Sun vs. Kodak Suit Underscores the Value of Software Patents and Heightens the Need for New Post-Grant Review Procedures

October 2004

In a settlement reached less than two weeks ago, Sun Microsystems agreed to pay Eastman Kodak Co. $92 million in damages for infringement of three of Kodak’s software patents. The patents involved an object-based data processing system that was allegedly used in Sun’s Java programming language and that may also be implicated in other programming languages, such as Microsoft’s C#, which is integral to the .NET platform. The Kodak patents describe a method by which a program can call on another application to carry out certain computer-oriented functions. The patents were obtained by Kodak when it acquired the software-imaging unit of Wang Laboratories in 1997.

Kodak filed suit against Sun in 2002, and on October 4, 2004, a jury found Sun guilty of patent infringement. Kodak was seeking over $1 billion in damages, but the parties settled before the damages phase of the trial. The trial took place in Rochester, New York, where Kodak headquarters are located, which may account for the Kodak-favorable verdict. Sun admitted no liability in connection with the settlement and obtained a license to use the Kodak technologies in connection with its Java technology as part of the settlement. Kodak touted the verdict as part of a conscious effort to convert its intellectual property portfolio into revenue. Some have claimed that Kodak’s focus on turning its patents into revenue-generating assets is due to the recent decline in film sales. Whatever the reason, viewing patent portfolios as potential profit centers is a tactic that more than one distressed company has taken in recent years—one prominent example would be SCO and its ongoing litigation against IBM over the Unix code.

Like all other inventions, software applications are supposed to be novel, nonobvious and useful in order to be patentable. The verdict in the Kodak case has been criticized based on questions concerning the validity of the underlying patents. Some in the industry have insisted that the Kodak patents were based on technology that existed since the 1960s. Although patent applicants have an ethical obligation to disclose relevant prior art to the patent office, this does not always happen, and overworked patent examiners do not always have the ability or the time to seek out all pertinent prior art.

Under current patent procedures, once a patent application is published, a third party can challenge the issuance of the patent, but only on the basis of an already issued patent or publication. If the basis for the challenge is the fact that the invention is already in use, but there is no patent or publication describing the technology, then the third party will have to wait until the patent issues and challenge the patent in court. The latter alternative is extremely costly (current estimates are that the average cost of defending a patent in court is $1 million) and requires the challenger to overcome the presumption of validity that attaches to an issued patent.

The patent office is currently considering the adoption of new post-grant review procedures that would allow a third party to challenge a patent within one year of the issuance of the patent. Most significantly, the basis for the challenge would not be limited to patents and publications. In addition, limited discovery would be available. Because more than one alternative is being considered, the details of the post-grant review process have not been determined, but if the same standard is applied to the new procedures as under current reexamination proceedings, then the presumption that the issued patent is valid will not apply.

According to the U.S. Patent and Trademark Office, the current limitations on third parties prevent the public from effectively challenging patents, and the new procedures would enhance the integrity of the patent system by strengthening those patents that survive the review process and eliminating those patents that contain unpatentable subject matter. In making that statement, the patent office has acknowledged that some patents issue when they should not. Implicitly, the patent office has also acknowledged that it does not have the resources to uncover all prior art.

Whether the new post-grant review procedures will be adopted and whether they will impact the number of software patents that survive the review process remains to be seen. Although the post-grant review procedures will impact all areas of technology, they should be particularly effective in preventing unwarranted lawsuits in the software field.


Amicable photo of Toni

Antoinette M. Tease, P.L.L.C.