Patent Lawsuits Limited by Supreme Court in Two Rulings

The U.S. Supreme Court ruled against patent holders in two cases, rejecting a legal theory used to sue technology companies and requiring patents to be written with more specific language.

The rulings come in a Supreme Court term heavy with patent cases as the justices look for ways to curb what companies such as Google Inc. and Cisco Systems Inc. say is rampant abuse by some patent owners.

Some technology companies and retailers say they are too frequently the target of lawsuits demanding payment by patent owners whose sole mission is to extract royalty revenue.

Though today’s cases don’t involve such companies, the rulings “can be used as tools” against them, said Brad Wright, a patent lawyer with Banner & Witcoff in Washington who wasn’t involved in the cases.

One decision, involving exercise equipment maker Nautilus Inc., (NLS) “could be used to strike down vaguely worded patents, a problem that many technology companies complain about,” Wright said. “It is this vagueness that sometimes gives rise to gray areas in the law, allowing questionable claims to go forward. This might allow courts to rein those in more.”

The stakes are high for the companies and the broader economy. Industries with revenue tied the most to patent protection -- including drugmakers, technology companies and certain manufacturers -- generated $763 billion, or 5.3 percent, of the 2010 U.S. gross domestic product, according to a Commerce Department report in 2012.

Business Methods

During the past eight years, the Supreme Court has limited patent owners’ ability to block non-competitors from using their inventions, made it easier to invalidate patents, and made it harder to get patents on business methods, medical diagnostics and isolated DNA.

In the other case today, the justices unanimously said companies can’t be sued for inducing someone else to violate a patent unless there has been direct infringement of the patent.

That was at least a temporary victory for Limelight Networks Inc. (LLNW) in a legal clash with Akamai Technologies Inc. (AKAM) The justices sent the case back to a lower court to consider a separate legal theory pressed by Akamai.

Limelight rose by 1.8 percent to $2.22 at 12:20 p.m. in Nasdaq stock market trading.

The case centers on Akamai’s patented method for delivering video or graphics over the Internet during periods of high demand. Akamai says Limelight takes all but one step and induces its customers to perform the final step.

Google, Cisco

Google, Cisco and Facebook Inc. (FB) were among the companies backing Limelight, along with the Obama administration. Eli Lilly & Co. and the drug industry supported Akamai.

In the Nautilus case, the court said a federal appeals court wasn’t being rigorous enough in requiring specificity in the wording of patents. The U.S. Court of Appeals for the Federal Circuit, which specializes in patent cases, had said a patent’s wording is adequate as long as long as someone who understands the technology can figure it out.

The justices today said the Federal Circuit standard isn’t precise enough. The ruling is a victory for Nautilus, maker of Bowflex exercise equipment, which is seeking to invalidate a patent on a heart-rate monitor owned by Biosig Instruments Inc.

The justices told the Federal Circuit to reconsider the Biosig patent using a tougher test.

Google, Amazon.com Inc. (AMZN) and other companies said the Federal Circuit standard was too lax and allowed some owners to claim their patent covers far more than was invented.

The cases are Limelight Networks v. Akamai Technologies, 12-786, and Nautilus v. Biosig, 13-369.

To contact the reporters on this story: Greg Stohr in Washington at gstohr@bloomberg.net; Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editors responsible for this story: Patrick Oster at poster@bloomberg.net Laurie Asseo, Mark McQuillan

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