Supreme Court Ruling Protects Patent Holders

In a closely watched patent case that has important implications for pharma companies, the Supreme Court ruled unanimously in May to uphold policies that protect patent holders from imitators. The decision, in what is considered one of the most significant patent disputes to come before the court, is expected to benefit brand-name companies that bring patent infringement cases against generics makers.

The ruling on what is commonly called the Festo case overturned a federal appeals court decision that would have made it difficult for patent holders to win patent-infringement cases if the imitator varied the design even slightly. The high court decision addresses the so-called "doctrine of equivalents," which allows patent holders to claim infringement even when the imitator changes the product so that, while not an exact duplicate, it is substantially equivalent to the original product. The broader issue is how courts can maintain a balance between providing strong patent protection to original inventors while encouraging innovators to develop improved variations of a product.

The case stems from a 1988 patent-infringement suit filed by New York-based industrial equipment manufacturer Festo against the Japanese company SMC (Shoketsu Kinzoku Kogyo Kabuishiki). Festo charged that SMC had copied key parts of an automated production system. SMC countered that Festo made changes to its patent and therefore could not support its claims. Lower courts ruled against SMC, but the US Court of Appeals for the Federal Circuit reversed the decision. It ruled that if a patent holder later narrows a patent claim, it cannot then invoke the doctrine of equivalents. The Supreme Court later rejected that ruling and called for judges to weigh competing factors when deciding patent disputes, a decision that fails to provide the specific direction on patent claims that some manufacturers sought.

Many established companies, including brand-name pharma companies, advocate a strict reading of patent rights and sought to overturn the appeals court decision. However, most high-tech firms, along with many major manufacturers such as IBM, Kodak, and Ford Motor, backed the appeals court decision as more likely to impose certainty on the patent process.

The decision sends Festo's claims back to the lower courts, along with a number of other cases dealing with similar issues. The ruling also may spur Congressional action on generic reform proposals. In recent months, Washington policy makers pointed to the pending Festo case as a reason to hold off changing the Waxman-Hatch Act. The court ruling makes it less likely that pharma companies will support efforts to reform the current policy, but may encourage the generic drug industry to press harder for Waxman-Hatch changes.