On November 29, 2010, the Supreme Court granted Microsoft Corporation's petition for certiorari in its long running patent dispute with i4i Limited Partnership and Infrastructures for Information Inc. (collectively, "i4i"). The Court will consider whether to overturn the Federal Circuit's 27-year old precedent requiring clear and convincing evidence to invalidate a patent when the prior art that is the basis for the invalidity defense was not considered by the PTO during the patent's examination. Microsoft Corp. v. i4i Ltd., No. 10-290 (U.S. Nov. 29, 2010).
In 2007, i4i brought a patent infringement suit against Microsoft alleging that certain versions of Microsoft Word ("Word") that contained a custom XML editor infringed i4i's U.S. Patent No. 5,787,449 ("the '449 patent"). Of particular relevance here was Microsoft's invalidity defense based on the on-sale bar of 35 U.S.C. §102(b), which bars a patent from issuing for any invention that was on sale in the United States more than one year before the patent application's filing date.
Prior to filing for the '449 patent, i4i's corporate predecessor had developed a software program called "S4" and sold it to Semiconductor Equipment and Materials International ("SEMI"). It was undisputed that S4 was sold in the United States prior to the § 102(b) critical date. The only question was whether the version of S4 sold embodied the invention of the '449 patent. However, because the source code for S4 had been destroyed years before this litigation began, the question turned largely on the credibility of S4's creators, who were also the named inventors of the '449 patent. The S4 program was not of record in the PTO during the prosecution of the '449 patent.
At trial, Microsoft's expert testified that S4 embodied the invention relying on the S4 user manual. i4i attacked the opinion of Microsoft's expert because it was rendered without reviewing S4's source code. The inventors of the '449 patent also presented testimony that the version of S4 sold to SEMI could not practice the '449 patent because the key innovation of a metacode map had not yet been conceived. Microsoft impeached their testimony with a letter written to investors and a funding application submitted to the Canadian government in which the inventors had indicated S4 had embodied the '449 patent. But, i4i's attorney emphasized to the jury that Microsoft could not prove by clear and convincing evidence that S4 embodied the '449 patent without the source code.
The jury rejected Microsoft's arguments that the patent was invalid, and it awarded i4i $200 million in damages. It further found Microsoft liable for willful infringement. After adding $40 million in enhanced damages, as well as prejudgment interest and post-verdict damages, the district court entered judgment in the amount of $290 million and issued a permanent injunction. Microsoft appealed the jury verdict and injunction on numerous grounds.
On appeal, Microsoft had argued that the burden of proof, specifically requiring clear and convincing evidence, should be less when the prior art was not before the PTO. Microsoft's argument relied primarily on KSR International Co. v. Teleflex Inc., 550 U.S. 398, 426, 127 S. Ct. 1727, 167 L. Ed. 2d 705 (2007), where the Supreme Court stated in dicta:
We need not reach the question whether the failure to disclose Asano during the prosecution of Engelgau voids the presumption of validity given to issued patents, for claim 4 is obvious despite the presumption. 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.
The Federal Circuit disagreed. "This court's decisions in Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301, 1311-16 (Fed. Cir. 2009), and Technology Licensing Corp. v. Videotek, Inc., 545 F.3d 1316, 1327 (Fed. Cir. 2008), make clear that the Supreme Court's decision in KSR . . . did not change the burden of proving invalidity by clear and convincing evidence. Thus, based on our precedent, we cannot discern any error in the jury instructions." i4i Ltd. v. Microsoft Corp., 598 F.3d 831, 848 (Fed. Cir. 2010), cert. granted, 562 U.S. ___ (Nov. 29, 2010) (No. 10-290).
In addition, the Federal Circuit dismissed virtually all of Microsoft's other arguments. See Jaspal S. Hare, Largest Patent Infringement Verdict Ever to be Affirmed On Appeal, in this issue of IP Insight. Subsequently, Microsoft petitioned for a writ of certiorari.
Microsoft's Petition for a Writ of Certiorari
To overturn "the largest patent infringement verdict ever to be affirmed on appeal," Microsoft, on August 27, 2010, petitioned the Supreme Court for a writ of certiorari. Petition for Writ of Certiorari at 3, Microsoft Corp. v. i4i Ltd., 562 U.S. ___ (Nov. 29, 2010) (No. 10-290). The question presented is:
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.
Id. at i. Microsoft argued that its petition should be granted for three reasons.
First, Microsoft alleged that the Federal Circuit's decision conflicts with the Supreme Court's teachings in KSR and with the pre-1982 decisions of all twelve regional circuits. Second, Microsoft argued that the selection of an appropriate standard of proof for invalidity is "essential to avoid distorting the patent system." Id. at 19. The crux of Microsoft's policy argument was that patent examiners had limited time and resources to properly vet patent applications, leading to a large number of patents that should not have issued. In litigation, the standard of proof is often outcome-determinative, thus directly affecting whether patent litigants can cull invalid patents. According to Microsoft, this "tended to hinder, rather than promote, progress." Id. at 21-22. Finally, Microsoft argued that the standard-of-proof issue is "clearly and cleanly" presented here and ripe for review. Id. at 25.
Eleven briefs of amici curiae were filed, most on behalf of multiple companies or trade associations, and all in support of Microsoft. The amici included computer hardware and software firms; the wireless industry; the open source software community; car manufacturers; internet retailers; the financial sector; and the generic drug industry.
In general, the amicus briefs focused on the merits of why the clear-and-convincing standard should be overturned. For example, Google, in a brief joined by several computer makers and Wal-Mart, argued that the statute only specifies a presumption, not a standard of proof, and that the "default" standard of proof in civil cases, the preponderance of evidence standard, should therefore apply. A brief filed by CTIA - The Wireless Association noted the standard's effects on licensing negotiations, that is, "patent-holders become more eager to assert their rights, and accused infringers more inclined to pay up and settle rather than fight it out in court." Taking a different angle, the generic drug maker Teva, in a brief joined by the Generic Pharmaceutical Association and Cisco Systems, argued that the Federal Circuit rule creates incentives for patent applicants to conceal material information from the PTO.
Significantly, several amici, including Google, Yahoo, and the Electronic Frontier Foundation, went beyond the narrow question presented in Microsoft's petition, viz., whether the clear and convincing standard applies even though the prior art on which the invalidity defense rests was not considered by the PTO. Those amici argued that the preponderance of the evidence standard should apply to all challenges of patent validity, without reference to whether the prior art was of record during prosecution.
i4i's Brief in Opposition
i4i argued that the Federal Circuit's precedent is correct and so firmly settled that any change should come from Congress. When Congress codified § 282, it had intended to codify the precedent of the time that required clear and convincing evidence. Stare decisis and congressional acquiescence, i4i argued, require denial of Microsoft's petition: "Over the last 27 years, moreover, Congress has confirmed the correctness of the Federal Circuit's interpretation, by not altering that interpretation and instead making other closely related changes . . . ." Brief in Opposition at 2-3. i4i also countered Microsoft's policy arguments, stating they should be left to Congress, "which is institutionally better equipped to assess (and mitigate) the tremendous upheaval that changing the burden of proof would engender." Id. at 26. Contrary to the views of Microsoft and some amici, i4i noted that a change in the burden of proof would not only affect patents of tenuous validity, but all patents. That is because inventors would not know in advance whether their patent would be easily invalidated. Thus, i4i concluded that "all inventors would have a weakened incentive to innovate and disclose, to the public's detriment." Id.
Noteworthy, as i4i pointed out, is the "difficult, or even impossible" problem of ascertaining whether the PTO considered a particular piece of prior art. Id. at 21. Microsoft's argument assumes that if the prior art is not listed on the face of the patent, it was not considered. But PTO guidelines do not require every piece of art to be cited. A change in the burden of proof, i4i argued, would lead inventors to cite extensive lists of largely irrelevant prior art to insure a heightened burden in litigation. In the end, i4i argued, lowering the standard of proof would increase litigation complexities.
Further, i4i argued that Microsoft placed too much emphasis on the Court's statement in KSR, which the Court itself described as dicta. i4i argued that the Federal Circuit case law was consistent with KSR in that it provides that the burden can be more easily carried with unconsidered prior art. i4i noted that, however, Microsoft never requested such an instruction to the jury. Finally, i4i argued that this was not a good case to address the question presented.
Microsoft replied and noted that this was a particularly important issue as shown by the 11 amicus briefs filed by "36 professors, leading companies from Apple to Wal-Mart, the entire financial-services industry, and the open-source community." Reply Brief for Petitioner at 1. Microsoft argued that i4i's brief addressed the merits, not the question of whether the Court should grant review. Further, Microsoft argued that the Federal Circuit's "more easily carried" case law is irrelevant, because the Federal Circuit has indicated that juries should not be instructed on it.
In the end, Microsoft succeeded. The Supreme Court granted certiorari on November 29, 2010. Chief Justice Roberts took no part. As noted previously, the question presented in Microsoft's petition is limited on its face to the applicability of the clear and convincing evidence standard where the asserted prior art was not of record during prosecution. Several amici, however, have urged the Supreme Court to lower the standard of proof to a preponderance of the evidence in all cases. Regardless of whether the Court addresses this broader issue, its decision will be of great significance to industry and the bar. A decision is likely by June 2011.