U.S. companies collectively may have lost billions of dollars in value with a single court decision in 2000, but got it back this May when the U.S. Supreme Court overturned the earlier ruling. Ironically, many of the affected companies never noticed the temporary loss of value. But the case served as a powerful reminder of the importance of strong patent protection to the pursuit of innovation. And it pointed out the difficulty in trying to rid the system of perceived imperfections.

The case, Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co. Ltd., turned on a seemingly arcane issue that nevertheless threatened to decimate the doctrine of equivalents — a central element of patent law. The doctrine of equivalents gives patent holders protection against efforts by copyists to dodge an infringement claim by making minor changes to a patented device. In any patent, the parameters of protection for an invention are delineated in complete detail by the claims. For a product to infringe a patent, it must share every one of the elements delineated in the claims. But under the doctrine of equivalents, the protection of a patent encompasses not only the elements of a claim but also their equivalents, which effectively extends claims beyond the limits of the precise wording of claims. Naturally, the boundaries of this extended protection can be unclear, resulting in much patent litigation over these gray areas.

In deciding the Festo case in 2000, the Court of Appeals for the Federal Circuit, which hears all patent appeals, attempted to provide clarity to the question of what a patent protects by barring the use of the doctrine of equivalents in many situations where a patent claim was narrowed during the application process. In creating a "bright line," however, the court dramatically reduced the scope of protection provided by a majority of patents currently in force. While a patent is pending before the U.S. Patent and Trademark Office, a negotiation of sorts occurs between the patentee, who is working to secure the broadest possible protection, and the examiner, who must ensure, among other things, that the boundaries of protection do not encompass subject matter developed by someone else. In the vast majority of cases, this negotiation results in the applicant narrowing the claims and, therefore, the scope of protection afforded by the patent.

The questions in Festo concerned the circumstances under which a patent applicant relinquishes rights to equivalents by narrowing of the claims during the negotiation process. The Federal Circuit found that applicants who narrow an element in a claim for nearly any reason completely give up the right to have that element covered by equivalents. In the past, these cases were determined using a "flexible bar," meaning that the court could analyze each case on its own merits. The Federal Circuit decision in the Festo case changed all that, as the court ruled that the flexible bar had become unworkable. This bright line rule made determining the scope of equivalents much easier for would-be competitors, but at the same time severely reduced the scope of protection a patent affords. Sidestepping patent infringement would become a simple exercise in identifying the amended claim limitation and making a minor change to avoid that limitation. Although no one could measure the full impact of the Federal Circuit decision on the value of patents, the collective devaluation may have amounted to billions of dollars. By establishing a retroactive bright line rule, the court scaled back the established protections on a majority of the 1.2 million or so enforceable U.S. patents. For many businesses, intellectual capital is the most valuable asset they possess.

Nevertheless, patent holders were not universally opposed to the Federal Circuit decision in Festo. Some Fortune 500 companies suggested they would be willing to give up a measure of patent protection in exchange for the ability to pursue new inventions without worrying about the doctrine of equivalents. Other patent holders, particularly universities and research institutions, but also many private companies, did not welcome the change and supported strong patent protection for their innovations. In May 2002, the U.S. Supreme Court unanimously overturned the Federal Circuit decision and restored the value of those million-plus patents. The Supreme Court acknowledged that a flexible bar necessitates ambiguity, but argued that the need to eliminate this ambiguity did not overshadow the need for a patent system that encourages innovation.

The Supreme Court, did not merely overturn the Federal Circuit decision; it also placed a higher burden on the patentee to show that an amendment to a claim does not surrender the equivalent at issue. While not as rigid as the complete bar sought by the Federal Circuit, this burden makes infringement more difficult to prove in many cases. Its true impact will not be known until it is tested in courtrooms over the next few years. If the Supreme Court ruling in Festo does not quite return the law to the status quo, it prevents a patent from becoming a paper tiger that is easily avoided by a copyist, and affirms the role of patents in the competitive landscape.

EDWARD BULCHIS and PAUL MEIKLEJOHN are partners in the intellectual property group of the Seattle office of international law firm Dorsey & Whitney.

© 2002 American City Business Journals Inc.