The Increased Importance of Patent Portfolio Building in View of KSRvs. Teleflex

by Clark A. Jablon, Esq.

Editor's Note: This column is the second in a four-part series examining the latest developments in the vital area of patents, particularly those that relate to the display industry. In the coming months, look for columns on how to read a patent to determine potential infringement issues and how to establish an effective patent program in a company that does not currently seek patents.

In last month's article, we explored the changing landscape of patent protection in view of the U.S. Supreme Court's landmark decision – KSR vs. Teleflex – earlier this year that is widely considered to have the effect of making it harder to obtain patents and easier to invalidate issued patents for being "obvious to one of ordinary skill in the art." There is no liability for infringing an invalid patent. It is a well-known fact among patent practitioners that a patent portfolio owned by a single company that covers multiple aspects of a single technology area is more valuable than a similar number of individual patents owned by separate companies. KSR should significantly magnify the relative value of the patent portfolio. To understand why a commonly owned patent portfolio has greater value than the individual patents owned by different companies, it is necessary to understand some basics of patent infringement. The legal protection afforded by a patent is defined in the "claims" of a patent.

First, to infringe a valid and legally enforceable patent, one must practice each and every limitation of at least one "independent claim" in a patent. While some patents only have one independent claim, the vast majority of patents have numerous independent claims, each being a slightly different expression of the patented invention. If there are three independent claims, which is very typical, there would be three potential ways to infringe the patent. If a company owns a portfolio of 10 patents in a specific area of technology, there may be 30 or more independent claims in the portfolio, making the portfolio a virtual landmine. Step on just one of the independent claims and you are an infringer. Furthermore, if your company's product infringes only one of the independent claims of only one of the patents in the portfolio, the product is just as liable for infringement as if it infringed all of the independent claims of all of the patents in the portfolio. Thus, the landmine analogy is accurate in the sense that you can be killed by stepping on only one landmine even if you successfully avoided all of the others.

Second, patent-infringement suits are extremely expensive. A typical patent-infringement case in the United States costs $1–3 million in legal fees for each side. When a patent portfolio is asserted, those numbers will easily double or triple. The costs of settlement will often be less than the combined costs of litigating plus the cost of paying damages multiplied by the probability of losing the lawsuit. When a patent portfolio is asserted, the probability of losing skyrockets for the reasons discussed above, namely, that infringement can be found if only one claim in the portfolio is found to infringe.

Now consider the effects of KSR. It is too early to predict exactly what effect KSR will have on patent validity, but taking an aggressive scenario, assume that KSR has increased the likelihood of invalidating a patent by 50%. Patent holders prevail in less than one-third of infringement suits, but for purposes of this illustration, we will presume a 33% probability of a patent holder prevailing. In view of these assumptions, if an individual patent is asserted, KSR may significantly reduce the risk that an accused infringer will be found to infringe from an already low risk, and thus settlement will not necessarily be the most sensible option. However, if a patent portfolio is asserted, the risk of infringement will not change very much. Even if less than 50% of independent claims are found to be infringed, since there areso many independent claims that could potentially be infringed, the 50% reduction would just mean that less claims would be found to infringe; i.e., the likelihood that no valid and enforceable independent claims in the portfolio would be found to infringe, which is the only way to avoid liability, would not change very much. On the patent procurement side, the same statistical factors apply.

Assume that KSR now makes it 50% harder to obtain a patent on a particular invention. If a company has recently innovated in a certain technology area and pursues a portfolio of patent applications at the present time, the company would ultimately receive 50% less patents or 50% less claims. However, the patents issued would presumably be more likely to withstand an obviousness challenge in litigation since the examination process would apply the same heightened standards as the Courts would apply in a litigation setting. Thus, the post-KSR reduced portfolio would not likely experience the 50% increase in chances of being invalidated in litigation. Accordingly, the post-KSR reduced portfolio would still have the advantages described above, and the accused infringer would still face the same risks of being found to infringe as described above for a portfolio developed pre-KSR.

One negative effect of KSR for technology innovators will be the increased cost of building patent portfolios, perhaps even a 50% increase, using the assumptions above. This might push companies to file on only what they perceive to be their most important new inventions. However, as the portfolio analysis above shows, this strategy may be "penny-wise and pound-foolish." When developing a patent filing strategy in view of the current legal landscape, companies should consider the multiplicative value of pursuing a patent portfolio, even if it includes some "weak" patents vs. banking all of the patent chips on a few key patents.

Next month we will explain how to read a patent to understand its scope and determine whether potential infringement issues exist.