For the third time this term, the United States Supreme Court granted certiorari to review an issue of patent law, potentially with broad and significant ramifications in the litigation and valuation of patents. The Supreme Court will consider whether patent law requires clear and convincing evidence in order to render a patent invalid. In its writ, Microsoft asked for the standard to be lowered to preponderance of the evidence, at least when the United States Patent and Trademark Office did not consider the evidence of invalidity during examination of the patent before it issued.
Criminal law requires prosecutors to prove defendants’ guilt “beyond a reasonable doubt.” Civil plaintiffs and counterclaimants, however, generally are required to show their adversaries’ liability only by a “preponderance of the evidence.” This lower burden also has been described as the “more likely than not” standard. While the Patent Act provides that a patent “shall be presumed valid” and the burden of establishing invalidity “rest[s] on the party asserting such invalidity,” the statute is silent on the applicable standard of proof. The Court of Appeals for the Federal Circuit, as early as the 1984 case of American Hoist & Derrick Co. v. Sowa & Sons, Inc., has required those challenging the validity of a patent to provide “clear and convincing evidence”: proof that is less than “beyond a reasonable doubt” but more than simple “preponderance.” The Federal Circuit has maintained this requirement even when the validity challenge is based on prior art never disclosed to, or considered by, the USPTO. As Microsoft noted in its petition, prior to the establishment of the Federal Circuit in 1982, numerous circuit courts approved a less stringent standard of proving invalidity for cases in which the USPTO had not considered the prior art during prosecution.
Underlying Litigation Between Microsoft and i4i. Microsoft brings the standard of proof issue to the Supreme Court after three years of litigating the validity of i4i’s patent. In 2007, i4i sued Microsoft alleging infringement of U.S. Patent No. 5,787,449, which claims a system for editing “metacodes” (markup codes) in an HTML or XML document. At trial, Microsoft argued that the ’449 patent was invalid under 35 U.S.C. § 102(b) because i4i had sold an embodiment of the invention – the “S4” embodiment – more than one year before the 1994 application filing date. The USPTO never considered the S4 prior art. The source code for S4 was no longer available, so Microsoft relied primarily on testimony from a former i4i employee and upon one inventor’s written statements to investors, both of which evidenced that S4 disclosed all limitations of the asserted claims. i4i offered evidence of validity primarily through testimony of its inventors. The jury verdict form asked simply: “Did Microsoft prove by clear and convincing evidence that any of the listed claims of the ’449 patent are invalid?” The jury answered “no.”
The Federal Circuit upheld that verdict, concluding that the jury had sufficient evidence to find that the S4 prior art did not anticipate the patent claims. Microsoft then petitioned the Supreme Court for a writ of certiorari, asking it to decide “[w]hether the court of appeals erred in holding that Microsoft’s invalidity defense must be proved by clear and convincing evidence” when the prior art was not considered by the USPTO. Microsoft argues that the standard should be lowered to preponderance of the evidence – the same level of proof required for infringement.
Consideration at the Supreme Court. Microsoft may be facing an uphill battle, particularly in light of the fact that Congress has refrained from passing legislation to lower the clear and convincing standard imposed by the Federal Circuit for over twenty-five years. The Supreme Court, however, never has directly ruled on this issue. In its KSR v. Teleflex decision three years ago, the high court noted, in dicta, that “the rationale underlying the presumption [of validity in 35 U.S.C. § 282] – that the PTO, in its expertise, has approved the claim – seems much diminished” in cases where the patent applicant “failed to disclose” the prior art in question to the USPTO. The Supreme Court thus has at least hinted that it may be willing to lower the standard of proof for invalidity to something less than clear and convincing evidence, at least in cases where the USPTO has not considered the prior art.
Chief Justice Roberts, having recused himself from the case, took no part in the decision to grant Microsoft’s writ petition. This leaves the eight associate justices to decide what standard of proof should apply to invalidity defenses and creates the possibility that the four justices who voted to grant certiorari will be opposed by the four remaining justices, which would result in affirmance by an equally divided Court. Even if this does not happen, the Court may have to consider whether a lower standard of proof, if adopted, would apply only to art known to the applicant – as indicated in the KSR dicta – or also to art in some sense known to the examiner, even if the examiner did not explicitly consider it. Any departure from the clear and convincing standard could have significant impact in jury deliberations, where that standard has stood in sharp contrast with the patent holder’s lower burden for proving infringement.
In the meantime, patent prosecutors may be well-advised to submit known prior art to the USPTO and may want to consider conducting their own search to supplement that of the examiner, in order to preserve entitlement to the clear and convincing standard in subsequent litigation, should that standard remain applicable to disclosed prior art.