PISCATAWAY, N.J., May 2, 2007 -- The president of the Licensing Executives Society today warned that this week's US Supreme Court rulings on patents "may end up watering down the patent system to the point where it no longer serves the function intended to appropriately award innovation."

The Supreme Court on Monday sided with software and technology companies in two major patent rulings that could leave them less vulnerable to infringement lawsuits, essentially making it more difficult to get a patent on new products that combine elements of existing inventions. Many experts say the rulings weaken the value of patents and could hinder technological innovation. Others call it a landmark in the battle against "nuisance patents."

Allen Baum, president of the Licensing Executives Society (LES), which represents intellectual property licensing professionals, said, "Right now we have Congress, the Supreme Court and the Patent Office all making changes to patent law in response to intense pressure from those who believe that patents have become too strong. The problem is there is no real coordination of efforts. With all of this change occurring simultaneously, we run the risk that the pendulum will swing too far and that instead of 'tweaking' the system, we will destroy the incentive for innovation."

On Tuesday, the IEEE Standards Association (IEEE-SA) said it will permit the disclosure of licensing terms associated with patents that might be included in its standards. The policy changes are intended to make the IEEE standards-setting process more transparent, it said.

On Monday, the Justice Department issued a business review letter in response to a request from IEEE-SA which states that the policy has pro-competitive benefits and that it has no intention of challenging the policy, IEEE-SA said. It had sought the letter to address any concerns that exist on the new policy, "even though the Justice Department and the Federal Trade Commission have made clear in the past two years that policies like the IEEE-SA's new policy are permissible," it said.

In addition to permitting disclosure of licensing terms, the IEEE-SA clarified other aspects of its patent policy:

"The policy: Encourages the optional disclosure of royalty rates and other license terms of a potentially essential patented technology early in the development of a draft standard. The patent holder may provide a not-to-exceed license fee or rate commitment, a sample license agreement, or one or more material licensing terms.

1. Makes a patent-holder’s assurance irrevocable once accepted by the IEEE and requires the patent-holder to give notice of the existence of the assurance when transferring ownership of the patent rights.
2. Binds the patent-holder's affiliates to the terms of the given assurance, unless the patent holder explicitly identifies affiliates it does not wish to bind.
3. Requires individuals participating in developing a standard to disclose the name of the holder of patents that are potentially essential to the standard, based upon personal knowledge. This applies to patents held by the individual or their employer."

Judy Gorman, IEEE-SA managing director, said, "IEEE standards policies and procedures must change as the world changes to ensure our standards serve those who create and use them. Our new patent policy is a good example of this. We spent several years creating this policy and had strong participation from industry in doing so."

The new policy encourages voluntary disclosure of maximum royalty rates and other licensing terms and allows IEEE standards working groups to include these in their comparison of relative costs for the technology alternatives they consider for a standard, she said. "As a result, our working groups will make choices based on more informed cost-performance evaluations. This should encourage competition and benefit anyone who seeks to comply with IEEE standards."

In its ruling, the Supreme Court addressed the leap from what is known to what is patentable -- what would have been obvious from the prior work of others. In recognizing the challenge, the court stated, "In many fields there may be little discussion of obvious techniques or combinations and market demand, rather than scientific literature, may often drive design trends."

The court also provided new grounds for finding patent applications and issued "patents obvious" while observing the level of innovation necessary for obtaining patents.

The court said, "We build and create by bringing to the tangible and palpable reality around us new works based on instinct, simple logic, ordinary inferences and extraordinary ideas, and sometimes even genius. These advances, once part of our shared knowledge, define a new threshold from which innovation starts once more. And as progress beginning from higher levels of achievement is expected in the normal course, the results of ordinary innovation are not the subject of exclusive rights under the patent laws."

Baum said, "In an extreme departure from prior law applied by the Patent Office, the Supreme Court stated that ' ...the fact that a combination was obvious to try might show that it was [not entitled to patent protection]...'"

He said that patent laws don't distinguish between scientific categories of inventions. "The same obviousness test is used for drugs and software. Will we inadvertently destroy the incentive to develop new medications in an effort to ensure inexpensive access to Internet phone calls?"

The court also commented that "Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress and may, in the case of patents combining previously known elements, deprive prior inventions of their value or utility."
 
This decision comes at a time when Congress recently introduced patent reform legislation in the House and Senate providing for post-grant opposition of patents as well as limitations on damages, he said.

The court also recently issued decisions limiting the availability of injunctions in patent cases and giving patent licensees the ability to challenge patents while continuing to pay royalties under a patent license. The Patent Office is also expected to issue new rules substantially curtailing a patent applicant's number of 'bites at the apple' in seeking patent protection, Baum said.

On Tuesday, Internet phone-service provider Vonage Holdings Corp. filed a motion seeking to overturn a federal court decision that ruled it had infringed on Verizon patents, citing the new ruling that scales back patents holders' rights.

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