The U.S. Supreme Court granted certiorari in the Microsoft v. i4i case and will have to decide the whether the invalidity of a patent needs to be proven by clear and convincing evidence or by a preponderance of evidence.

Currently the standard for proving that a patent is invalid is “clear and convincing evidence” which is considered too high of a standard by Microsoft and other companies like Google and Apple. These companies argue that the applicable standard should be dependent on whether the “prior art” has been considered by the U.S. Patent and Trade Office (USPTO) or not. They contend that if the prior art has not been considered by the USPTO than the alleged infringer of the patent should be able to prove by a preponderance of evidence that the patent is invalid.

It all started in 2007 when the Canadian software developer i4i Limited Partnership (i4i) sued Microsoft claiming that Microsoft infringes their patent (patent ‘449) by using i4i’s custom XML editor in certain versions of Microsoft Word which is used by millions of people worldwide. Microsoft argued among other things that patent ‘449 is invalid. But a jury rejected that argument and held Microsoft liable for willful infringement, awarding i4i damages in the amount of $ 200 million. Because the infringement was considered willful by the jury the United States District Court for the Eastern District of Texas increased the damages by $40 million and issued a permanent injunction against Microsoft. Microsoft could no longer sell those versions of Microsoft Word containing the custom XML editor. A post-verdict motion for judgment as a matter of law concerning the validity of patent ‘449 by Microsoft was denied by the district court. On appeal the United States Court of Appeals for the Federal Circuit affirmed the verdict of the district court. During the appeal Microsoft questioned the validity of patent ‘449 as issued by the USPTO by arguing that: (1) the invention of the custom XML editor by i4i was obvious in light of combining the Kugimiya patent with the SGML editor Rita or DeRose and; (2) that the invention of the custom XML editor was anticipated by the sale of i4i’s software program SEMI-S⁴ (S4) before the date of applying for a patent for the custom XML editor. (Kugimiya is a software program that translates text in Japanese into English. Rita is a software program that edits documents by using SGML, a markup language similar to XML and DeRose is used to work with documents containing a markup language like SGML and XML. Kugimiya, Rita and DeRose are considered to be the prior art.)

Deciding the standard of review in deciding whether i4i’s invention of the custom XML editor is obvious in light of any combination of Kugimiya with Rita or DeRose, requires a de novo review. This means that the scope of review by the Court of Appeals depends on the factual findings of the jury. Since Microsoft did not file a pre-verdict motion for a judgment as a matter of law concerning the obviousness, the jury could not make any explicit factual findings. Therefore the Court of Appeals presumed that the jury “resolved underlying factual disputes in i4i’s favor.” A presumption like this can be applied to disputes concerning the scope and content of the prior art and the level of skill in the ordinary art. According to the Court of Appeals “the jury must have believed that there were differences between the prior art and asserted claims, and that a person of ordinary skill would not have been motivated to combine the references” meaning that Microsoft failed to prove that patent ‘449 was obvious in light of the prior art.

As for the anticipation argument the “clear and convincing evidence” standard was applied by the Court of Appeals. In 1993 i4i developed the software program S4 for a client. According to Microsoft the sale of S4 before the date of the application for the custom XML editor (1998) constitutes a violation of the on-sale bar (35 U.S.C. §102(b)) and therefore makes the ’449 patent invalid. In order to prove invalidity of a patent on this ground the alleged infringer must prove by clear and convincing evidence that “the claimed invention was on sale in this country more than one year prior to the date of the application for the patent in the U.S.A.” Both parties agreed that S4 was sold in the United States before the application date but the question was whether S4 used the so called “metacap code” that the ‘449 patent uses. During the trial the jury heard conflicting testimonies regarding this question which led the Court of Appeals to conclude “that there was sufficient evidence for a reasonable jury to find that the ’449 patent was not anticipated by the sale of S4.”

It is exactly this standard of proof that Microsoft now challenges at the U.S. Supreme Court. According to Microsoft a lesser standard ought to be used to challenge the validity of a patent when the alleged infringer can provide the jury with evidence of the usage of a prior art which the USPTO did not include in its examination of the requested patent. What if the U.S. Supreme Court would agree with Microsoft? The consequences for patent law could be far reaching. A patent issued by the USPTO is presumed to be valid and this presumption encourages inventors to be creative and develop new products and technologies. It gives the holder of the patent certainty. But what if someone claims that the patent is invalid due to usage of a prior art and therefore did not infringe the patent? Should the standard of proof be a preponderance of evidence when the USPTO did not consider the prior art? This would mean that the threshold for convincing the jury will be lower and this could lead to more invalid patents. Some fear that this will lead to an enormous work load of the USPTO and will bring uncertainty to current patent holders. Others, like the Securities Industries and Financial Markets Association, agree with Microsoft and say that “suits based on questionable patents are a plague on the financial industry.” The U.S. Supreme Court is expected to rule in the case in June or July 2011. However the U.S. Supreme Court rules, I am sure that it will consider the ideology on which the concept of a patent is based and how this ideology can be maintained in a fast changing world as the one we live in today.

Sources:

www.supremecourt.gov/orders/courtorders/112910zor.pdf

http://www.cafc.uscourts.gov/images/stories/opinions-orders/09-1504.pdf

http://www.patentlyo.com/patent/2010/11/supreme-court-to-decide-microsoft-patent-case-that-could-make-it-easier-to-invalidate-patents.html

http://www.bloomberg.com/news/2010-11-29/microsoft-gets-u-s-supreme-court-hearing-in-case-against-i4i-of-toronto.html

http://online.wsj.com/article/SB10001424052748704584804575644633158363078.html?mod=WSJ_Tech_LEFTTopNews

http://ipwatchdog.com/2010/11/29/us-supreme-court-accepts-microsoft-appeal-in-i4i-case/id=13578/