Breaking News: US Supreme Court rejects Microsoft in i4i battle

The AmeriKat has been a busy bee ever since her flight from California's INTA 2011 madness touched its wheel's onto Heathrow's tarmac two weeks ago. Since then the AmeriKat has watched helplessly as not one, not two, but three patent decisions rolled out of the US Supreme Court over the past few days. But thankfully, this evening AmeriKat was able to momentarily lift her whiskers from the stack of bundles and papers circulating her desk at the moment, to bring you breaking news of the US Supreme Court's decision in the epic battle between i4i and Microsoft (see previous AmeriKat reports here). She has not and will not have time to digest the yummy decision from Justice Sotomayor until the weekend, but she sets out below a brief summary of the court's decision. (picture, left - with no time for a Kat nap for this kitten, the AmeriKat rests her chin one of her stacks of papers)

Background

The four year epic patent infringement battle between Canadian software company, i4i, and Microsoft, involved i4i’s US Patent No 5.787, 449 (“449 Patent”) which related to markup languages and Extensible Markup Language (“XML”) used in electronic documents. In 2007, i4i filed a patent infringement action against Microsoft in the Eastern District of Texas. Microsoft claimed that i4i's '449 patent was invalid because an earlier version of i4i’s software had anticipated the claim ("on-sale bar" under section 102(b) of the Patent Act 1952). However, this earlier software, S4, had been destroyed ten years prior to the case so the USPTO Patent Examiners never had the opportunity to examine the i4i’s patent application in light of this alleged prior art. Because the S4 data had been destroyed, Microsoft argued that they never had an opportunity to provide “clear and convincing evidence” of invalidity. The trial jury found in i4i’s favor, Microsoft appealed to the Circuit Court of Appeals who upheld the lower court’s finding and then appealed to the US Court of Appeals for the Federal Circuit. The US Court of Appeals upheld the Circuit Court’s ruling and so Microsoft appealed to the Supreme Court. The Supreme Court granted certiorari in the case November 2010.

The Arguments

Microsoft argued that the evidential standard to invalidate a patent should be one of a “preponderance” and not of the higher “clear and convincing” standard. i4i argued that Section 282 (the section that deals with the burden of establishing invalidity)is not silent on the burden of proof requirement. It uses language that has a settled meaning - that of a “clear and convincing” standard which is itself settled by Federal Circuit and Supreme Court case law , i.e., section 282 codified the existing evidential standard. In addition, this heightened standard of proof has specifically been used in cases dealing with prior-use claims of invalidity, such Microsoft's claim in this case. Most of i4i's argument is devoted to the stronger underlying public policy argument of maintaining the heightened evidential standard, i.e., promoting strong and stable patent rights to protect the incentives for innovation and investment. A weaker standard, such as the preponderance standard, would arguably have the counter-effect as well as weakening the powers and judgment of the USPTO. (picture, left - Justice Sotomayor who delivered the opinion of the court)

The Question

The question before the Supreme Court was thus:

Under section 282 of the Patent Act of 1952, "[a] patent shall be presumed valid" and "[t]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity." Does section 282 require that a defence of invalidity be proved by a "clear and convincing" standard or a "preponderance of the evidence" standard?

The Supreme Court's Answer

In an unanimous decision (save for Justice Roberts who recused himself due to his ownership of some $100,000 in Microsoft shares), the "clear and convincing" standard is the standard of proof for a party to meet when arguing a defence of patent invalidity under section 282.

The Court held that Congress had indeed prescribed the governing standard of proof in section 282 - that of a clear and convincing standard. Although there was no express articulation of that standard in the statute itself, Congress did use a common-law term in the section, i.e. "presumed valid". Where Congress uses a common-law term in statute, then the Court must assume that the term "comes with a common law meaning" (Safeco Ins Co of America v Burr )(2007)). With this common law meaning comes "nearly a century of case law" where the courts have held that the presumption that a patent is valid should not be overthrown except by clear and cogent evidence. The Court found Microsoft's arguments that decisions prior to the 1952 Patent Act supported the clear and convincing standard were limited to only two instances and their arguements to be unpersuasive.

The Supreme Court also did not find favor with Microsoft's argument that a preponderance standard must apply where evidence was not before the PTO during the patent's examination process. Although the Court agreed that the rationale behind the presumption of validity for granted patents is weakened in such cases (KSR Int'l co v Teleflex), it nevertheless remains that Congress still specified the applicable standard of proof even in these circumstances. Nothing in section 282's text suggests that this standard should be departed from in these circumstances and indeed the Supreme Court has applied the clear and convincing standard irrespective of whether the prior-art evidence has been before the PTO examiner (Smith v Hall).

Despite both camps, especially i4i's, extensive policy arguments advancing their respective positions, the Supreme Court stated that the Court was in

"no position to judge the comparative force of the parties' policy arguments as to the wisdom of the clear-and-convincing evidence standard that Congress adopted."

In short - "we don't care, take your complaints to Congress." ["Love it!" - says the AmeriKat]

The Reaction

The real winner in this case is not i4i itself, but patent owners generally (including you, Microsoft!) and of course the USPTO who can continue to glow under their crown of "assumed validity".

However, patent owners want strong patents that are able to withstand weak invalidity challenges, but they also want to ensure that bad patents are able to be easily invalidated, especially when prior-art evidence is not in front of the examiner during examination proceedings. Microsoft was therefore essentially arguing for and against their interests at the same time - an impossible task that looked destined to fail at some point.

In a statement, Microsoft stated that

“While the outcome is not what we had hoped for, we will continue to advocate for changes to the law that will prevent abuse of the patent system.”

Now it remains to be seen how i4i will spend their $290 million damages award

For more information please see this article in the Financial Times.