the District Court found that the state of the industry would lead inevitably to combinations of electronic sensors and adjustable pedals. On appeal, the CAFC took a more rigid approach and reversed the District Court, stating that unless the prior art specifically addressed the precise problem that the patentee was trying to solve, the problem would not motivate an inventor to look at the cited references.

The Supreme Court, however, held that the CAFC’s application of the TSM test was too rigid and inconsistent with the Patent Statute and prior Supreme Court precedent. For example, the Court noted that Graham “provided an expansive and flexible approach to the obviousness question that is inconsistent with the way the [CAFC] applied its TSM test [in KSR].” Id. at 4. While the Supreme Court did not abrogate the TSM test, it found that the test, which “captures a helpful insight,” had been applied too rigidly. The Supreme Court noted that sufficient motivation to combine references may come from market demands or from mere “common sense.” The Supreme Court repeatedly disagreed with the CAFC’s requirement that “courts and patent examiners should look only to the problem the patentee was trying to solve.” Id. at 5.

Instead, the Court said, under the correct analysis, “any need or problem known in the field of endeavor at the time of invention and addressed by the patent can provide a reason for combining the elements in the manner claimed.” Id. at 23. Moreover, the Supreme Court noted, a court must ask whether the invention is more than the predictable use of prior art elements according to their established functions. Additionally, the Supreme Court disagreed with the previously held notion that an invention is not obvious simply because it is obvious to try. In contrast, the Supreme Court held that an invention being obvious to try might show that it was indeed obvious under the patent laws.

Some members of the patent bar have speculated that the KSR decision means, as the music group R.E.M. declared in their 1998 hit, that “It’s The End of the World as We Know it.” However, the impact of the KSR case was palpable even before that decision was handed down. According to the Supreme Court, this broader application of the TSM test was not some new construct; rather, the broader application had been used by the CAFC in cases before KSR, and even in cases subsequent to KSR. Id. at 5, 18. See Pfizer, Inc. v. Apotex, Inc., Slip Opinion No. 06-1261 (Fed. Cir., Mar. 22, 2007). The Supreme Court also noted that the District Court that decided KSR had applied properly the broader, more flexible TSM test at the trial level. Id. at 16. Although it remains to be seen just how high the obviousness hurdle really will be following KSR, it is clear that a more expansive, flexible approach will be taken in assessing obviousness.

The Supreme Court’s more flexible application of the patent laws was foreshadowed by its earlier decision in MedImmune v. Genentech, 549 U.S. ___, 127 S. Ct. 764 (2007). In MedImmune, the Court considered whether a patent licensee that had not breached or terminated its license to a patent may bring suit under the Declaratory Judgment (DJ) Act (28 U.S.C. § 2201(a)) to have a court hold that the patent is invalid, unenforceable or not infringed. In addressing this question, the Supreme Court stated that the CAFC had erred in dismissing the suit for alleged lack of subject matter jurisdiction. Specifically, the Supreme Court noted that the lower courts’ requirement that the DJ plaintiff face a “reasonable apprehension of imminent suit” was contrary to Supreme Court precedent. Id. at 16.

Indeed, the Court held that a licensee is not required to break or terminate its license agreement before seeking a declaratory judgment that the underlying patent is invalid. Thus, the Supreme Court effectively overruled the CAFC’s earlier decisions in Gen-Probe, Inc. v. Vysis, Inc. 359 F.3d 1376 (Fed. Cir. 2004) (holding that a patent licensee in good standing cannot establish an Article III case or controversy because the license agreement “obliterate[s] any reasonable apprehension” of suit) and in Teva Pharm. USA, Inc. v. Pfizer, Inc. 395 F.3d 1324 (Fed. Cir. 2005) (applying a “reasonable apprehension of imminent suit” test). In taking a more flexible approach, the Supreme Court emphasized that the standard is whether the facts alleged, “under all the circumstances,” show that there is a substantial controversy, between adverse parties, of sufficient immediacy and reality to warrant relief. Id. at 8.

Following MedImmune, the CAFC has already recognized this increased flexibility. In Teva v. Novartis, Slip Op. No. 06-1181 (Fed. Cir., Mar. 30, 2007), the CAFC acknowledged that its “reasonable apprehension of imminent suit” test had been overruled in favor of looking at “all the circumstances.” Applying this broader test, the CAFC held that Teva, which sought approval to market a generic drug, had standing to bring a DJ action against Novartis, which had declined to assert its patent against Teva. This holding is in marked contrast to the CAFC’s previous holdings in Gen-Probe and Teva v. Pfizer and suggests that more actions for declaratory judgment will be brought and maintained. Together, the KSR and MedImmune cases suggest that the landscape is changing for patent licensees and licensors.

Under MedImmune, it is now easier for a licensee to be heard in court and assert that a patent is invalid, not infringed, or unenforceable. Under KSR, once the licensee makes it into court, it may be easier to invalidate the challenged patent. This expanded ability to challenge patents may create new opportunities for applicants who seek to market generic drugs but must first contend with patents that purportedly cover the name brand drug. In the electronics industry, the more flexible standard for assessing obviousness may temper negotiations between companies that seek to market a product but who face threats from patentees who hold patents on marginal improvements.

Because the patent system is designed to “promote the useful arts,” one overarching question is whether the Supreme Court’s more flexible approach will promote or stifle innovation. Many questions remain unanswered by KSR, and long-term uncertainty generally hinders innovation. How will “market demands” and “common sense” be assessed without applying impermissible hindsight? When a Patent Examiner finds that there is reason to combine references to arrive at the claimed invention, how specific must that reason be? At least for the time being, the U.S. Patent and Trademark Office appears to be exercising restraint in its application of KSR. On May 3, 2007, it circulated a memo to its Technology Center Directors and Examiners, requesting that Examiners continue to support their obviousness findings and identify reasons that would have prompted persons having skill in the relevant field to combine prior art references.

Despite the memo’s attempts to prevent overreaction on the part of the Patent Office, an expanded, more flexible application of the obviousness standard ultimately will lead to more rejections for obviousness and thus lead to more appeals of such rejections. In the mechanical and electronic technologies, inventions often are combinations of old elements, and such inventions likely will face greater challenges following KSR. To rebut such allegations of obviousness, patent applicants may have to increase their reliance on the so-called secondary indicia of non-obviousness, e.g., by showing unexpected results or commercial success of the invention. Similarly, patent applicants will likely increase their reliance on experts to help them identify and document such secondary indicia.

The contours of the KSR decision will be further shaped by patent litigants who face immediate and significant pressure to push (or limit) the boundaries of the decision. Patent challengers now have more fertile ground on which to establish that a patent is invalid and now, in light of MedImmune, have an increased ability to be heard in court. Similarly, there likely will be an increase in the number of third party requests that the Patent Office reexamine patents that it has issued. Of course, the full impact of the Court’s decision in KSR, particularly in view of prior decisions such as MedImmune, will be realized over time. As with many things in life, the devil is in the details, and the details are still to be clearly defined.