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Image of Steve Balmer from dvice.com

Word.

Microsoft’s recent (US) Supreme Court defeat at the hands of Canada’s i4i will cost them almost US$300m in damages for willful infringement of the latter’s XML patent.  But in the longer term, the Court’s refusal to lower the burden of proof in challenges to a patent’s validity is good news for businesses with important patent portfolios.

At issue before the Court was section 282 of the (US) Patent Act, which reads, in part, as follows (my emphasis):

35 U.S.C. 282

A patent shall be presumed valid. Each claim of a patent (whether in independent, dependent, or multiple dependent form) shall be presumed valid independently of the validity of other claims; dependent or multiple dependent claims shall be presumed valid even though dependent upon an invalid claim. Notwithstanding the preceding sentence, if a claim to a composition of matter is held invalid and that claim was the basis of a determination of nonobviousness under section 103(b)(1), the process shall no longer be considered nonobvious solely on the basis of section 103(b)(1). The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.”

i4i argued that the words “presumed valid” codified existing case law which required “clear and convincing evidence” to rebut the presumption.  Microsoft argued that the presumption should be vitiated by the normally applicable standard of proof in civil proceedings, namely “a preponderance of evidence”, at least in cases where the Patents and Trademarks Office had allowed the patent without seeing the evidence at issue in the current challenge.

Many commentators and patent reformers said Microsoft’s interpretation was the more sensible, including those who are generally in favor of IP rights.  Among them is UCLA’s Doug Lichtman, who wrote this NY Times article, which is short and highly recommended.  There, he says:

It’s a critical issue: the current approach, under which juries are explicitly discouraged from questioning a patent’s validity, all too often means that dubious patents are nevertheless enforced…With this reform in place, the patent system would still protect genuine inventions. But it would also give relief to the countless businesses that today find themselves vulnerable to patents that shouldn’t have been issued in the first place.

Despite strong policy reasons as to why Microsoft’s interpretation should prevail, the Court sided with i4i on both arguments, holding that there was no basis for having two standards of proof and that any amendment to the single applicable standard of proof was a matter for Congress – who thus far have declined a number of invitations to do just that – and not an activist judiciary.  That said, however, they did note that a jury instruction could inform jurors that they had heard evidence which had not been considered by the PTO when granting the patent, and could take that fact into consideration when evaluating a disputed patent’s validity.  Watch this space to see what Courts and juries do with that one.

Although no-one likes to lose an appeal, there is a silver lining for patent holders like Microsoft, particularly where software is concerned.  Had the Court reinterpreted §282 to mean that a defendant need only demonstrate invalidity by “a preponderance of evidence”, the Court would have made it much easier for patents to be declared invalid and would have invited additional litigation against patent holders.  Clearly Microsoft can take plenty of comfort in the fact that their entire (US) patent portfolio still carries a robust presumption of validity, even in cases where the PTO did not review all the relevant evidence.

The other winners from this case (or at least not losers) are US patent attorneys, since the Court’s opinion means it will remain preferable to challenge an invention’s patentability before it is granted.

In the longer term, it might be better for Microsoft to pay $300m in damages than have its portfolio rendered more susceptible to challenge.  What remains to be seen, however, is how jurors will assess evidence that they know was not seen by the PTO, and whether they will in practice hold larger patent holders to a higher standard of proof than the smaller enterprises who are in litigation against them.

The decision is set out below.

Microsoft Corp. v i4i Limited Partnership et al, No 10-290

 

 

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