For nearly three decades, the Court of Appeals for the Federal Circuit has required litigants defending a claim of patent infringement to prove invalidity by clear and convincing evidence. On April 18, 2011, the U.S. Supreme Court heard oral argument in Microsoft Corp. v. i4i Ltd. P'ship, No. 10-290, the first case to squarely address whether the presumption of validity codified in the 1952 Patent Act mandates a heightened burden of proof for defendants challenging validity in a patent infringement action, e.g., where the prior art was never considered by USPTO. Microsoft contends that the burden should be no greater than a preponderance of the evidence when the USPTO did not consider the most relevant prior art during patent examination. i4i is one of the most significant patent cases in years, and one of the most significant business cases of the Court's term. Beyond reducing the burden on accused infringers to prove invalidity in patent litigation, a lowering of the standard of proof could widely impact the value of patents.
During oral argument, the Justices focused on the proper construction of the statutory presumption of validity and on the significance of Justice Cardozo's opinion in Radio Corp. of Am. v. Radio Eng'g Labs., Inc., 293 U.S. 1 (1934) (RCA), with its broad language seemingly supporting a heightened standard of proof in all cases challenging patent validity. The Court did not focus on Microsoft's principal argument that a preponderance of the evidence is the default standard of proof in civil cases. Several questions were directed toward the current practice of district courts that account for prior art not considered during USPTO examination by instructing the jury that it may find the clear and convincing evidentiary standard more easily met by such evidence. In sum, while the Justices did not seem convinced that the Federal Circuit's clear and convincing standard should necessarily be overturned, the outcome of this important case is far from certain.
The Patent Act, 35 U.S.C. 282, states that “[a] patent shall be presumed valid” and that “[t]he burden of establishing invalidity of a patent … shall rest on the party asserting such invalidity.” The Federal Circuit has long held that the burden to establish invalidity in infringement litigation is by clear and convincing evidence — the standard applied by both the district and appellate courts in this case.
i4i sued Microsoft for infringement of U.S. Patent No. 5,787,449 in the Eastern District of Texas in 2007. The patent relates to markup languages technology, and i4i alleged that Microsoft Word's XML editor infringed the patent. Microsoft argued at trial that the patent was invalid under 35 U.S.C. § 102(b) due to on-sale bar because the invention was embodied in software sold in the United States by i4i more than a year before the application for the patent was filed. Microsoft argued that because the USPTO had not considered the prior sale of software, Microsoft's burden of proving invalidity should be only a preponderance of the evidence. Microsoft's proposed jury instruction was rejected based on the settled law requiring that invalidity be established by clear and convincing evidence. The jury found for i4i, awarding $200 million in damages, and the district court subsequently entered a judgment of $290 million, including enhanced damages, interest, and post-verdict damages. Additionally, the district court entered an injunction against the sale of certain versions of Word. See i4i Ltd. P'ship v. Microsoft Corp., 670 F. Supp. 2d 568 (E.D. Tex. 2009). Microsoft appealed. See http://bit.ly/fxvbQf.
A three-judge panel of the Federal Circuit affirmed. 598 F.3d 831 (Fed. Cir. 2010) (superseding prior opinion at 589 F.3d 1246 (Fed. Cir. 2009)). See Foley's Legal News Alert: Intellectual Property from December 23, 2009 (http://bit.ly/ft0Q7p). The appellate court found no fault with the jury instruction requiring that invalidity be proven by clear and convincing evidence. Microsoft's petition for certiorari was granted on November 29, 2010.
Supreme Court Oral Argument
In today's argument, three parties argued before the Justices (excluding Justice Roberts, who was recused from the case) and before a packed courtroom. See http://tinyurl.com/3g4uezt. Thomas Hungar, partner at Gibson Dunn and former Deputy Solicitor General, argued for Microsoft, while Seth Waxman, partner at WilmerHale and former Solicitor General, argued for i4i. In addition, Malcolm Stewart, Deputy Solicitor General, Department of Justice, argued for the U.S. Government, just before Mr. Hungar's rebuttal.
Mr. Hungar began his argument for Microsoft by responding to assertions by i4i in its brief regarding RCA. The RCA Court noted in dicta that the presumption of validity is “a presumption not to be overthrown except by clear and cogent evidence.” The RCA Court additionally discussed how a patent is “presumed to be valid until the presumption has been overcome by convincing evidence of error,” and that someone seeking to invalidate a patent faces a “heavy burden of persuasion.”
Justice Sotomayor and other Justices asked why RCA, decided before the 1952 Patent Act, did not set out a broad and higher scrutiny, consistent with the clear and convincing standard. Justice Kagan questioned why RCA did not govern given that Microsoft's position is that the later-enacted statute is essentially silent as to the standard of proof. Mr. Hunger argued that RCA addressed the question of prior invention, a specific situation justifying a higher scrutiny at that time. According to Microsoft, the Federal Circuit has since resolved this particular problem by requiring corroboration in relation to invention issues.
Mr. Hungar went on to argue that Congress, when drafting the 1952 Patent Act, could not have thought that clear and convincing was the standard because many prior cases indicated otherwise when considering prior art evidence not before the USPTO. Where no clear rule existed to codify, preponderance of the evidence necessarily prevailed as outlined in pre-1952 cases relating to evidence not considered by the USPTO.
Looking at the statutory language of § 282 itself, Mr. Hungar stated that “the first sentence refers to patents being presumed valid under this Court's precedent, a presumption shifts the burden of going forward, and the second sentence of the original statute refers to the burden of proof.” He further argued that under i4i's interpretation, by contrast, the burden shifting and burden of proof (to a heightened standard) both occur via the first sentence, making the second sentence superfluous.
Justices throughout oral argument followed up with this line of reasoning. For example, Justice Ginsburg indicated that Congress already knew the burden was on those asserting invalidity, and therefore must have meant something by the language beyond shifting the burden of proof. Microsoft argued, no, that cases were in fact previously unsettled in this regard. Justice Alito asked whether, if a challenger has the burden of proof, it would go without saying that the challenger also would have the burden of proof regarding invalidity. In that case, Justice Alito asked, what does the sentence, a “patent shall be presumed valid,” add? Mr. Hungar conceded that it was unclear what the second sentence adds, but again relied on the “dozens of pre-1952 cases cited … from prior to 1952, rejecting the notion that there's an across-the-board heightened presumption of validity.”
Justice Ginsburg noted that the Federal Circuit has consistently applied the clear and convincing standard, and asked if one had ever proposed a bill before Congress presenting an alternative lower standard. After conceding he knew of none, Mr. Hungar stated that one must look at most relevant cases decided in the 30 years before the 1952 Patent Act. Looking at such cases, according to Microsoft, all circuits rejected the clear and convincing standard when addressing prior art evidence never considered by the USPTO. Justice Sotomayor stated, however, that most of the cited cases did not eliminate the burden of proof, but rather instructed the jury that the standard should take into account the fact that the USPTO did not consider the evidence. Justice Sotomayor then asked whether Microsoft had asked for such instruction itself. Microsoft responded that it had objected to the clear and convincing standard but did not ask for that precise instruction.
Justice Breyer asked if one can balance considerations of both sides using the current clear and convincing standard simply by: (1) allowing parties to go back to the USPTO for reconsideration (reexamination proceeding) of a patent when necessary; and (2) giving careful instruction to juries so that they stick to their job of applying clear and convincing to a “group of facts,” while the court itself decides the ultimate issue of obviousness, novelty, and so forth. Microsoft responded that a reexamination proceeding cannot be the answer because it is limited in scope, i.e., only considers prior art issues, not an on-sale bar, as is applicable here. Mr. Hungar also argued that the clear and convincing standard for juries does not make sense if the USPTO never considered the evidence in question.
In the next section of oral argument, Mr. Waxman argued the other side for i4i, asserting that the clear and convincing standard as applied in all relevant situations has been long settled for three reasons: (1) statutory interpretation; (2) stare decisis; and (3) first principles. Mr. Waxman then relied upon the RCA case as clearly putting forth a “clear and cogent evidence” standard. He also referred to an “active acquiescence” by Congress, prompting questions from the Justices. Mr. Waxman argued that Congress was well aware of the standard and had been very active in the field, but chose not to act; for example, when adopting reexamination procedures at the USPTO in recent years and when considering post-grant procedures in currently pending legislation.
Justice Alito asked why the statute itself did not expressly state a clear and convincing standard. Moreover, he asked again the purpose of the second sentence in the statute, § 282. Mr. Waxman responded that Congress codified the existing presumption, as outlined in RCA and other cases going back to the 19th century and an opinion by Justice Story. He also noted that Judge Rich had explained that lower courts were previously in disarray, ignoring or disregarding Supreme Court holdings.
Justice Ginsburg asked, “[W]ould you agree, looking to Judge Rich's opinions, that it would have been in order” for a judge to instruct that defendants' evidence would carry more weight if it hadn't been presented to the USPTO. Mr. Waxman responded yes, and argued that it is the long-standing established rule of the Federal Circuit, one that is consistent with statements by the Court in KSR.
Mr. Waxman also noted that no existing Supreme Court case creates different standards of proof with respect to a particular issue that a jury must decide. Justice Kennedy noted that in some cases the presumption disappears. Mr. Waxman distinguished that situation from one where the jury is told to apply different standards of proof depending on the evidence. He also noted it is not black and white regarding what the USPTO has considered or not.
Justice Sotomayor asked if the current standard is confusing for a jury. Mr. Waxman responded that the clearest way is to instruct juries that they may give added weight to evidence that the USPTO did not consider in deciding validity. Justice Scalia questioned if this avenue still has the problem of asking a jury to determine what the USPTO considered. Mr. Waxman responded that creating a dual standard of proof creates even greater difficulties. He pointed to a situation where the USPTO did not consider one reference, but considered other equally pertinent references. He also asserted that statistics show that juries are very influenced by whether the USPTO considered a prior art reference or not, i.e., that juries “get it” regarding the current standard.
In response to Justice Ginsburg's request to justify the heightened standard, Mr. Waxman argued that: (1) an infringer's validity challenge is a collateral attack on a government decision that has already been made; (2) harm from an erroneous determination is hugely asymmetrical because a single holding of invalidity vitiates for all time the patent, as well as all reliance interest by an inventor, investors, and licensees; and (3) the Constitution is specifically designed to induce reliance in exchange for an inventor's honoring his/her half of the patent bargain by public disclosure of the invention.
Justice Kagan asked whether reliance on a patent is actually limited in light of reexamination procedures at the USPTO. Mr. Waxman stated that reexamination, in contrast to litigation (which kills patents for all time), provides an avenue to narrow claims. Justice Breyer noted that considerations exist on both sides relating to “first principles,” and wondered which way these principles really favored. Mr. Waxman responded that Congress is on the job to determine such policy considerations, and these policy reasons say nothing about what Congress thought about in 1952.
Malcolm Stewart argued on behalf of the United States, and began by highlighting the Court's decision in RCA, and its role in interpretation of § 282. Justice Sotomayor then questioned the Government on the need for the second sentence of § 282 if the presumption itself included a burden of proof aspect. Mr. Stewart acknowledged a “belts and suspenders” quality to the statute, and noted that under Microsoft's statutory construction argument, the first sentence is superfluous. He then articulated three independent reasons that the heightened standard should apply even when art was not considered by the USPTO, including the quid pro quo rationale for patents, i.e., that the heightened standard is part of the benefit realized by an inventor for disclosing his invention, the patentee's reliance interests, and the risk that prior art raised in litigation but not considered by the USPTO will be substantially equivalent to prior art that was considered. Mr. Stewart also acknowledged that while reexamination does impact patentee's reliance interest, and is not a cure-all for invalid patents that should not have been issued in the first place, it does reflect Congressional efforts to allow for expert re-review of issued patents, and the pending patent reform legislation may expand the availability of post-grant review procedures.
In rebuttal, Microsoft noted that the Federal Circuit rejected the “more easily carried” jury instruction in a prior case against Microsoft (z4) because it would confuse the jury, and reiterated that there was no sufficient justification offered for departing from the so-called “default” preponderance standard. Mr. Hungar sought to downplay the significance of the RCA case, noting that it was not referenced in the legislative history of the 1952 Act. Microsoft also argued that reexamination is rarely invoked by patent owners, and is not effective once the patent is in litigation because courts normally refuse to stay cases based on reexamination. However, Mr. Hungar noted, a preponderance standard for proving invalidity would encourage greater use of reexamination by patent holders.
Briefing Before the Supreme Court
As background for their oral arguments, a review of the parties' briefs is instructive. In its briefs, Microsoft raised a number of challenges to the Federal Circuit's long-standing rule that invalidity must always be proven by clear and convincing evidence in infringement litigation, arguing that the standard should be only a preponderance of the evidence where the USPTO has not considered the relevant prior art:
- Microsoft's principal argument is that the statutory presumption of validity — Section 282 of the Patent Act — does not require a clear and convincing standard for proving invalidity. First, nothing in the language of the statute requires such a standard, and the default standard in civil litigations is a preponderance of the evidence. Furthermore, the 1952 Patent Act did not codify consistent judicial precedent on this issue. Microsoft argues that the Federal Circuit created the “clear and convincing” standard for patent invalidity, despite numerous regional circuits that had not applied this standard when prior art was not considered by the USPTO. Additionally, Microsoft points out that copyright and trademark law use the preponderance of evidence standard for proving invalidity.
- Microsoft also attacks the deference owed to the USPTO. Microsoft argues that administrative deference is inappropriate, particularly when the prior art has not been considered by the USPTO. Microsoft finds support in dicta from the Supreme Court's decision in KSR International Co. v. Teleflex Inc., 550 U.S. 398, 426 (2007), which stated that “the rationale underlying the presumption — that the PTO, in its expertise, has approved the claim — seems much diminished” in circumstances where the USPTO never considered the evidence now put forth for invalidity. Microsoft argues that the Federal Circuit has eased the burden of proving invalidity when the USPTO has not considered a prior art reference, but has also — inconsistently — insisted that there is only one standard.
- Microsoft seeks a preponderance of the evidence standard for proving invalidity when the USPTO has not considered a reference.
In contrast, i4i seeks to maintain the clear and convincing standard across the board.
- Preliminarily, i4i argues that Microsoft has changed direction midstream, and is now arguing for an overall preponderance of the evidence standard, whereas previously it sought such a standard only when the USPTO had not considered prior art. i4i contends that Microsoft has waived such a broad argument, and that Microsoft has shifted its position because it now recognizes that the hybrid standard it previously sought was not workable and would be far too confusing for juries.
- Additionally, i4i explains that the Federal Circuit has already dealt with the issue of prior art that was not considered by the USPTO, by having only one standard but allowing it to be “more easily” satisfied when the evidence relied on was never considered by the USPTO. i4i argues that Microsoft did not request jury instruction language to this effect, though it could have.
- i4i further argues that the statute codified prior case law in support of the clear and convincing standard, which it claims is used in many civil cases. It further argues that Congress created the Federal Circuit to strengthen the patent system, and that Congress has implicitly approved the Federal Circuit's clear and convincing standard. i4i additionally argues that the clear and convincing standard maintains appropriately strong patent rights and promotes innovation.
- Finally, i4i contends that Microsoft's standard would marginalize the USPTO. It points out that, unlike the patent examination process, the registration process for a trademark or copyright provides only a prima facie assumption of validity, thus the lower standard for proving invalidity. Further, the USPTO provides for patent reexamination, which provides an alternate means for challenging patent validity that carries a lower burden. i4i also questions the practical implications that Microsoft's standard would have for patent applicants, who under a hybrid standard may feel the need to consider or submit a far greater number of prior art references.
A large number of amici have weighed in on this case, indicating its importance across varied fields and industries. More amici (24) — including the United States — support appellee i4i, seeking to maintain the “clear and convincing standard.” For example, the United States argues that Section 282 of the Patent Act was intended to codify a presumption of validity that included a heightened burden of proof, consistent with Supreme Court precedent that predated the 1952 Patent Act. The United States also cites to principles of agency deference, and the substantial reliance interests implicated by invalidity challenges. The United States concedes that the appropriate standard of proof in cases where an invalidity challenge rest solely on evidence that was not before the USPTO is “less obvious,” but that the better option is to apply a consistent standard that does not vary dependent on the nature of the evidence presented.
Nonetheless, a substantial number of amici (17) have come out in support of appellant Microsoft or alternatively in favor of the idea that the standard of proof for invalidity may be different where the USPTO has not considered the prior art at issue. A handful of amici (five) support neither party.
While oral argument and the panel's questions provided some guidance on issues of concern for the panel, it remains an open question whether the Supreme Court will change the burden of proof for parties alleging patent invalidity in infringement litigation, or uphold the status quo. Additionally, there is the possibility that the Federal Circuit's decision from below will be upheld without opinion by an equally divided court. Given the Chief Justice's recusal from the case, if there is a 4-4 split, the Federal Circuit's decision below will be affirmed.