Other Empire Strikes Back: Pharma Leads Attack on Tech Validity Standard Challenge

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The patent reform debate between the high technology and pharmaceutical industries appears to be playing out in court as well in an infringement action involving software giant Microsoft Corp.'s well known Word software. Major pharmaceutical associations and companies joined patent owner i4i L.P. to counter Microsoft attack on the clear-and-convincing evidence standard for challenges to patent validity (Microsoft Corp. v. i4i L.P., U.S., No. 10-290, opening brief filed 1/26/11).

In all, 24 briefs were filed in support of the respondent, almost matching the 25 filed in early February, mostly by high technology corporate stars aligned with Microsoft (81 PTCJ 459, 2/11/11).

The patent invalidity 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 weaken every patent owner's case in litigation.

The court will hear oral arguments April 18, with two former solicitors general likely to represent the parties.

Patent on Manipulation of XML Documents.

I4i 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.”

In 2007, i4i sued Microsoft, alleging that the 2003 and 2007 versions of the word processing software Microsoft Word, which added the ability to edit XML documents, infringed the '449 patent. The U.S. District Court for the Eastern District of Texas found willful direct, contributory, and induced infringement, and the damages award eventually totaled $290 million (78 PTCJ 508, 8/21/09).

On appeal, Microsoft 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--which was not before the Patent and Trademark Office when it examined the patent application--practiced the invention disclosed in the patent.

Microsoft contended 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. However, the Federal Circuit upheld the trial decision, 598 F.3d 831, 93 USPQ2d 1943 (Fed. Cir. 2010) (79 PTCJ 538, 3/12/10), and the en banc court denied a rehearing petition (79 PTCJ 695, 4/9/10).

The high court granted certiorari Nov. 29 (81 PTCJ 137, 12/3/10). The question presented is whether, when the defendant in an infringement suit asserts as a defense that the relevant patent is invalid, the defendant must prove invalidity by clear and convincing evidence.

Petition Contests Clear and Convincing Standard.

Section 282 of the Patent Act, 35 U.S.C. §282, states, “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 Federal Circuit established that the challenger must prove invalidity by clear and convincing evidence in American Hoist & Derrick Co. 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 challenged that standard, 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.”

Nevertheless, 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.”

Microsoft, Amicus Briefs on Merits.

In its opening brief on the merits, filed by former Solicitor General Theodore B. Olson of Gibson, Dunn & Crutcher, Washington, D.C., Microsoft argued that the statutory text and purpose of Section 282 “foreclose a heightened standard of proof for patent invalidity,” and that the heightened standard “is particularly inappropriate where the PTO did not consider relevant prior art.”

The first sentence of Section 282--“A patent shall be presumed valid”--cannot impose the clear-and-convincing standard, according to the brief, because the subsequent sentence establishing the burden for proving invalidity would then not be necessary. “[T]he heightened standard itself would have identified the party that must surmount it,” Microsoft argued.

The company hedged its bet on preponderance as a single standard, though, adding, “Even if Section 282 somehow could be read as codifying a heightened standard of proof in some cases,” circuit courts both before and after the drafting of Section 282 in 1952--and before the formation of the Federal Circuit in 1982--“are substantially in accord, holding that when the evidence of invalidity adduced by the challenger has not been considered by the PTO, the statutory presumption is weakened or destroyed.”

Microsoft also argued based on Administrative Procedure Act principles: “A heightened standard for proving patent invalidity is not justified by principles of agency deference.” The petitioner argued that Dickinson v. Zurko, 527 U.S. 150, 50 USPQ2d 1930 (1999) (58 PTCJ 172, 6/10/99), did not apply. In Zurko, the high court held that the Federal Circuit must apply the “substantial evidence” standard of Section 706(2)(E) of the APA in reviewing PTO fact findings.

Some Early Amicus Briefs Hedge Bets Too.

The 25 amicus briefs submitted within a week of Microsoft's merits brief--including contributions from high tech heavyweights Google Inc., Apple Inc., Intel Corp., Cisco Systems Inc., SAP America Inc., Yahoo! Inc., and eBay Inc.--were split on whether the preponderance standard only should apply.

Most amici were closely aligned with Microsoft's hedging approach, noting that the PTO's lack of prior art review was especially a reason for not applying the heightened standard, but that the preponderance of evidence should apply in all cases regardless.

However, the brief filed on behalf of Google Inc. and others by another former solicitor general, Paul D. Clement of King & Spalding, Washington, D.C., went further. “There is no reason to adopt a heightened standard of proof that gives one private litigant an even greater advantage over another, but that is exactly what the clear-and-convincing standard does by tilting the playing field even further in favor of patent holders,” Clement said.

On the other hand, seven briefs supported the petitioner's argument only to the extent that the PTO had not previously considered the prior art proffered for evidence. “Judicial deference to the PTO is appropriate if, but only if, the agency record demonstrates that the patent examiner actually considered the prior art and found it not to be invalidating,” according to a brief filed by Mark A. Lemley of the Stanford Law School, Stanford, Calif., on behalf of 37 law, business, and economics professors.

Response From i4i.

I4i's response brief was filed by yet another former solicitor general, Seth P. Waxman, now at Wilmer Cutler Pickering Hale and Dorr, Washington, D.C.

The respondent first argued that Section 282 is not “silent” on the standard, in that the presumption of validity necessarily implies a clear-and-convincing standard. The brief quoted Justice Benjamin Cardozo's comment in Radio Corp. of America v. Radio Engineering Laboratories Inc., 293 U.S. 1, 2 (1934): “Even for the purpose of a controversy with strangers, there is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence.”

“Before 1952, this Court held in case after case that the common-law presumption of patent validity imposed a heightened standard of proof on challengers in litigation,” i4i contended, “and specifically held in RCA that the burden was 'clear and cogent evidence.' ”

Further, i4i identified eight Supreme Court cases between 1874 and 1937 in which the court addressed “a prior-use claim that the Patent Office apparently never considered,” and none indicated “that the standard of proof would be lower if it had not done so.”

Waxman characterized Microsoft's argument about the structure of Section 282 as follows: “Microsoft further asserts that the proper reading of §282 is that the first sentence allocates only the burden of production to the challenger, while the second sentence allocates the burden of persuasion (implicitly including a preponderance standard).” But the two sentences must be read together, he claimed, comparing Section 282 to other statutes and saying, “The structure of §282 thus reflects the manner in which Congress frequently creates statutory presumptions that pertain to the burden of persuasion.”

I4i then criticized the alternative two-standard approach--asking a trial court to apply a different standard depending on whether the PTO had seen the evidence--from the standpoint of practicality. “Microsoft's proposed hybrid standard is unprecedented, unworkable, and unnecessary,” the brief argued. The brief quoted the high court's own comment in Santosky v. Kramer, 455 U.S. 745, 757 (1982), that “this Court never has approved case-by-case determination of the proper standard of proof for a given proceeding.”

Finally, the respondent countered Microsoft's administrative law-based arguments. For example, i4i argued that “deference to the PTO is not grounded in the APA. … Deference instead rests … on the presumption of administrative correctness, which in turns rests on Congress's delegation of authority to the PTO to determine validity questions.”

Solicitor General's Office Supports Respondent.

A brief on behalf of the United States supporting i4i was filed by Acting Solicitor General Neal Kumar Katyal, joined by the PTO's General Counsel Bernard J. Knight Jr. and Solicitor Raymond T. Chen.

After agreeing with i4i as to the pre-1952 precedent, the government focused on the administrative law issues. “A contention that a patent is invalid is in essence a collateral attack on the PTO's prior administrative action, and it therefore implicates principles of deference to agency authority and expertise,” Katyal said.

The brief then turned to the circumstances when the relevant prior art was not before the PTO and made a different argument, based on “the inventor's reliance interests in a patent, which confers valuable property rights in return for the inventor's public disclosure of his invention. … Even when evidence suggesting invalidity was not before the PTO, and the administrative-expertise rationale therefore does not apply, the heightened burden of proof furthers the patent holder's reliance interests,” the government explained.

Pharma Out in Force.

Most notable in the March 18 amicus briefs, however, was the outpouring of support for i4i's position from the patent-owning side of the pharmaceutical and biotechnology industries. Generic drug manufacturers Teva Pharmaceuticals USA Inc., Apotex Inc. had earlier filed briefs supporting Microsoft, but they were no match for the might of the industries' brand name drug makers and research organizations.

Briefs were filed by:

• the Biotechnology Industry Organization, Association of University Technology Managers, and CropLife International, submitted by Patricia A. Millett of Akin Gump Strauss Hauer & Feld, Washington, D.C.;

• the Pharmaceutical Research and Manufacturers of America, by Harry J. Roper of Jenner & Block, Chicago.

• Bayer AG, by Kannon K. Shanmugam of Williams & Connolly, Washington, D.C.;

• Genentech, the California Healthcare Institute, Roche Diagnostics Operations Inc., and Roche Molecular Systems Inc., filed by Jerome B. Falk Jr. of Howard Rice Nemerovski Canady Falk & Rabkin, San Francisco;

• Johnson & Johnson and Eli Lilly and Co., as part of a brief led by 3M Co. and also including Caterpillar Inc. and Procter and Gamble; filed by Thomas C. Goldstein of Goldstein Howe & Russell, Bethesda, Md.; and

• eight university patent owners and licensees--including regular patent-owning litigants the Regents of the University of California, the University of Utah Research Foundation, and the Wisconsin Alumni Research Foundation--and Research Corporation Technologies, a technology investment and management company, by Lawrence K. Nodine of Ballard Spahr, Atlanta.

“A change in the standard of proof required to invalidate a patent during litigation would have a particularly harmful impact on PhRMA's members, who rely on the stability and relative predictability of the patent system when deciding to invest billions of dollars every year in the research and development of life-saving medicines,” the PhRMA brief argued. “Indeed, although the public certainly has an important interest in promoting innovation in all fields of discovery, nowhere are the public interest in innovation and the rights of inventors more closely aligned than in the field of biopharmaceutical patents.”

The BIO brief made the same point. Indeed, according to a March 21 press release about its brief, BIO called the case “one of the most fundamental and important patent cases to reach the Supreme Court in nearly a decade.”

A sizable portion of the brief was dedicated to the impact on the biotechnology industry. “Stable patents have spurred the massive investment of labor and money necessary to bring biotechnological products to market,” the brief stated.

The organization asked the court to leave it to Congress to make changes to the standard, that Congress has offered--through reexamination--a path for challenges on a preponderance standard, and that patent reform efforts in Congress today are “enhancing the 'inter partes' patent reexamination process through codification of the PTO's preponderance standard in reexaminations. In asking this Court to chart a different path, petitioner ignores the fact that the Constitution charges Congress with writing the patent laws.”

Major IP Associations Support i4i as Well.

Of the earlier briefs filed, the brief on behalf of the American Intellectual Property Law Association, submitted by Donald R. Ware of Foley Hoag, Boston, essentially supported i4i's position though it identified support of neither party. The AIPLA was joined in the March 18 round of briefing by:

• the Intellectual Property Owners Association, Paul H. Berghoff of Hulbert & Berghoff, Chicago;

• the Boston Patent Law Association, by Erik Paul Belt of McCarter & English, Boston.; and

• the San Diego Intellectual Property Law Association and CONNECT, a technology incubator formed by the City of San Diego, the University of California at San Diego, and the private sector, by Douglas E. Olson of the San Diego IP Law Group, San Diego.

The IPO's brief focused on the problems that would result from the “hybrid standard”--differing depending on whether the PTO previously considered the evidence in question.

The BPLA took on Microsoft's argument, supported by some of the earlier amicus briefs, that the PTO was inadequately funded and incapable of performing a sufficiently thorough review to deserve agency deference. “The USPTO is not in the business of granting invalid patents,” the BPLA said. “Statistics reveal that patents are generally sound.”

The SDIPLA buttressed the government's argument as to inventors' reliance interests. “Innovators relying on strong patent enforcement rights have disclosed inventions to the public and risked billions of dollars to commercialize discoveries,” according to the brief.

Other Briefs From Interesting Parties.

An eclectic group of sources comprised additional amicus brief submissions supporting the respondent:

• Perhaps not surprising but certainly notable was a submission by Nathan Myhrvold's patent holding company, Intellectual Ventures Management, against the company for which he formerly served as chief technology officer. Joining him on the brief, filed by Justin A. Nelson of Susman Godfrey, Seattle, were Ananda Chakrabarty and G. William Foster. Chakarabarty is well known to the patent community as the protagonist in the case that launched the biotechnology industry. Diamond v. Chakrabarty, 447 U.S. 303, 206 USPQ 193 (1980).

• Six former PTO commissioners and directors--Gerald J. Mossinghoff, Donald J. Quigg, Harry F. Manbeck Jr., Bruce A. Lehman, Q. Todd Dickinson, and Nicholas P. Godici--defended the quality of the agency's output. The brief was submitted by Alexander C.D. Giza of Russ August & Kabat, Los Angeles.

• Triantafyllos Tafas was actually a thorn in the PTO's side recently, having successfully challenged the PTO's attempt at substantive rulemaking in Tafas v. Kappos, 586 F.3d 1369, 92 USPQ2d 1693 (Fed. Cir. 2009) (79 PTCJ 64, 11/20/09). Tafas's brief was filed by the same attorney who litigated the case, Steven J. Moore of Kelley Drye & Warren, Stamford, Conn.


Rounding out the friends of the court supporting i4i were:

• Amicour IP Group LLC, by Kirstin M. Jahn of Jahn & Associates, Boulder, Colo.;

• Eagle Harbor Holdings LLC, by Kathryn E. Karcher of Karcher Harmes, Bainbridge Island, Wash.;

• elcommerce.com.inc., by Christopher M. Perry of Brendan J. Perry & Associates, Holliston, Mass.;

• Tessera Inc., Luminex Corp., and the National Small Business Association, by Joseph M. Lipner of Irell & Manella, Los Angeles;

• IP Advocate, a non-profit philanthropic organization founded by Renee Kaswan, and technology entrepreneur Ron D. Katznelson, in two briefs filed by Charles E. Miller of Dickstein Shapiro, New York;

• Project FastLane Inc. and Unity Semiconductor Corp., in two briefs filed by Scott S. Kokka of Kokka & Backus, Palo Alto, Calif.;

• 19 venture capital firms, by Douglas Hallward-Driemeier of Ropes & Gray, Washington, D.C.;

• an association of 35 practicing entities, “a group of businesses of varying size that, in part, rest their strategic business initiatives upon patented innovations,” by Donald E. Lake III of Lathrop & Gage, Denver; and

•  seven retired naval officers, by Robert P. Greenspoon of Flachsbart & Greenspoon, Chicago.

By Tony Dutra

I4i's brief at http://pub.bna.com/ptcj/100290i4iMar11.pdf

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