Patent reformers hail Supreme Court decision in AT&T case

Recents rulings, legislation show patent reform is coming, they say

U.S. patent law reformers lauded two decisions by the U.S. Supreme Court today, including a near-unanimous decision that found Microsoft Corp. not liable for using patented AT&T Inc. technology in versions of the Windows operating system running on computers outside of the U.S.

Following sweeping patent reform legislation introduced in the U.S. House and Senate, the high court rulings indicate with clarity that reform is in the air, reform advocates said. Reformers such as the Coalition for Patent Fairness, a group of more than 60 technology vendors, have raised concerns about an explosion in frivolous patent litigation in recent years. Microsoft is one of its members.

"Today's Supreme Court decision is important for the entire information technology industry, adding clarity and balance to our patent system," said Microsoft general counsel Brad Smith in a statement. "This decision promotes a global patent system that works. The ruling ensures that U.S. courts, like courts elsewhere, can respect the patent laws of other countries, helping promote cooperation among patent systems worldwide."

He said the decision will have implications on other patent cases as well and predicted that damages against Microsoft in two cases involving Alcatel-Lucent and Eolas Technologies Inc. "will be revisited in light of [today's] ruling."

AT&T issued a statement expressing its disappointment. "All U.S.-based sources of innovation, including the software development community, could benefit from patent laws that enable fair, appropriate protection and valuation of new technologies and inventions domestically and overseas," said Scott Frank, CEO of AT&T Knowledge Ventures. "Our intellectual property protection and licensing program continues to focus on maximizing global access to AT&T innovations, while also ensuring that AT&T receives fair and appropriate compensation in return for its investments in research and innovation."

Matt Tanielian, director of federal government affairs at Cisco Systems Inc., said today's two rulings bring to five the number of recent patent cases where the high court has come down "almost unanimously." The court has ruled against "frivolous" litigation in the five cases going back to May 2006, when it ruled for eBay Inc. after the online auction site was sued for patent infringement by Web auction site MercExchange LLC.

"The court is ... rebalancing the patent system and overturning the federal circuit courts," Tanielian said. "We think the patent system has serious problems."

Patent reform is Cisco's highest legislative priority this year, and Tanielian said that despite the wave of Supreme Court decisions, further legislative reforms are needed.

The Coalition for Patent Fairness supported the Patent Reform Act of 2006, legislation that was not acted upon, and supports similar reforms reintroduced last week on the House and Senate sides, he noted.

The Supreme Court ruled 6-1 in favor of Microsoft on the issue of whether many millions of copies of its Windows operating system sold abroad were subject to patent infringement damages sought by AT&T.

Microsoft had already settled with AT&T in the U.S. after admitting that it violated AT&T's patent for converting speech to computer code. Microsoft argued that Windows software running on computers overseas was not covered by the patent. Justice John Paul Stevens dissented and Chief Justice John Roberts did not vote.

One analyst, Allan Krans of Technology Business Research Inc., said Microsoft's strategy with the AT&T case shows that Microsoft has remained aggressive.

"Microsoft is not afraid to walk the thin line between aggressively competing and violating patent and antitrust legislation," he said. "Microsoft wins some cases and loses others, and in this instance, the ruling was in their favor. We believe the legal costs and any potential fines, such as those levied by the [European Union], are seen as a cost of doing business for Microsoft."

In a second patent decision today, the court ruled unanimously that KSR International Co. had not infringed on a patent held by Teleflex Inc. for an adjustable truck pedal assembly for an electronic throttle control. While not related directly to computer technology, the decision was consistent with the court's recent pattern of rulings in patent cases, Tanielian said.

Tanielian said reformers at the coalition support, through judicial rulings and legislation, a fairer method for determining damages in patent disputes and for creating a process to invalidate what he called "bad" patents, which can be used as a "weapon in an uncertain litigation process where bullets fly."