Patent Law

Challenging the Clear and Convincing Standard of Proof for Invalidating Patents in Court

By Dennis Crouch

Microsoft Corp. v. i4i Limited Partnership (on petition for certiorari 2010)

By Dennis Crouch

In 2009, an Eastern District of Texas jury awarded $200 million to i4i after finding that Microsoft willfully infringed the Canadian company's patent. Judge Davis subsequently added-on $40 million of punitive damages for willful infringement.  The judge also issued an injunction ordering Microsoft to stop selling Word products with the capability of using 'custom XML.' That injunction was stayed by the Federal Circuit pending appeal.  On appeal, the Federal Circuit affirmed the lower court's findings of validity, willful infringement, enhanced damages, and permanent injunctive relief. Despite the injunction, Microsoft continues to sell its software based on a 'patch' that apparently prevents the use of custom XML in Word.

Meanwhile, the USPTO conducted a reexamination of the i4i patent and confirmed that the claims at issue were properly patentable.   However, the reexamination did not consider what Microsoft's (now) argues is its key invalidity argument.  That invalidity argument is based on a prior offer-for-sale, and offers-for-sale are excluded from consideration during reexaminations.  The prior offer-for-sale was likewise not considered during the original prosecution of the i4i patent.

This summer, Microsoft petitioned the Supreme Court to take a fresh look at the case —  specifically asking the Court to reject the Federal Circuit's requirement that invalidity be proven with 'clear and convincing evidence' when the invalidity argument is one that was not specifically considered by the Patent Office when granting the patent.  Microsoft raised 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. § 102(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.

This petition is one similar to that raised by Microsoft in z4. That petition was withdrawn when the parties settled. 

Eleven parties have filed amicus briefs supporting the petition for certiorari.  Microsoft's counsel makes the point that the companies signing in their own name 'employ more than three million people and the publicly-traded companies have a combined market capitalization of more than $1.2 trillion.'  Briefs opposing the petition as well as i4i's opposition appear to be due on October 29, 2010.

Chief Judge Roberts has recused himself from the case.

A review of the briefs follow.  Many of the briefs cover similar material and I have attempted to point out some of the differences. Of course, all of these briefs listed argue that the current evidentiary standard is too-high.

* * * * *

Briefs in support of the Petition:

36 Professors led by Mark Lemley:  The professors suggest that the clear and convincing standard does not make sense based on the known bureaucratic difficulties of the USPTO and the result that many issued patents would not survive a serious Section 103(a) analysis. The professors also write that the Supreme Court offered a signal in KSR that the Federal Circuit should reconsider its standard, but that the Federal Circuit has refused to do so.

Brief by Acushnet, SAP, and Others: Jim Dabney and John Duffy collaborated to examine the history of invalidity defenses. The brief does an especially good job of spelling out different aspects of an invalidity argument that may need a higher standard of proof.  Thus, Acushnet seemingly argues that uncorroborated oral testimony should still be excluded even if the general standard of proof was lowered.  This is one of the more nuanced briefs.

Teva, Cisco, and the Generic Pharma Association: The current standard creates an incentive for patent applicants to conceal material information from the USPTO. An issued patent is valuable — even if it would eventually be found invalid. The cost of invalidating a patent is so high that a patentee can usually obtain significant settlements even for a patent that should have never issued.

Google, Verizon, Dell, HP, Wal-Mart: A preponderance-of-the-evidence is the default burden of proof in civil cases.  The Federal Circuit has no legal justification for its clear-and-convincing standard that unduly burdens accused infringers.  The USPTO normal examination of patents is insufficient to warrant a high level of deference.

Yahoo!: 'In requiring clear and convincing proof of facts bearing on patent invalidity, the Federal Circuit's rule conflicts with this Court's teaching that a heightened evidentiary standard should not apply where a statute does not prescribe the heightened standard.'

Intel: We have 'a thicket of invalid patents that stifles competition and impedes further innovation.'

Securities Industry and Financial Markets Association:  'The Federal Circuit's stance is contrary to the guidance of this Court as well as to the standards applied by the regional circuits before 1982.'  The flood of bad patents is especially troublesome in the area of business methods and financial software. New transparency laws make it more likely that these patents will be enforced.

Facebook, Netflix, et al.: An important goal of the patent system is to encourage innovation without disrupting other-innovation through mistaken government 'grants of monopolies.' To harmonize with the reexamination statute, court's should at least lower the threshold for proving invalidity once a substantial new question of patentability is established.  (I wonder if Facebook's loose use of the 'monopoly' term here will come back to haunt them.).

EFF et al.: Giving value to illegitimate patents creates perverse incentives.  These problems are particularly concerning in the software and internet realms for several reasons, including that they impede alternative innovation models such as FOSS.  In addition, the clear and convincing standard is a non-statutory extension of the law.

Apple: Apple argues that the current system makes it too difficult and costly to obtain a judicial decision that a patent is invalid. ''The clear and convincing standard shields a growing number of poor quality patents from the truthseeking function of our adversarial system.'

CTIA –  The Wireless Association: The clear and convincing standard makes a difference in litigation — making it much more likely that a patent will survive validity attacks.  This reality has created practical problems in dealing with holders of low-quality patents who seek large damage awards.

Documents:

• Petitions Stage:
• Microsoft Petition for Certiorari
• File Attachment: Amicus brief of Acushnet et al.pdf (209 KB)
• File Attachment: Amicus brief of 36 Professors.pdf (93 KB)
• File Attachment: Amicus brief of Apple.pdf (123 KB)
• File Attachment: Amicus brief of CTIA--The Wireless Association.pdf (168 KB)
• File Attachment: Amicus brief of Electronic Frontier Foundation.pdf (329 KB)
• File Attachment: Amicus brief of Facebook et al.pdf (132 KB)
• File Attachment: Amicus brief of Google et al.pdf (121 KB)
• File Attachment: Amicus brief of Intel.pdf (164 KB)
• File Attachment: Amicus brief of SIFMA and The Clearing House.pdf (126 KB)
• File Attachment: Amicus brief of Teva Pharmaceuticals et al.pdf (114 KB)
• File Attachment: Amicus brief of Yahoo!.pdf (204 KB)
• Federal Circuit Briefing:
• Microsoft's Merits Opening Brief
• Amicus brief of Dell Supporting Stay of Injunction
• Amicus brief of HP Supporting Stay of Injunction
• Other Documents
• The i4i Patent No. 5,787,449
• Final Judgment by Judge Davis
• Judgment of the Federal Circuit

Links

• Prior Patently-O Articles and Essays
• Sep 30, 2010 –  Challenging the Clear and Convincing Standard of Proof for Invalidating Patents in Court
• Aug 31, 2010 –  Microsoft (Again) Asks Supreme Court to Lower Clear and Convincing Standard
• Dec 22, 2009 –  Federal Circuit Decision
• Aug 28, 2009 –  Briefing the Federal Circuit Appeal
• Aug 25 ,2009 –  Relevance of Pending Reexamination
• Aug 21, 2009 –  Emergency Stay of Relief
• Aug 12, 2009 –  Microsoft Ordered to Stop Selling Word
• Other Sources
• Michael Barclay (Who drafted the brief for EFF)
• Joe Mullin

Full post as published by Patently Obvious on September 30, 2010 (boomark / email).