Supreme Court Grants Certiorari in Microsoft Case Challenging Patent Validity Standard

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The U.S. Supreme Court granted a petition for writ of certiorari Nov. 29 in Microsoft Corp.'s attack on the clear-and-convincing evidence standard for challenges to the validity of a patent (Microsoft Corp. v. i4i L.P., U.S., No. 10-290, cert. granted 11/29/10).

The patent validity standard was established by the U.S. Court of Appeals for the Federal Circuit in 1984. Lowering the standard to a preponderance of evidence--as Microsoft requests--could significantly decrease the strength of every patent owner's case in litigation.

The grant also gives the software giant another chance to overturn a $290 million judgment for patent infringement, the largest such award upheld on appeal to the Federal Circuit.

Patent on Manipulation of XML Documents.

I4i L.P. holds a patent (5,787,449) on a “Method and System for Manipulating the Architecture and the Content of a Document Separately from Each Other.” The patent describes a “metacode map” which allows a computer to decide how to read and manipulate an associated digitized document.

Since 1983, Microsoft Corp. has been developing and selling versions of a computer program called Word, which allows a user to create and manipulate documents. In 2003 and 2007, Microsoft released version of Word that are capable of editing XML documents. In 2007, i4i sued, alleging that these two versions of Word infringed the '449 patent.

A jury in the U.S. District Court for the Eastern District of Texas returned a verdict of willful direct infringement as well as contributory and induced infringement and awarded i4i $200 million in damages. Judge Leonard E. Davis enhanced damages by $40 million and enjoined Microsoft from selling, using, or supporting versions of Word that are capable of opening XML files. No. 6:07-CV-113 (E.D. Tex. Aug. 11, 2009) (78 PTCJ 508, 8/21/09). Interest and post-verdict damages brought the total to $290 million. The injunction was stayed pending appeal.

Much of the focus on appeal was on the damages determination, but the Federal Circuit panel declined to take up a reasonable royalty controversy because Microsoft failed to preserve that issue.

But Microsoft also contested the jury's finding that the patent was not invalid for violating the on-sale bar of 35 U.S.C. §102(b). The company asserted that i4i sold markup language code in a system called S4 more than a year before applying for the '449 patent. Microsoft argued that S4 practiced the invention disclosed in the patent.

Since this prior art was not before the PTO when it examined the patent application, the company argued that the trial judge should have instructed the jury to apply a preponderance of the evidence standard in its on-sale bar verdict, rather than the clear and convincing standard. But the Federal Circuit upheld the trial decision. i4i L.P. v. Microsoft Corp., 539 F.3d 1246, 93 USPQ2d 1161 (Fed. Cir. 2009) (79 PTCJ 218, 1/1/10).

A few months later, the appeals court reissued the panel opinion but without any change on the validity issue. 598 F.3d 831, 93 USPQ2d 1943 (80 PTCJ 333, 7/16/10) (Fed. Cir. 2010) (79 PTCJ 538, 3/12/10). The en banc court denied a rehearing petition as well. No. 2009-1504 (Fed. Cir., petition for rehearing denied April 1, 2010) (79 PTCJ 695, 4/9/10).

Petition Contests Clear and Convincing Standard.

Microsoft filed a petition for certiorari on Aug. 27, seeking Supreme Court review of the Federal Circuit's ruling (80 PTCJ 660, 9/17/10). Its question presented was simply: “Whether the court of appeals erred in holding that Microsoft's invalidity defense must be proved by clear and convincing evidence.”

Section 282 of the Patent Act, 35 U.S.C. §282, states, “The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.” But the statute is silent with respect to the standard of review for the accused infringer's challenge of invalidity.

The Federal Circuit established that the challenger must prove invalidity by clear and convincing evidence in American Hoist & Derrick Company v. Sowa & Sons Inc., 725 F.2d 1350, 1359, 220 USPQ 763, 770-771 (Fed. Cir. 1984) (27 PTCJ 245, 1/19/84).

Microsoft's petition for Supreme Court review contested lower courts' rulings that invalidity must be established by clear and convincing evidence, relying especially on a passage in the Supreme Court's opinion in KSR International Co. v. Teleflex Inc., 550 U.S. 398, 82 USPQ2d 1385 (2007) (74 PTCJ 5, 5/4/07).

On a particular fact issue in KSR, the high court determined that it need not address whether a failure to disclose a prior art reference during prosecution “voids the presumption of validity given to issued patents.” But the court then said, “We nevertheless think it appropriate to note that the rationale underlying the presumption--that the PTO, in its expertise, has approved the claim--seems much diminished here.”

But the Federal Circuit panel in the instant case said succinctly, “the Supreme Court's decision in KSR … did not change the burden of proving invalidity by clear and convincing evidence.”

Citing that purported conflict, as well as case law in each of the 12 regional circuit courts prior to the formation of the Federal Circuit in 1982, Microsoft's petition requested:  

The Court should grant certiorari so that it may now hold expressly what it has held impliedly in so many of its past patent-law precedents, and what the Court strongly indicated in KSR: When a defense of invalidity under Section 282 rests on prior-art evidence that was not considered by the PTO before the patent issued, the statutory presumption of validity cannot rightly be interpreted as requiring alleged infringers to establish invalidity by “clear and convincing” evidence. 



Support for Microsoft Tips Balance?

Eleven amicus curiae briefs supporting Microsoft's challenge were filed by Sept. 29 (80 PTCJ 754, 10/8/10). Amici were represented by many of the leading attorneys and firms in the patent community.

I4i responded Oct. 28. The company argued that a weakened presumption of validity, when a challenge is made based on prior art not seen by the PTO, is already part of Federal Circuit jurisprudence. The brief also cited several Supreme Court cases valuing the settled expectations of the patent community, especially in light of the 26 years Congress has had to reject the heightened standard and failed to do so.

Microsoft replied Nov. 5, citing its many friends' briefs and imploring the court to address the issue now in view of the likely continuing petitions for review of the issue. “The overwhelming majority of patent cases involve invalidity defenses, and the standard-of-proof issue is presented in every such case,” the company said. “As a result, defendants in infringement cases will continue challenging the heightened standard of proof until the issue is settled by this Court.”

Theodore B. Olson and Thomas G. Hungar of Gibson, Dunn & Crutcher, Washington, D.C., submitted Microsoft's briefs. Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr, Washington, D.C., submitted the i4i brief in opposition. Both are former solicitors general.

Chief Justice John G. Roberts Jr. is recused from consideration of the petition.

Practitioner Cites Importance to Software Industry.

One additional wrinkle in the Microsoft case relates to failed requests for ex parte reexamination of i4i's '449 patent.

In the most recent reexamination, the PTO concluded Nov. 24 that no substantial question of patentability was raised by the prior art cited in the request. However, the references considered did not include documents related to the on-sale bar concern at issue in this case. Ex parte reexamination, under 35 U.S.C. §303(a), allows the PTO to consider patents or printed publications only, and the evidence at issue in the certiorari grant is the testimony in court of the patent's two inventors.

That inability to challenge the patent under the PTO's lower standard--it does not presume validity in a reexamination--undercuts one of i4i's arguments in the case. In its opposition brief, i4i said, “Congress has therefore provided a process for parties to challenge patents' validity without bearing the heightened burden imposed by §282. The lower burden applied by the PTO encourages challengers to have validity issues resolved via reexamination--consistent with Congress's purpose of fostering 'efficient resolution of questions about the validity of issued patents without recourse to expensive and lengthy infringement litigation.' ”

Charles Shifley of Banner & Witcoff, Chicago, though, said, “I don't think the Supreme Court, given that it wants to take cases of sufficient importance to go on its docket, will be content to comment on an on-sale bar.”

Microsoft's attack was based on the court's statement in KSR, he noted, and the KSR reference was to the broader concern of any evidence that was not before the PTO.

Also noting that the high technology industry was heavily represented among the friends of the court filing briefs in the case, Shifley told BNA that the software industry is particularly vulnerable to problems with the clear and convincing standard for a couple of reasons. First, he said that in the early days of software development there was an antagonism toward patenting, so a body of prior art--patents--that could be used in obviousness or anticipation challenges never developed.

Second, he said, software code is constantly developed and modified from its original form and so it is extremely difficult to have assurances of the capabilities of software versions that were in existence at the times of interest. “All you often have is people's memories and characterizations of software,” Shifley said, as was at issue in the instant case. “So it is very important to the software industry to be able to argue about prior art with a little bit lower standard of evidence.”

In any case, he joked in commenting on the Supreme Court's decision to take the case, “They certainly are making it interesting for patent practitioners.”

Third Patent Case This Term.

In fact, the certiorari grant is the third in a patent law case by the Supreme Court this term.

The court agreed Nov. 1 to hear a case testing whether, under the limitations of the Bayh-Dole Act, inventors may assign their individual rights in patents resulting from research partially funded by the federal government. Board of Trustees of the Leland Stanford Jr. University v. Roche Molecular Systems Inc., No. 09-1159 (U.S., cert. granted Nov. 1, 2010) (81 PTCJ 5, 11/5/10).

And, in another challenge to a Federal Circuit standard, the court consented Oct. 12 to consider the “deliberate indifference” standard for a finding of inducement of patent infringement. Global-Tech Appliances Inc. v. SEB S.A., No. 10-6 (U.S., cert. granted Oct. 12, 2010) (80 PTCJ 775, 10/15/10).

Further, the high court's upcoming decision in a copyright case may have implications for patent law. Costco Wholesale Corp. v. Omega S.A., No. 08-1423 (U.S., argued Nov. 8, 2010) (81 PTCJ 44, 11/12/10). The issue in Costco relates to the applicability of the first-sale doctrine to goods manufactured overseas, a territoriality question that is not uncommon in patent cases.

By Tony Dutra

The petition, opposition, and reply briefs, respectively, are at;; and