Authors: Charlotte Walton and Craig Horrocks

This article was also published in the March edition of Computerworld. 

With increasing world-wide protection of copyright (witnessed by the demise of Napster, the introduction of new intellectual property laws in China) you could be excused at thinking patents were the technologist's friend. Certainly today patents affect all of us in some way.

For technologist's, the software patent has been championed as the protector of innovation and yet, at the other end of the spectrum, for the worlds' poor, patents, particularly in life saving drugs, have been decried as the instruments of exploitation of western society.

But in June this argument takes a new and highly controversial twist, when the US Supreme Court hears on appeal from the federal appeals court the decision in Festo v SMC.

The Festo decision involves the extent of the world-wide monopoly rights of production which is the 'payback' offered by society for innovation.
If Festo stands on appeal it is said that it will retrospectively diminish the value of millions of unexpired US patents. Due to the value and key role of the US market effectively this means diminishing the value of patents worldwide.

Festo is about the age-old doctrine referred to as the 'Doctrine of Equivalents'.

The doctrine of equivalents was established by the courts to protect patented inventions. The courts use the doctrine of equivalents when copycats attempt to steal the value of the market monopoly of a patented invention by making a minor change to the invention and then attempting to obtain a patent.

The doctrine allows the courts to find infringement if the elements of the invention are "substantially the same" as those disclosed in the patent. The Festo decision allows a patent to be registered so long as it is not identical to an existing patent.

To illustrate, say a New Zealand scientist that patents new agricultural biometric technology based on thermal imaging that can detect whether a cow should not be milked. Everyone agrees his patent has great practical potential. The U.S. Patent and Trademark Office rejects the patent because it's too broad. So you add an amendment to make the patent more specific. For example the invention could combine thermal imaging with ultrasound. The patent is granted and then a competitor applies for and obtains a patent that uses the same principles but instead of thermal imaging and ultrasound uses another combination of non-invasive measurements.

Festo supporters would argue that the competitor has invented something that is basically the same as, or equivalent to, the original patent. However, if supporters of the other party to the Festo case, SMC get their way, the competitor would be allowed to continue because the new combination was not included in the original patent. In its decision the court reasoned that getting rid of the doctrine of equivalents would force a new level of clarity in patents. As the arguments rage the normally invisible patent industry is now being forced to publicly take sides.

Without the doctrine of equivalents anyone could review a publicly registered patent, make a minor change to it and register it as their own. Robert Bork, Counsel for Festo argues that "what's at stake here is how much you want to bore into innovation. Nobody's going to spend millions of dollars to bring a product into the market if someone can easily copy it".

However a positive ruling could boost the patent system by making claims clearer in an area that is currently fraught with litigation. Patent owners may benefit by knowing more certainly what they own and third parties will be more aware of what others own. But many US patent attorneys have said that devising legal language to protect a patent, that prevents copying, will be very tough.

They believe that the software area will be a particularly troublesome because software inventions are constantly being updated with new versions and lines of code.

On balance if Festo is to stand, the real problem is that the return on invention is dramatically restricted and the time and trouble to register a patent even more problematic than it is today. One thing is for certain, if Festo stands the landscape for patents will never be the same.
While new strategies, probably based on maintaining secrecy, will evolve the orderly world of patents may suffer such a blow as to render patents a thing of the past. If you have valuable intellectual property perhaps thinking ahead of the game, not waiting for Festo and thinking that institutionalising secrecy now, may be a smart innovation.

Craig Horrocks is a partner and Charlotte Walton a solicitor in Clendon Feeney's technology law team.

This article, together with further background comments and links to other web sites can be downloaded from Clendon Feeney

Questions and comments are welcome to: techlaw@clendons.co.nz