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Supreme Court Will Hear Microsoft’s Appeal on the Evidentiary Standard Required to Defeat i4i’s Markup Language Patent

November 29, 2010

The U.S. Supreme Court on Nov. 29 agreed to hear Microsoft’s argument on appeal that the Federal Circuit erred by requiring clear and convincing evidence to defeat plaintiff i4i’s markup language patent even though the Patent and Trademark Office never reviewed an allegedly invalidating prior art software system before the patent issued (Microsoft Corp. v. i4i Limited Partnership, U.S., No. 10-290, 11/29/10).

While Microsoft directly stands to lose an infringement damages judgment of more than $290 million, also at stake in this case is whether the high court will decide to adjust the presumption of validity that patent holders have grown accustomed to under the Federal Circuit’s clear-and-convincing test that has been applied for 30 years.

Microsoft Petitions for Review of Federal Circuit Evidentiary Standard.

In this case, i4i Limited Partnership and Infrastructures for Information Inc.(i4i) filed an infringement complaint in the U.S. District Court for the Eastern District of Texas against Microsoft Corp., alleging that the software giant violated their patent (5,787,449) covering a system and method for the “separate manipulation of the architecture and content of a document.”

As noted in an earlier Intellirights story, a jury verdict and court ruling went in favor of i4i, and the Federal Circuit affirmed a damages judgment of more than $290 million. i4i Limited Partnership v. Microsoft Corp., 598 F.3d 831 (Fed. Cir. 2010).

Microsoft filed a petition with the U.S. Supreme Court in August 2010, arguing that the Federal Circuit’s requirement of clear and convincing evidence for proving the ‘449 patent invalid was inappropriate in this case. The heart of Microsoft’s invalidity defense is the argument that the invention in the ‘449 patent was placed on sale more than a year before the application filing when a software called “S4” was sold to client SEMI—a violation of the on-sale bar at 35 U.S.C. §102(b). While at trial Microsoft pointed to statements that i4i officials  made to investors and Canadian government officials about the relationship between S4 and the ‘449 patent, it was unable to provide the jury with conclusive proof because i4i had destroyed the S4 source code before filing this suit. Though Microsoft had sought a jury instruction that it only had to prove invalidity by a preponderance of the evidence, the district court ruled that Federal Circuit case law required proof of invalidity under a clear and convincing evidence standard.

In its petition, Microsoft seized upon language in KSR International Co. v. Teleflex, Inc., 550 U.S. 398 (2007), where the high court found it “appropriate to note” that the rationale for the presumption of patent validity presumption—that the PTO, in its expertise, has approved the claim—seems much diminished” here because the PTO never considered the S4 reference during prosecution of the ‘449 patent.

Microsoft’s petition argued as follows:

The Federal Circuit has repeatedly disregarded KSR’s invitation to reconsider its heightened evidentiary standard. Instead, it has clung to its pre-KSR caselaw and continued to apply the clear-and-convincing-evidence standard even to invalidity defenses based on prior-art evidence that the PTO never considered.…

The consequences of the Federal Circuit’s rigidity are dramatic, as this case—the largest patent infringement verdict ever to be affirmed on appeal— well illustrates. Respondents i4i Limited Partnership and Infrastructures for Information Inc. (collectively,“i4i”) alleged that certain versions of Microsoft’s word-processing software, Microsoft Word, infringed i4i’s patent. … At trial, Microsoft contended that i4i’s patent is invalid because the disclosed invention had been embodied in a software product sold in the United States more than a year before the patent application was filed, … , thus rendering the invention unpatentable under the “on-sale bar” of 35 U.S.C. § 102(b). That prior-art software was never considered by the PTO during prosecution of the patent. … Yet because i4i had destroyed the source code for its early software before filing its action against Microsoft, i4i’s technical expert and counsel were able to stress to the jury repeatedly that Microsoft could not prove by clear and convincing evidence that the software embodied the patented invention. Ultimately, the jury concluded that Microsoft had failed to sustain this heightened standard of proof, and the district court subsequently entered a permanent injunction and a money judgment against Microsoft in excess of $290 million. … This case thus places in stark relief the distortive consequences of the Federal Circuit’s clear-and-convincing-evidence standard.

Microsoft’s view is supported by numerous amici, including 36 law, business and economics professors, who argued in their brief that “the Federal Circuit has steadfastly hewed to the uniform rule it created, even in circumstances in which that rule makes no sense.” That brief, submitted by Stanford University Law Professor Mark A. Lemley, noted that this high level of deference for every patent is unwarranted because the PTO is “subject to enormous information and budgetary constraints” and “bad patents routinely slip through.” Thus, the 36 professors asked the Supreme Court “to do what the Federal Circuit will not—apply a legal standard for the presumption of validity that reflects the modern patent system.”

However, i4i’s opposition brief argued that the Supreme Court should not take this case because Microsoft never raised this issue in seeking en banc review at the Federal Circuit. Further, it noted that “Congress is currently considering additional patent reforms that are closely related to the clear-and-convincing standard.”

The opposition brief of i4i continued:

In particular, pending legislation would establish a “post-grant review” process that would further expand the PTO’s ability to consider validity challenges. … These congressional efforts to reform patent law could be disrupted by a grant of certiorari, which would signal that the Court might upset the settled clear-and-convincing standard. Moreover, the fact that Congress continues to focus attention on measures related to that standard, while leaving §282 undisturbed, underscores that the Federal Circuit’s longstanding interpretation of that provision is correct and should not be altered by the courts.

Supreme Court Grants Review.

However, in a Nov. 29 order, the U.S. Supreme Court granted Microsoft’s certiorari petition and agreed to address the following question:

The Patent Act provides that "[a] patent shall be presumed valid" and that "[t]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity." 35 U.S.C. § 282. The Federal Circuit held below that Microsoft was required to prove its defense of invalidity under 35 U.S.C. § l02(b) by "clear and convincing evidence," even though the prior art on which the invalidity defense rests was not considered by the Patent and Trademark Office prior to the issuance of the asserted patent. The question presented is: Whether the court of appeals erred in holding that Microsoft's invalidity defense must be proved by clear and convincing evidence.

Chief Justice John Roberts recused himself from this case.

Microsoft’s petition was submitted by Thomas G. Hungar of Gibson Dunn & Crutcher, Washington, D.C.

The i4i opposition brief was filed by Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr, Washington, D.C.

Microsoft’s petition is supported in the following briefs filed by amici:

 


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