UPDATE 2-U.S. court raises standard for bringing down patents

Wed May 25, 2011 6:37pm EDT

* Inequitable conduct defense OK only if critical gaps

* Many patent reform elements in court decisions

* Bill awaiting vote in House of Representatives

WASHINGTON, May 25 (Reuters) - A U.S. appeals court that specializes in patent disputes made it harder on Wednesday for patents to be declared invalid because of gaps or errors in patent applications.

The U.S. Court of Appeals for the Federal Circuit said that "inequitable conduct," which is often alleged in lawsuits, could only be used to invalidate a patent if the withheld material was critical to whether a patent should have been granted.

The court made the ruling in reversing a lower court that had declared an Abbott Laboratories patent to make disposable blood glucose test strips unenforceable because of missing disclosures.

Abbott said it was happy to see the court move to hem in the use of inequitable conduct, which is often alleged in patent cases.

"We are pleased that the Federal Circuit has tightened the standards for finding inequitable conduct, and reversed the decision that found our patent to be unenforceable," said Abbott spokesman Scott Stoffel.

The inequitable conduct standard was one of several measures that some lawmakers have targeted for change in a patent reform.

CALCULATING DAMAGES

While congressional moves to overhaul the patent system have stalled repeatedly, many of the original goals of patent reform have been accomplished through court decisions.

One critical court ruling affected how damages for infringement are calculated.

In 2009, the Court of Appeals for the Federal Circuit found that Microsoft Corp (MSFT.O) infringed a patent owned by Alcatel -- now owned by Lucent -- to make its Outlook software, but it also held that the jury erred in using Microsoft's total Outlook sales in calculating damages.

Then in January of this year, the same court tossed out a commonly used method of calculating damages in another case involving Microsoft.

While finding that Microsoft infringed a patent to prevent software piracy, the appeals court said flat out it would no longer accept a "25 percent rule" to determine the reasonable royalty rate a manufacturer will pay.

Uniloc, which owns the patent, was awarded $388 million in damages, but that will be recalculated.

Companies that won an infringement lawsuit in the past could get an injunction shutting down the infringement.

In 2006, a federal district judge in Virginia shook official Washington and the business world by considering enforcing an injunction on Research in Motion Ltd RIM.TO that would have blacked out BlackBerry service nationwide.

The injunction threat has since waned, in large part because of a 2006 Supreme Court ruling, eBay v. MercExchange, which made it harder to get an injunction. It added tests, one of which was whether public interest would be harmed by a permanent injunction.

Both the U.S. Senate and the House of Representatives' Judiciary Committee voted this spring to overhaul U.S. patent law, backing a measure aimed at chipping away at a huge backlog of patent applications and offering cheaper alternatives to litigation.

The bill is a stripped down version of bills proposed in previous years.

The case before the U.S. Court of Appeals for the Federal Circuit is Therasense Inc. (now known as Abbott Diabetes Care, Inc.) and Abbott Laboratories v. Becton, Dickinson and Co, and Nova Biomedical Corp, and Bayer Healthcare LLC, case numbers 2008-1511, -1512, -1513, -1514, -1595. (Reporting by Diane Bartz; Editing by Tim Dobbyn and Steve Orlofsky)

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