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In Microsoft v. i4i, the Supreme Court Granted Certiorari in a Patent Case to Reject Its Own Prior Suggestion and Instead Affirmed the Federal Circuit

Tuesday, August 9, 2011

By Glenn W. Trost, Connolly Bove Lodge & Hutz LLP  

It was once rare for the Supreme Court to grant certiorari in patent cases, thereby leaving the Federal Circuit to develop law in that area without any effective judicial oversight. This was understandable at some level, because an important basis of certiorari jurisdiction ― conflicts between Circuit Courts of Appeals ― is virtually impossible as a practical matter in patent cases, as the Federal Circuit has exclusive jurisdiction to hear such appeals.

In recent years, however, the Supreme Court granted certiorari in several patent cases in order to reverse the Federal Circuit’s construction of the patent laws, and to reject the Federal Circuit’s rulings concerning the application of other laws in patent cases.

A good example in this latter category was the Supreme Court’s opinion in eBay Inc. v. MercExchange, L.L.C.1The Court in that case unanimously reversed the Federal Circuit’s “general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.” The Supreme Court rejected the notion that such a special patent rule should apply to a general question such as the situations where a permanent injunction should issue, and ruled that the four-factor test applicable in other cases should also apply in patent cases.

The following term, the Supreme Court granted certiorari to correct a unique patent rule in KSR International Co. v. Teleflex, Inc.2 In that case, the Supreme Court — again unanimously — rejected the rules developed by the Federal Circuit governing the question of whether a patent met the statutory requirement that it be nonobvious.

In the term just ended, the Supreme Court considered three significant patent cases, and reversed its prior pattern by affirming the Federal Circuit in each instance. The most remarkable of these opinions is Microsoft Corp. v. i4i Ltd., in which the Supreme Court considered the rule, consistently applied by the Federal Circuit since 1984, that a patent can be invalidated only by clear-and-convincing evidence.

MICROSOFT SUFFERS A $290 MILLION PATENT-INFRINGEMENT JUDGMENT

Microsoft had been sued in the Eastern District of Texas by i4i, which claimed that the ubiquitous Microsoft word-processing program “Word” infringed a patent held by i4i. Microsoft defended in part by arguing that i4i had sold a similar program, more than a year prior to filing its patent application that also practiced the claimed invention. If Microsoft was right about the facts, then the asserted patent would be invalid. Microsoft’s proof was hampered, however, because all tangible copies of the prior program had been destroyed by i4i years before the current lawsuit. i4i argued to the jury that Microsoft’s proof therefore failed to meet the standard of “clear and convincing” evidence required to invalidate a patent.

Because i4i’s prior program was not considered by the U,S, Patent and Trademark Office when it granted i4i’s patent, Microsoft sought a jury instruction to the effect that it need not meet the usual clear-and-convincing-evidence standard, and that instead it needed to prove that defense only by a preponderance of the evidence. In support of this requested instruction, Microsoft could point to the 2007 KSR opinion in which the Supreme Court noted that the rationale for the clear-and-convincing-evidence standard “seems much diminished” when an invalidity defense rests on evidence that the USPTO never considered. The trial court nevertheless denied Microsoft’s requested instruction based on controlling Federal Circuit law that the clear-and-convincing standard applies to all validity defenses, whether or not the USPTO previously considered the question. The jury ruled in favor of i4i, and judgment was entered against Microsoft for $290 million in damages, interest, and costs.

On appeal, consistent with its precedents dating back to its opinion in American Hoist & Derrick Co. v. Sowa & Sons, Inc.,3 the Federal Circuit affirmed the judgment, ruling that the presumption of patent validity required that Microsoft establish its defenses by clear and convincing evidence.

THE PATENT BAR ANTICIPATED THAT THE SUPREME COURT WOULD REVERSE AND CHANGE THE EVIDENTIARY STANDARD FOR INVALIDATING A PATENT

As the Supreme Court acknowledged in its opinion, there is no express statutory basis for this heightened evidentiary standard. The operative language, first enacted in its present form in Section 282 of the Patent Act of 1952, provides that “A patent shall be presumed valid. . . . The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.” The general rule of presumptions under federal law, as set forth in Rule 301 of the Federal Rules of Evidence, is that the opponent of the presumed fact has the burden of coming forward with evidence, while the risk of non-persuasion remains at all times with the proponent of the presumed fact. The statutory language changes this usual rule by expressly placing both the burden of producing evidence and the risk of non-persuasion on the party seeking to establish invalidity. But there is nothing in the statute or in the general rules of presumption that would change the required quantum of proof from the usual preponderance standard to the more exacting clear-and-convincing standard. As the Supreme Court also acknowledged, if the statute was intended to impose the clear-and-convincing-evidence standard to invalidate a patent, then neither of these express provisions of the statute was necessary.

For these reasons, and especially given the Supreme Court’s comment in KSR, the grant of certiorari at Microsoft’s request led the patent bar to anticipate that the Federal Circuit’s clear-and-convincing-evidence standard would be changed, at least in those case where the USPTO had not previously considered the asserted ground of invalidity.

THE SUPREME COURT AFFIRMED THE EXISTING STANDARD WHILE INVITING FUTURE LITIGATION

Despite these expectations, the Supreme Court affirmed 8-0 (with the Chief Justice not participating, and Justice Thomas joining in the result but not the opinion), and expressly endorsed the longstanding rule established by the Federal Circuit.

The rationale for the Supreme Court’s ruling was that the presumption of validity had been developed by case law prior to the enactment of the 1952 Patent Act, and this common-law understanding — including a heightened standard of proof — was impliedly incorporated into that statute by the previously discussed statutory presumption. This is essentially a reiteration of the Federal Circuit’s rationale in the American Hoist case 27 years earlier. Both the Federal Circuit inAmerican Hoist, and the Supreme Court in Microsoft, relied on the Supreme Court opinion in RCA v. Radio Engineering Labs.4, which held that a patent is “presumed to be valid until the presumption has been overcome by convincing evidence of error.” The situation in RCA, however, did not raise the issue of whether the heightened standard should apply where the USPTO had never considered the asserted basis for invalidity. In RCA, there had been two rival inventors each claiming to have been the first; the USPTO conducted an evidentiary hearing to resolve the dispute and awarded the patent to one of the claimants. An accused infringer later sought to defend an infringement suit by raising the identical priority defense — the Supreme Court noted that the evidence was “word for word” identical to that previously considered and found inadequate by the USPTO. The situation addressed in RCA is thus quite different from that raised by Microsoft, where the defense had never been considered by the USPTO. The closest the RCA court came to addressing such a situation was in dicta, where it noted that the same reasoning would apply even if the evidence were “different, at least in form,” or if there were a “substantial identity of evidence.”

The Supreme Court in Microsoft effectively dodged this issue. The Court acknowledged pre-1952 case law that found the presumption to be “weakened” or even “dissipated” when the USPTO was not first given the opportunity to consider a ground of invalidity, but nevertheless concluded that this aspect of the common-law background to the 1952 law did not diminish the universal application of the clear-and-convincing standard of proof that the Court believes Congress implicitly intended.

Instead of changing the standard, the Court suggested that additional jury instructions could be given that would make the challenger’s burden “easier to sustain.” What such instructions might be are anyone’s guess at this point, as the Court expressly declined “to endorse any particular formulation.” Future litigants will likely have ample opportunity to flesh this out on a case-by-case basis.

But what about Microsoft? After all, it too had proposed a jury instruction to address this very situation. The Supreme Court rejected Microsoft’s proffered instruction, however, because it referred to the preponderance standard and not to a way of meeting the clear-and-convincing standard that would be “easier to sustain.” In effect, Microsoft had tried to preserve its argument, but had guessed wrong about what instruction the Supreme Court would later approve. That turned out to be a $290 million mistake. The lesson for future infringement defendants facing this problem is easy to state but much harder to implement: make sure at least one of your proposed instructions on this issue will later be approved by the Federal Circuit or the Supreme Court.

Glenn W. Trost is a partner in Connolly Bove Lodge & Hutz LLP’s intellectual property group. He represents clients in intellectual property and other complex litigation involving claims of patent infringement, copyright infringement, trademark infringement, trade secret violations, and rights to publicity. Trost can be reached at 213.787.2524 or via e-mail at gtrost@cblh.com. The article represents the opinion of the author and does not necessarily represent the opinion of the firm or any of its clients.  

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