KSR International Co. v. Teleflex Inc.: Another Small Issue for Nanotechnology?

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1 KSR International Co. v. Teleflex Inc.: Another Small Issue for Nanotechnology? MATTHEW J. DOWD, KENNETH C. BASS III and ROBERT GREENE STERNE ABSTRACT During this past year, nanotechnology companies and inventors have witnessed several important decisions concerning United States patent law. Perhaps the most significant is the U.S. Supreme Court s decision in KSR International Co. v. Teleflex Inc., which attempted to redefine the standard for determining whether an invention satisfies the nonobviousness requirement. In this article, two attorneys involved with that case, Kenneth C. Bass III and Robert Greene Sterne, and patent agent Matthew J. Dowd discuss the potential impact of the Supreme Court s decision on nanotechnology. Every inventor, company, and patent attorney involved with nanotechnology should want to know if and how the Supreme Court changed the bar to patentability for nanotech inventions. I. INTRODUCTION O n April 30, 2007 the Unites States Supreme Court decided KSR International Co. v. Teleflex Inc., 1 perhaps the most closely watched patent case in the past forty years. The issue in KSR concerned the correct standard for determining whether a new invention is sufficiently inventive, or nonobvious, compared to what is known already. What the Court actually decided is debatable and discussed further below. Nevertheless, the decision produced much commentary from the patent community, as well as from the broader business community. The volume of commentary is indicative of the importance of the case, which will affect, to one degree or another, patents across all technologies. Matthew J. Dowd is a registered patent agent at Sterne, Kessler, Goldstein & Fox P.L.L.C. He is also a J.D. student at The George Washington University Law School. He can be reached at mdowd@skgf.com. Kenneth C. Bass III is of counsel at Sterne, Kessler, Goldstein & Fox P.L.L.C. He was co-counsel for the respondent in KSR International Co. v. Teleflex Inc. He can be reached at kbass@skgf.com. Robert Greene Sterne is a director at Sterne, Kessler, Goldstein & Fox P.L.L.C. He was co-counsel for the respondent in KSR International Co. v. Teleflex Inc. He can be reached at rsterne@skgf.com. This article reflects the present thoughts of the authors and should not be attributed to Sterne, Kessler, Goldstein & Fox P.L.L.C. or any of its former, current, or future clients. 1 KSR Int l Co. v. Teleflex Inc., 127 S. Ct (2007). NANOTECHNOLOGY LAW & BUSINESS FALL

2 Dowd et al. Readers of this journal are of course most interested in the effect of KSR on the nanotechnology industry. There is little doubt that KSR will affect companies involved in developing, producing, and marketing nanotechnology products. These inventions are routinely protected with patents, and those patents, if valuable, will be accused of being obvious. More immediately perhaps, nanotech inventors will have to overcome obviousness rejections relying on the reasoning of KSR. The magnitude of KSR s impact, however, may be hard to predict. Nanotechnology, of course, covers a wide variety of specific technologies, each of which presents its own intellectual property questions. Other authors have previously detailed how the revolutionary characteristics of nanotechnology create questions about the application of intellectual property laws to nanotechnology. 2 This inherent variability combined with the ambiguity in the Court s decision in KSR will only create further questions, answers to which we must await from the courts. Unlike many articles in this journal, this one may leave the reader with more questions than answers, unfortunately. This is not an intentional reminder to readers of their days enduring the Socratic method. Rather, the questions and ideas presented herein underscore the uncertainty created by the Supreme Court s pronouncement in KSR. Appreciation for these questions and possible answers should enable inventors, patent practitioners, and businesses in the nanotechnology sector to more effectively achieve their goals of creating, protecting, and producing nanotechnology products. Readers of this journal know of the diverse scientific disciplines covered by the term nanotechnology. Thus, we do not repeat this here. For those interested in the basics of nanotechnology, several useful articles and books 3 are available. II. BRIEF SUMMARY OF KSR INT L CO. V. TELEFLEX INC. Before summarizing the facts and holding of KSR, we provide a brief synopsis of the law of obviousness as it stood prior to April 30, This summary should be useful to many readers by providing context to the actual change in the law created by KSR. 1. Obviousness and 35 U.S.C. 103 To obtain a patent on an invention, the invention must be useful, novel, and nonobvious. 4 For approximately the first 160 years of the U.S. patent system, the requirement of nonobviousness was a judicially created doctrine. 5 During that time, the Supreme Court had the chance to develop the obviousness standard on a number of occasions, frequently requiring a high level of inventiveness to 2 See, e.g., Sean O Neill, et al., Broad Claiming in Nanotechnology Patents: Is Litigation Inevitable?, 4 NANOTECH. L. & BUS. 595 (2007); Nikolas J. Uhlir, Note, Throwing a Wrench in the System: Size-Dependent Properties, Inherency, and Nanotech Patent Applications, 16 FED. CIR. B.J. 327 (2007); Melissa D. Schwaller & Gaurav Goel, Getting Smaller: What Will Enablement of Nanotechnology Require?, 3 NANOTECH. L. & BUS. 145 (2006); Matthew J. Dowd, et al., Nanotechnology and the Best Mode, 2 NANOTECH. L. & BUS. 238 (2005); Albert P. Halluin & Lorelei P. Westin, Nanotechnology: The Importance of Intellectual Property Rights in an Emerging Technology, 86 J. PAT. & TRADEMARK OFF. SOC Y 220 (2004). 3 E.g., RICHARD D. BOOKER & EARL BOYSEN, NANOTECHNOLOGY FOR DUMMIES (2005); J. Storrs Hall, NANOFUTURE: WHAT S NEXT FOR NANOTECHNOLOGY (2005); RICHARD A.L. JONES, SOFT MACHINES: NANOTECHNOLOGY AND LIFE (2004); MARK RATNER & DANIEL RATNER, NANOTECHNOLOGY: A GENTLE INTRODUCTION TO THE NEXT BIG IDEA (2002). Consider also the following book reviews: Matthew J. Dowd, A Review of The Dance of Molecules, 3 NANOTECH. L. & BUS. 94 (2006); Ann Marie Rosas, Nanotechnology Meanderings: A Review of Nanocosm, 2 NANOTECH. L. & BUS. 203 (2005); Ruben M. Serrato, Nanotechnology Development Through a New Generation of Books: A Review of The Next Big Thing is Really Small, 1 NANOTECH. L. & BUS. 218 (2004) U.S.C (2000). 5 See, e.g., Hotchkiss v. Greenwood, 52 U.S. 248, (1851). 294 NANOTECHNOLOGY LAW & BUSINESS Volume 4 No. 3

3 KSR International Co. v. Teleflex Inc. sustain the validity of a patent. For instance, in Cuno Engineering Corp. v. Automatic Devices Corp., the Court held that a patent claiming an improved automobile cigarette lighter was obvious. 6 The Court stated that, if an improvement is to obtain the privileged position of a patent more ingenuity must be involved than the work of a mechanic skilled in the art. 7 Similarly, the Court further emphasized that, to be patentable, the new device, however useful it may be, must reveal the flash of creative genius not merely the skill of the calling. If it fails, it has not established its right to a private grant on the public domain. 8 The Court again emphasized the need for a heightened level of patentability in Great Atlantic & Pacific Tea Co. v. Supermarket Equipment Corp. 9 In this case, the Court held as obvious a patent directed to a cashier s counter and movable frame for cash and carry grocery stores. 10 In doing so, the Court explained that [a] patent for a combination which only unites old elements with no change in their respective functions, such as is presented here, obviously withdraws what already is known into the field of its monopoly and diminishes the resources available to skillful men. 11 In general, the Supreme Court was relatively hostile to patents, prompting Justice Jackson to comment that the only patent that is valid is one which this court has not been able to get its hands on. 12 Judge Evans of the Court of Appeals for the Seventh Circuit likewise concluded that the record of the Supreme Court during the last five years [i.e., ] indicate[d] not only a decided trend but a raising of the standard of patentable novelty so high that few inventions or discoveries will meet the test. 13 More recently, and prior to the creation of the Federal Circuit, the regional courts of appeals seemed to apply the obviousness standard in a non-uniform manner. 14 Recognizing the need for stability in patent law, 15 Congress in 1952 codified the nonobviousness requirement as section 103 of Title Although the Supreme Court later held that the codification did not change the standard to be applied, 17 there is a strong argument that Congress did intend at least to make the standard more objective and less susceptible to improper hindsight analysis. 18 In 1966, the Supreme Court had its first opportunity to address the question of obviousness since the codification of section 103. In Graham v. John Deere Co., the Court set forth an analytical approach to be used for obviousness analyses: Under 103, the scope and content of the prior art are to be determined; differences between the prior art and the claims at issue are to be ascertained; and the level of ordinary skill in the pertinent art resolved. Against this background the obviousness or Cuno Eng g Corp. v. Automatic Devices Corp., 314 U.S. 84 (1941). at 90. at 91. Great Atl. & Pac. Tea Co. v. Supermarket Equip. Corp., 340 U.S. 147 (1950). at 148. at Jungersen v. Ostby & Barton Co., 335 U.S. 560, 572 (1949) (Jackson, J., dissenting). Evan A. Evans, Disposition of Patent Cases by the Courts, 24 J. PAT. OFF. SOC Y 19, 24 (1942). See, e.g., Charles W. Adams, The Court of Appeals for the Federal Circuit: More than a National Patent Court, 49 MO. L. REV. 43, (1984) (noting the varied standards of patentability in the regional courts of appeals). 15 See, e.g., Giles Rich, Laying the Ghost of the Invention Requirement, 14 FED. CIR. B.J. 163, 164 (2005) (noting that such uncertainty is damaging to the patent system and discouraging to inventors, to whom we owe much, and that is bad for the country ) U.S.C Graham v. John Deere Co., 383 U.S. 1, 19 (1966) ( [I]t bears repeating that we find no change in the general strictness with which the test is to be applied. ). 18 See, e.g., Giles Rich, Laying the Ghost of the Invention Requirement, 14 FED. CIR. B.J. 163, 170 (2005) ( The first policy decision underlying Section 103 was to cut loose altogether from the century-old term invention. ). NANOTECHNOLOGY LAW & BUSINESS FALL

4 Dowd et al. nonobviousness of the subject matter is determined. Such secondary considerations as commercial success, long felt but unsolved needs, failure of others, etc., might be utilized to give light to the circumstances surrounding the origin of the subject matter sought to be patented. 19 The Court in Graham stressed the danger of hindsight analysis, suggesting that the proposed analytical framework would lessen the risk. 20 Although Graham is easily the most cited Supreme Court case addressing obviousness, its main deficiency is that it never established a standard for determining whether an invention is sufficiently nonobvious to warrant patent protection. Instead, the Court set out a framework for applying the statutory language of 103, language itself based on the logic of the earlier decision in Hotchkiss v. Greenwood. 21 Thus, it was left to other decisions to define the boundaries of obviousness. On the same day as Graham, the Court decided United States v. Adams. 22 Here, the Court upheld the patentability of a wet battery which contained water instead of acids, and magnesium and cuprous chloride electrodes instead of zinc and silver chloride. 23 The Court observed that an invention may be obvious if it is merely a known structure modified by the substitution of one of its elements for another known element. In this case, all the elements of the patented battery were known in the art. Nevertheless, the invention was deemed nonobvious because, based on prior art, it was unexpected that the new combination would work. 24 The Court relied, in part, on the finding that the prior art taught away from the claimed combination. 25 In other words, known disadvantages in old devices which would naturally discourage the search for new inventions may be taken into account in determining obviousness. 26 Three subsequent cases appeared to hearken back to the pre-1952 flash of genius 27 days and the earlier focus on combination patents. In Anderson s-black Rock v. Pavement Salvage Co., 28 the Court held that a road-paving invention was obvious because, in part, the claimed invention appeared to be nothing more than a combination of old elements without any synergistic effect. 29 In Sakraida v. Ag Pro, 30 the Court held a water flush system to remove cow manure from the floor of a dairy barn was obvious. 31 Finally, in Dann v. Johnston, the Court stated that the mere existence of differences between the prior art and an invention does not establish the invention s nonobviousness. The gap between the prior art and the respondent s system is simply not so great as to render the system nonobvious to one of ordinary skill in the art. 32 Each of these cases seemed to suggest that inventions which merely combined Graham, 383 U.S. at KSR, 127 S. Ct. at 1734 (summarizing Graham). United States v. Adams, 383 U.S. 39 (1966). at at 51. at at 52. See Cuno Eng g, 314 U.S. at 91 (noting that an invention, however useful it may be, must reveal the flash of creative genius not merely the skill of the calling. If it fails, it has not established its right to a private grant on the public domain. ). 28 Anderson s-black Rock v. Pavement Salvage Co., 396 U.S. 57 (1969). 29 at 61 ( A combination of elements may result in an effect greater than the sum of the several effects taken separately. No such synergistic result is argued here. It is, however, fervently argued that the combination filled a long felt want and has enjoyed commercial success. But those matters without invention will not make patentability. (quoting Great Atl. & Pac. Tea Co., 340 U.S. at 153)). 30 Sakraida v. Ag Pro, 425 U.S. 273 (1976) at 274. Dann v. Johnston, 425 U.S. 219, 230 (1976). 296 NANOTECHNOLOGY LAW & BUSINESS Volume 4 No. 3

5 KSR International Co. v. Teleflex Inc. prior art elements and produced only expected results were not patentable. But none even hinted that Graham s focus on preventing improper hindsight analysis was misplaced. 2. The Teaching-Suggestion-Motivation Requirement In response to the Court s admittedly vague, and arguably contradictory, approaches to obviousness, the Court of Appeals for the Federal Circuit ( the Federal Circuit ) assumed the burden of defining a workable standard. Over the last quarter-century, the Federal Circuit has created an extensive body of law on obviousness that developed into the teaching, suggestion, or motivation ( TSM ) standard. 33 This TSM standard says that an invention is obvious where a person of ordinary skill in the relevant art would arrive at the same construct by combining two or more concepts in the prior art where there is some teaching, suggestion, or motivation to combine them. 34 With its experience as the exclusive appellate court for almost all patent matters, 35 the Federal Circuit reasoned that the TSM requirement is a critical safeguard 36 and embodies the best defense against the subtle but powerful attraction of a hindsight-based obviousness analysis. 37 Of course, the TSM test has its fair share of critics. 38 One complaint in particular is that, by focusing on the prior art documents to find legal combinability, the Federal Circuit ignored common knowledge or information not written down but nonetheless well-known to persons skilled in the art. 39 Other critics charged that the Federal Circuit essentially ignored relevant Supreme Court precedent governing obviousness. 40 Indeed, over twenty-five years, the Federal Circuit rarely invoked the language of, or even cited, Anderson s-black Rock, Sakraida, or Dann. Amidst this criticism, Congress was heavily engaged in proposing patent reform bills. Members of both the Senate and House submitted bills during 109 th Congress, but none passed. 41 While the bills addressed a wide range of patent issues ranging from the definition of prior art to the calculation of damages for patent infringement it was clear that Congress s intention with patent reform was to address the perceived notion that too many patents of low quality were being issued and enforced. Moreover, during this time, both the Federal Trade Commission and the National Academy of Sciences weighed in on the subject with oft-cited studies that questioned the Federal Circuit s TSM test See In re Kahn, 441 F.3d 977, (Fed. Cir. 2006). See generally Alan P. Klein, Understanding the Doctrines of Reason, Suggestion, or Motivation to Combine and Reason, Suggestion, or Motivation to Modify, 45 IDEA 293 (2005). 34 E.g., Pro-Mold & Tool Co. v. Great Lakes Plastics, Inc., 75 F.3d 1568, 1573 (Fed. Cir. 1996). 35 See 28 U.S.C. 1295(a)(1). See generally Kenneth C. Bass III & Linda E. Alcorn, Critique and Consequences of the Supreme Court s Decision in Holmes v. Vornado, 5 J. APP. PRAC. & PROCESS 501 (2003). 36 In re Rouffet, 149 F.3d 1350, (Fed. Cir. 1998) In re Dembiczak, 175 F.3d 994, 999 (Fed. Cir. 1999). See, e.g., John F. Duffy, The Festo Decision and the Return of the Supreme Court to the Bar of Patents, 2002 SUP. CT. REV. 273, 341 ( [The TSM] test, which tends to make even seemingly trivial developments patentable, is entirely the Federal Circuit s product. It has no basis in the Supreme Court s case law and may, in fact, be inconsistent with the Court s most recent pronouncement on the subject (though that precedent is now more than a quarter century old). ). 39 Rebecca S. Eisenberg, Obvious to Whom? Evaluating Inventions from the Perspective of PHOSITA, 19 BERKELEY TECH. L.J. 885, 889 (2004) ( Courts have marginalized the PHOSITA by presuming the PHOSITA is incapable of innovation and by treating determinations of nonobviousness as conclusions of law. They have further marginalized the PHOSITA s role... by requiring evidence of suggestion to combine.... ). 40 Glynn S. Lunney, Jr., Patent Law, The Federal Circuit, and The Supreme Court: A Quiet Revolution, 11 SUP. CT. ECON. REV. 1, (2004). 41 See, e.g., The Patent Reform Act of 2005, H.R. 2795, 109th Cong. (2005); The Patent Reform Act of 2006, S. 3818, 109th Cong. (2006). 42 FEDERAL TRADE COMMISSION, TO PROMOTE INNOVATION: THE PROPER BALANCE OF COMPETITION AND PATENT LAW AND POLICY (Oct. 2003), chap. 4, 9-15, available at NANOTECHNOLOGY LAW & BUSINESS FALL

6 Dowd et al. This set the stage for the Supreme Court to revisit the standard of obviousness in KSR. 3. Summary of KSR International Co. v. Teleflex Inc. KSR began as a relatively low-profile patent litigation. The Federal Circuit decided the appeal as an unpublished decision, thinking the case had no precedential value. 43 The patent at issue was directed to an adjustable automobile gas pedal coupled to an electronic throttle control ( ETC ). 44 Adjustable pedals are used in automobiles to allow the driver to reach the pedal without having to readjust the seat position. The ETC replaces a mechanical linkage between the pedal and the engine throttle. The claimed invention required both that the pivot of the pedal system remain stationary when the pedal was adjusted in position, and that the electronic control be attached to the support, rather than on a moving part of the pedal. 45 The Supreme Court held that the claimed invention was obvious. First, the Court noted that each of the elements was disclosed in two prior art references. 46 One reference, Asano, taught an adjustable pedal with a pivot point that remained stationary upon adjustment. What was missing from that reference was an ETC, which was well-known at the time of the invention. With this prior art, the proper legal question, according to the Court, was whether a pedal designer of ordinary skill starting with Asano would have found it obvious to put the sensor on a fixed pivot point. 47 The Court found that additional prior art references provided ample reason for the designer to place the sensor on the fixed pivot point, thus obtaining the pedal of the claimed invention. 48 The Court also considered that, at the time of invention, there existed a marketplace that created a strong incentive to convert mechanical pedals to electronic pedals, and the prior art taught a number of methods for achieving this advance. 49 While KSR is certain to become one of the most cited patent cases, it is unclear at this stage what effect it will have on the patent system as a whole. Did the Court jettison the TSM test? The answer to this might depend on whom one asks. Shortly after the decision was issued, commentators opinions varied wildly as to the true impact of the case. But a careful reading of the opinion suggests that the Court took a decidedly middle-of-the-road and slightly ambiguous approach. First, the Court appears not to have rejected the TSM test but only its rigid application in this case. The court explicitly states that [w]hat we hold is that the fundamental misunderstandings... led the Court of Appeals in this case to apply a test inconsistent with our patent law decisions. 50 In another place, the Court confirms that [t]here is no necessary inconsistency between the idea underlying the TSM test and the Graham analysis. 51 The Court did clearly enunciate that the focus on the obviousness analysis must be performed from the perspective of a person of ordinary skill in the art. To that end, any analysis that focuses on what the patentee perceived as the problem to be solved is misplaced. The Court faulted the Federal Circuit for focusing too narrowly on what the inventor believed the problem to be, rather than on what the hypothetical person of ordinary skill would do. 52 In the Court s words, [t]he question is not whether NAT L RESEARCH COUNCIL OF THE NAT L ACADEMIES, A PATENT SYSTEM FOR THE 21 ST CENTURY (2004), available at 43 Teleflex, Inc. v. KSR Int l Co., 119 F. App x 282 (Fed. Cir. 2005). 44 KSR, 127 S. Ct. at at KSR, 127 S. Ct. at at at NANOTECHNOLOGY LAW & BUSINESS Volume 4 No. 3

7 KSR International Co. v. Teleflex Inc. the combination was obvious to the patentee but whether the combination was obvious to a person with ordinary skill in the art. 53 Certain language does suggest a raising of the bar to patentability. Common sense teaches, however, that familiar items may have obvious uses beyond their primary purposes, and in many cases a person of ordinary skill will be able to fit the teachings of multiple patents together like pieces of a puzzle. 54 Similarly, the Court noted that [a] person of ordinary skill is also a person of ordinary creativity, not an automaton. 55 These two statements are certain to become catch-phrases for anyone arguing that an invention would have been obvious. On the other hand, the Court also appears to accept that, in most cases, a motivation must exist for one of ordinary skill in the art to take what is known and create what is claimed. True, the Court never uses the term motivation, other than in describing the TSM test or the ruling of the Federal Circuit. 56 Instead, the Court uses the term reason. For example, the Court wrote that: it will be necessary for a court to look to interrelated teachings of multiple patents; the effects of demands known to the design community or present in the marketplace; and the background knowledge possessed by a person having ordinary skill in the art, all in order to determine whether there was an apparent reason to combine the known elements in the fashion claimed by the patent at issue. 57 In another section, the Court appreciated that inventions cannot be proven obvious merely by demonstrating that each element was somewhere in the prior art. 58 Although common sense directs one to look with care at a patent application that claims as innovation the combination of two known devices according to their established functions, it can be important to identify a reason that would have prompted a person of ordinary skill in the relevant field to combine the elements in the way the claimed new invention does. 59 Later, the Court stated that, [u]nder 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. 60 It is difficult to see how the meaning of these statements would change if reason were replaced with teaching, suggestion, or motivation. At the same time, the Court revives the obvious to try standard for determining obviousness. The Federal Circuit had tried to give that reasoning an honorable death when it asserted that [a] general incentive does not make obvious a particular result. 61 But KSR breathes new life into the argument that, if it was simply obvious to try to make the claimed invention, then the invention is not patentable. The Court noted that, [w]hen there is a design need or market pressure to solve a problem and there are a finite number of identified, predictable solutions, a person of ordinary skill has good reason to pursue the known options within his or her technical grasp. 62 In such instances, the Court said, the invention might be obvious See id. at 1734, 1738, 1741, at (emphasis added). at (emphasis added). at 1742 (emphasis added). See In re Deuel, 51 F.3d 1552, 1558 (Fed. Cir. 1995). KSR, 127 S. Ct. at NANOTECHNOLOGY LAW & BUSINESS FALL

8 Dowd et al. Finally, the Court was direct in its disagreement with the Federal Circuit about the availability of summary judgment in obviousness cases. The Court stated that [t]o the extent the court understood the Graham approach to exclude the possibility of summary judgment when an expert provides a conclusory affidavit addressing the question of obviousness, it misunderstood the role expert testimony plays in the analysis. 64 KSR thus reaffirms the legal nature of obviousness, stating that [t]he ultimate judgment of obviousness is a legal determination Post-KSR Developments Given the language of the Supreme Court s opinion, nanotech inventors will have to await further guidance to understand completely the shift in the nonobviousness standard. This guidance will come mainly from the PTO, the district courts, and the Federal Circuit. As of the date of writing this article, we have already received some guidance. We provide a brief summary of these post-ksr developments below. A. KSR and the U.S. Patent & Trademark Office Immediately after the Court handed down its decision, John Dudas, the current Director of the U.S. Patent & Trademark Office ( PTO ), commented publicly about the case: The decision gives our examiners more flexibility to use their considerable technical skills to reject obvious changes to existing technology. 66 Thus, the head of the PTO felt that KSR was a clear benefit to examiners. Just a few days after Director Dudas s comment, however, the PTO issued an internal memorandum ( Memo ) from Margaret A. Focarino, Deputy Commissioner of Patent Operations, which appeared to take a more guarded approach. 67 The Memo noted that the PTO would study the KSR opinion and develop guidelines for the application of the new obviousness standard. Until that time, however, the PTO emphasized that, for patent examiners, it remains necessary to identify the reason why a person of ordinary skill in the art would have combined the prior art elements in the manner claimed. 68 It was clear from the Memo that the PTO was concerned that examiners would see KSR as carte blanche for issuing obviousness rejections. 69 A clearer indication of KSR s consequences on patent prosecution is now coming from the Board of Patent Appeals and Interferences ( Board ). 70 The Board will play a critical role in the formulation of the new obviousness standard as it relates to pending patent applications, interferences, and reexaminations. Based on a review of recent decisions from the Board, KSR is having an immediate effect on the obviousness standard. Since April 30, the Board has applied KSR in numerous appeals from final at (citing Graham, 383 U.S. at 17). Joan Biskupic, Ruling Toughens Patent Process, USA TODAY, May 1, 2007 (quoting Director of the PTO John Dudas), available at 67 U.S. Patent & Trademark Office, Memorandum, SUBJECT: Supreme Court decision on KSR Int l Co. v. Teleflex, Inc. (May 3, 2007), available at As of this writing, the PTO is finalizing examiner guidelines for applying KSR. At least one blog has commented on an unofficial draft version of the guidelines. See Patent Hawk, USPTO Obviousness Guidelines, The Patent Prospector (Aug. 5, 2007) (summarizing Harold Wegner s analysis of the draft guidelines), at 70 See 35 U.S.C. 134 (providing statutory authority to appeal an examiner s rejection to the Board). 300 NANOTECHNOLOGY LAW & BUSINESS Volume 4 No. 3

9 KSR International Co. v. Teleflex Inc. rejections of applications. 71 According to one commentator, it is unclear whether application of KSR by the Board is harming or benefiting patent applicants. 72 Perhaps more important than the overall trend of all Board decisions are the results in the Board s first three precedential decisions this year, all addressing nonobviousness. 73 These decisions seem to portend a strict application of KSR by the Board, and ultimately by the patent examiners. In Ex parte Kubin, 74 the Board affirmed an examiner s rejection that the claimed invention, directed to a particular polynucleotide, was obvious. The applicant had relied heavily on In re Deuel, a case in which the Federal Circuit restricted the obvious to try standard. 75 In affirming the rejection, the Board noted that Deuel s viability is now in doubt and, [u]nder KSR, it s now apparent obvious to try may be an appropriate test in more situations that we previously contemplated. 76 In Ex parte Smith, 77 the Board dealt with a technologically simpler invention, a book containing at least one pocket adapted to receive and retain supplemental material that cannot easily be bound directly to the book binding. 78 In affirming the obviousness rejection, the Board made two illuminating statements. First, the Board noted that KSR forecloses Appellant s argument that a specific teaching is required for a finding of obviousness. 79 Second, the Board stated that, [b]ecause this is a case where the improvement is no more than the simple substitution of one known element for another or the mere application of a known technique to a piece of prior art ready for improvement, no further analysis was required by the Examiner. 80 In Ex parte Catan, 81 the Board affirmed the obviousness of the claimed invention, which was a consumer electronics device using bioauthentication to authorize sub-users of an authorized credit account to place orders over a communication network up to a pre-set maximum sub-credit limit. 82 Relying on three prior art references, the Board found that the claimed invention was simply an adaptation of an existing device using newer technology that is commonly available and understood in the art. 83 The Board also quoted extensively from KSR, selecting language stressing the flexibility of the obviousness analysis and its focus on a functional approach. 84 For example, the Board stated that [t]he 71 See Joseph Scott Miller, The Nonobviousness Standard, The Fire of Genius (July 16, 2007) (listing an up-todate collection of Federal Circuit, district court, and Board decisions applying KSR), at 72 Peter Zura, Is KSR Actually Helping Applicants at the BPAI?, Peter Zura s 271 Patent Blog (June 27, 2007), at 73 The vast majority of Board opinions are non-precedential, but three recent decisions have been designated precedential. 74 Ex parte Kubin, No , 2007 WL (B.P.A.I. May 31, 2007), available at 75 In re Deuel, 51 F.3d 1552, 1558 (Fed. Cir. 1995) ( Obvious to try has long been held not to constitute obviousness. (quoting In re O Farrell, 853 F.2d 894, 903 (Fed. Cir. 1988)). 76 Kubin, 2007 WL , at *5. 77 Ex parte Smith, No , 2007 WL (B.P.A.I. June 25, 2007), available at 78 at * at *11. (citation omitted). Ex parte Catan, No , 2007 WL (B.P.A.I. July 3, 2007), available at 82 at * at *9. at *4-7. NANOTECHNOLOGY LAW & BUSINESS FALL

10 Dowd et al. operative question in this functional approach is thus whether the improvement is more than the predictable use of prior art elements according to their established functions. 85 B. KSR and the District Courts Several district courts have ruled on obviousness challenges to patents in the short time that KSR was decided. 86 While space precludes a full exposition of developments at the district court level, a short review of two decisions reveals the variability with which the district courts will likely apply KSR. For example, in McNeil-PPC, Inc. v. Perrigo Co., the court appeared to understand KSR to mean that it cast doubt on the continuing validity of Federal Circuit precedent on the issue of obviousness. 87 In its analysis, the court relied on non-public statements of the patentee as admissions. The court stated that common sense dictates that if these admissions raise an inference of obviousness, then the patent is invalid under In Abbott Laboratories v. Sandoz, Inc., 89 the district court appeared to apply KSR more narrowly when it decided that a stay of a previously entered preliminary injunction was not warranted. Defendant Sandoz argued that the new standard set forth in KSR warranted suspension of the preliminary injunction, but the district court noted that KSR did not obviate the need to demonstrate the presence of all claim limitations in the prior art (when the legal theory is based upon obviousness due to the combination of prior art teachings). 90 The court further mentioned that the KSR opinion only focused on the Federal Circuit s strict use of the TSM test in performing the obviousness analysis; it did not mention or affect the requirement that each and every claim limitation be found present in the combination of the prior art references before the analysis proceeds. 91 Therefore, Sandoz could not show a strong likelihood of success on the merits. C. KSR and the Federal Circuit With some hard work and perseverance, the Federal Circuit should be able to develop a predictable obviousness jurisprudence while remaining faithful to the Supreme Court s approach. After all, increased predictability and uniformity in patent law were driving forces for creating the Federal Circuit. Predictability in obviousness law may, however, be a lofty goal, particularly given the language used by the Supreme Court. As of this writing, the Federal Circuit has applied KSR in several opinions. Unfortunately, the opinions simply illustrate the ambiguity of KSR. 92 On May 9, the Federal Circuit issued its first post-ksr precedential decision, Leapfrog Enterprises Inc. v. Fisher-Price Inc., 93 in which the court seemingly eschewed any rigid application of the TSM standard and held the claimed invention to be invalid as obvious. The panel wrote that [a]n obviousness determination is not the result of a rigid formula disassociated from the consideration of the facts of a at *5 (quoting KSR, 127 S. Ct. at 1740). See Miller, supra note 71 (providing a running list of district court cases). McNeil-PPC, Inc. v. Perrigo Co., No. 05 Civ. 1321(WHP), 2007 WL , at *9 (S.D.N.Y. July 3, 2007). (citing KSR, 127 U.S. at 1742). Abbott Labs. v. Sandoz, Inc., No. 05 C 5373, 2007 WL (N.D. Ill. May 24, 2007). at *4. Not included in this discussion are non-precedential opinions. See Daiichi Sankyo Co. v. Apotex, Inc., No , 2007 WL (Fed. Cir. July 11, 2007) (reversing bench trial verdict of nonobviousness); Omegaflex v. Parker-Hanafin Corp., No , 2007 WL (Fed. Cir. June 18, 2007) (reversing summary judgment of obviousness); Syngenta Seeds, Inc. v. Monsanto Co., Nos , 2007 WL (Fed. Cir. May 3, 2007) (affirming jury verdict of obviousness). 93 Leapfrog Enters., Inc. v. Fisher-Price, Inc., 485 F.3d 1157 (Fed. Cir. 2007). 302 NANOTECHNOLOGY LAW & BUSINESS Volume 4 No. 3

11 KSR International Co. v. Teleflex Inc. case. 94 Echoing the Supreme Court, the Federal Circuit stated that the common sense of those skilled in the art demonstrates why some combinations would have been obvious where others would not. 95 In Takeda Chemical Industries, Ltd. v. Alphapharm Pty., Ltd., 96 the Federal Circuit affirmed the district court s decision that the claimed compounds, useful for treating diabetes, were not obvious. The claimed compounds were structurally related to a prior art compound ( compound b ) disclosed in two earlier patents issued to Takeda. 97 Appellant Alphapharm had argued that KSR required reversal, but the court disagreed. 98 First, the Federal Circuit affirmed the district court s finding that one of ordinary skill in the art would not have selected compound b as a starting point because, in part, the prior art as a whole taught away from that compound. 99 Second, the court found that the obvious to try standard discussed in KSR was not applicable here partly because the prior art disclosed a broad selection of compounds any one of which could have been selected as a lead compound for further investigation. 100 Third, the Federal Circuit agreed that, even if one had selected compound b as the starting point, there was nothing in the prior art to suggest making the specific molecular modifications to compound b that are necessary to achieve the claimed compounds. 101 More recently, in Pharmastem Therapeutics, Inc. v. Viacell, Inc., 102 a divided panel reversed a jury decision that the claimed invention was not obvious. In this case, the invention was directed to a process for obtaining and storing stem cells from a newborn s umbilical cord and using the stem cells for treating adults. 103 In reversing the jury, the Federal Circuit noted that the inventors merely used routine research methods to prove what was already believed to be the case. Scientific confirmation of what was already believed to be true may be a valuable contribution, but it does not give rise to a patentable invention. 104 The majority also found that the evidence at trial demonstrated that the patentees did not invent a new procedure or a new composition; instead, they simply provided experimental proof that the cord blood could be used to effect hematopoietic reconstitution of mice and, by extrapolation, could be expected to work in humans as well. 105 Based on this, the majority held that no reasonable jury could have found that the claimed invention was nonobvious. 106 In another instance, three Federal Circuit judges commented on the KSR issue in a rehearing denial. In Pfizer, Inc. v. Apotex, Inc., a pre-ksr decision, the Federal Circuit held that the patented invention, sold as the hypertension and angina drug Norvasc, was obvious. 107 Pfizer petitioned for rehearing en banc; the court denied the petition after KSR, but not without three dissenters. 108 Judges Newman, Lourie, and Rader each dissented in separate opinions. Judge Rader argued, in part, that the obvious to try standard, which the panel employed, was inapplicable because obvious to try jurisprudence has a ) ). 103 at (citing KSR, 127 S. Ct. at 1739). Takeda Chem. Indus., Ltd. v. Alphapharm Pty., Ltd., No , 2007 WL (Fed. Cir. June 28, at *5-6. at *7. at *8. Pharmastem Therapeutics, Inc. v. Viacell, Inc., Nos , -1551, 2007 WL (Fed. Cir. July 9, at * at * at * at * Pfizer, Inc. v. Apotex, Inc., 480 F.3d 1348, (Fed. Cir. 2007), petition for cert. filed, 75 U.S.L.W (May 30, 2007). 108 Pfizer, Inc. v. Apotex, Inc., 488 F.3d 1377, 1378 (Fed. Cir. 2007) (denying petition for rehearing en banc). NANOTECHNOLOGY LAW & BUSINESS FALL

12 Dowd et al. very limited application in pharmaceutical cases. 109 Judge Lourie insisted that the panel s legal errors will confuse the law relating to rebuttal of a prima facie case of obviousness of a chemical compound. 110 Likewise, Judge Newman, invoking legal and policy considerations, opined that the decision was inconsistent with Federal Circuit law. 111 Viewing these cases as a whole, it is hard to discern any generalities in the Federal Circuit s approach thus far. In some instances, such as Leapfrog, one gets the impression that the obviousness analysis is looser, now requiring less to show a reason to combine prior art elements. On the other hand, with Takeda, the court seemed much less inclined to find a motivation to select a particular prior art compound as the starting point. More time is obviously needed to discern how high KSR has re-set the bar for patentable inventions. III. HOW WILL KSR AFFECT NANOTECHNOLOGY INTELLECTUAL PROPERTY? The question moving forward, particularly for readers of this journal, is how KSR will affect the research, development, and protection of nanotechnology inventions. After all, the goal is to enable inventors to create new and useful nanotech inventions and reward those inventors for their efforts by protecting their ideas. Below we provide some thoughts on how KSR will affect nanotech patent prosecution, patent litigation, trade secret protection, and IP-related business transactions. 1. Patent Prosecution Depending on the ultimate interpretation of KSR, the decision will likely increase the cost of obtaining patent prosecution, lengthen the time required to secure the patent, and generally create more uncertainty as to whether a patent will be obtainable. Inventors and companies involved with nanotechnology have been applying for patents in significant numbers. 112 This is not surprising, and prudence dictates that nanotech inventors should continue to apply for patents even in light of KSR s uncertainty. Until the PTO and courts define the metes and bounds of the new obviousness standard, nanotech patent applicants should continue their efforts to protect their intellectual property. A first change may come in drafting of the nanotech patent applications. Current conventional wisdom suggests that a patent application should contain a limited background section. This, it is believed, reduces the chance that a court would limit the scope of the claims by referring to distinguishing language in the background. Further, statements in the background section can be used as admissions of prior art. 113 In our post-ksr world, nanotech patent applicants may now find it advantageous, in certain situations, to have a more detailed background section in the application. A more detailed application may better frame the invention and give its story more context. Without context, an examiner may feel at at at See Vivek Koppikar, et al., Current Trends in Nanotech Patents: A View from Inside the Patent Office, 1 NANOTECH. L. & BUS. 24, (2004) (describing the increasing number of U.S. patent applications disclosing various nanotechnologies); see also Blaise Mouttet, Nanotechnology and U.S Patents: A Statistical Analysis, 3 NANOTECH. L. & BUS. 309, 316 (2006) ( [T]here are indications that electronics applications of nanotechnology are on the rise while medical/biological applications are on the decline.... ). 113 See Constant v. Advanced Micro Devices, Inc., 848 F.2d 1560, 1570 (Fed. Cir. 1988) ( A statement in the patent that something is in the prior art is binding on the applicant and patentee for determinations of anticipation and obviousness. ). 304 NANOTECHNOLOGY LAW & BUSINESS Volume 4 No. 3

13 KSR International Co. v. Teleflex Inc. free to look to disparate teachings in the art. Patent applicants who might not have searched the prior art before filing may rethink that strategy in order to use this known prior art as a framework around which to tell the invention story in the application. Patent applicants for nanotech inventions may also see more single-reference obviousness rejections. A single-reference rejection under section 103 does not break new legal ground, 114 but the Supreme Court s emphasis of non-documentary evidence, e.g., common sense, may lead to more of these rejections when common knowledge or common sense allegedly leads one of ordinary skill in the art to the claimed invention. Of course, this will likely depend on the nature of the particular nanotech invention. Some nanotech inventions are certainly more complex than others. At the same time, nanotech patent applicants will likely see more obviousness rejections based on three or more prior art references. In KSR, the court relied on at least four references to demonstrate that the elements of the claimed pedal were known and that there was a reason to combine the elements. 115 Similarly, the Board in Smith relied on three references to affirm the examiner s rejection of some of the claims for obviousness. 116 It would not be surprising if examiners started rejecting nanotech applications by routinely relying on three or more references. Nanotech patent applicants will need to be prepared to overcome these increasing rejections. Several feasible approaches exist. The Federal Circuit has previously weighed in on how a nanotech patent applicant can possibly overcome an obviousness rejection during prosecution. In In re Kumar, 117 the Federal Circuit reversed the Board s rejection on a patent application directed to aluminum oxide particles having diameters in a nanometer range. 118 The case was decided on procedural grounds, but Judge Newman, writing for the court, provided some useful suggestions. Specifically, the court noted that a declaration filed by the applicant would be sufficient to overcome the obviousness rejection because the prior art process could not create the alumina nanoparticles of the claimed process. 119 KSR should not affect the viability of the Federal Circuit s reasoning in Kumar. Thus, KSR should not eliminate from the obviousness analysis the need for a reasonable expectation of success to make the claimed invention. In response to an obviousness rejection, a nanotech applicant can still argue that one of ordinary skill in the art would not reasonably expect that the given combination of references would produce the claimed invention. 120 Likewise, the arguments that prevailed in chemical case of Takeda no reason to start with a particular prior art compound and no reason to make the necessary chemical modifications will be useful to nanotech patent applicants. 121 Another by-product of KSR will be greater emphasis on the factual bases of the obviousness analysis. 122 As noted above, obviousness is based on a number of factual findings, including the scope 114 See Merck & Co. v. Biocraft Labs., Inc., 874 F.2d 804, 807 (Fed. Cir. 1989) (holding that a claimed invention may be obvious over a single prior art reference). 115 See KSR, 127 S. Ct. at See Smith, 2007 WL , at * In re Kumar, 418 F.3d 1361 (Fed. Cir. 2005). 118 at For a useful review of Kumar, see Andrew S. Baluch, et al., In re Kumar: The First Nanotech Patent Case in the Federal Circuit, 2 NANOTECH. L. & BUS. 342 (2005). 119 Kumar, 418 F.3d at See Koppikar, supra note 112, at 29 ( If the prior art does not enable one to make a smaller version of an existing device at the nanoscale, then the resulting nanoscale version of the same device may in fact be non-obvious over its larger cousin even if there is no difference other than size. ) (emphasis in original). 121 See supra text accompanying notes See, e.g., Stephen B. Maebius, 2007 Patent Reform Bill: Will It Benefit Nanotechnology?, 4 NANOTECH. L. & BUS. 169, (2007) ( Declaration evidence about how the uncited prior art teaches away may be particularly persuasive. ). NANOTECHNOLOGY LAW & BUSINESS FALL

14 Dowd et al. and content of the prior art, the level of skill in the art, and any secondary factors of nonobviousness. 123 When rejecting a claim, an examiner may contend that the level of skill relating to the nanotech invention is very high, thus making a determination of obviousness more likely. In this case, the applicant may want to prove otherwise. A lower skill in the art could render fewer inventions obvious. In a similar manner, nanotech applicants will probably increase their reliance on declarations to prove the various factual underpinnings of the obviousness analysis. 124 Another possible effect of KSR is that nanotech patent applicants will experience delays, at least in the short term, when appealing rejections of their applications. The Board will probably see a surge in appeals and become backlogged. Assuming examiners are now more apt to reject claims for being obvious, more applicants will likely appeal the rejections to the Board. Contributing to this possible backlog will be the Board s recent moves to have a more active role in the development of patent law. The Board has established several new procedures, with the objective of increasing the transparency of patent appeals. For instance, under Chief Administrative Patent Judge Michael Fleming, the Board has opened oral arguments to the public. 125 It may be that the Board believes that it should take a more active role in filling the judicial gaps of patent law, including those created by KSR. Regardless of the Board s precise motivation, the result will probably be longer appeals for patent applicants. Some nanotech patent applicants will be particularly affected by this delay. These companies, having limited initial funds available, can only wait so long for resolution of their intellectual property rights. Untimely resolution will only cause investors to be more hesitant to provide the needed funding. 2. Patent Litigation Most nanotech companies are at the early stages of their history. For this reason, patent litigation has yet to become a major concern for these companies. It was only two years ago that the Federal Circuit decided its first appeal involving a nanotech patent. 126 More cases have since commenced. 127 Patent litigation will continue to be a necessary burden for any nanotech company wanting to enforce its intellectual property rights to obtain a reasonable return on its investment. 128 Additionally, nanotech companies wanting strong, valid patents should remain aware of the effect KSR may have on nanotech patent litigation. Trial judges will certainly have more discretion because of the seemingly greater latitude of the obviousness defense and the increased flexibility to tailor it to specific facts. Moreover, because the defense has significant factual components, the Federal Circuit may show greater deference to the rulings of the trial courts. The end result of this deference could possibly be a lower reversal rate, even though obviousness is a question of law See Graham, 383 U.S. at See 37 C.F.R (2007) Official Gazette (July 25, 2006); see also 1314 Official Gazette 4 (Jan. 23, 2007) (stating that the Board will begin transcribing oral arguments and entering the transcript into the record); 1314 Official Gazette 1314 (Jan. 23, 2007) (stating that the Board is increasing its transparency by increasing the number of Board opinions that may be cited ). 126 See Kumar, 418 F.3d at See, e.g., Nanotechnology Update, 4 NANOTECH. L. & BUS. 141, 144 (2007) (identifying two ongoing nanotech patent infringement suits). 128 See, e.g., Reza Mollaaghababa & Ronald E. Cahill, Canon v. Nano-Proprietary: Implications for Big Companies That Bring Nanotechnology to the Market, 4 NANOTECH. L. & BUS. 159, (2007) (discussing a litigation commenced in 2005 involving flat-panel screen nanotechnology). 306 NANOTECHNOLOGY LAW & BUSINESS Volume 4 No. 3