Thursday, June 09, 2011

Microsoft lose i4i patent case in US Supreme Court

Microsoft has lost their appeal to the US Supreme Court in their patent dispute with i4i.
"In asserting patent invalidity as a defense to an infringement action, analleged infringer must contend with §282 of the Patent Act of 1952 (Act), under which “[a] patent shall be presumed valid” and “[t]he burden of establishing invalidity . . . shall rest on the party asserting”it. Since 1984, the Federal Circuit has read §282 to require a defen-dant seeking to overcome the presumption to persuade the factfinder of its invalidity defense by clear and convincing evidence. Respondents (collectively, i4i) hold the patent at issue, which claims an improved method for editing computer documents. After i4i sued petitioner Microsoft Corp. for willful infringement of thatpatent, Microsoft counterclaimed and sought a declaration that the patent was invalid under §102(b)’s on-sale bar, which precludes pat-ent protection for any “invention” that was “on sale in this country” more than one year prior to the filing of a patent application. The parties agreed that, more than a year before filing its patent applica-tion, i4i had sold a software program known as S4 in the UnitedStates, but they disagreed over whether that software embodied the invention claimed in i4i’s patent. Relying on the undisputed fact thatthe S4 software was never presented to the Patent and TrademarkOffice (PTO) during its examination of the patent application, Micro-soft objected to i4i’s proposed jury instruction that the invalidity de-fense must be proved by clear and convincing evidence. The District Court nevertheless gave that instruction, rejecting Microsoft’s alter-native instruction proposing a preponderance of the evidence stan-dard. The jury found that Microsoft willfully infringed the i4i patentand had failed to prove the patent’s invalidity. The Federal Circuit affirmed, relying on its settled interpretation of §282.
Held: Section 282 requires an invalidity defense to be proved by clear and convincing evidence. Pp. 5–20.
The Court rejects Microsoft’s contention that a defendant need only persuade the jury of a patent invalidity defense by a preponder-ance of the evidence. Where Congress has prescribed the governing standard of proof, its choice generally controls. Steadman v. SEC, 450 U. S. 91, 95. Congress has made such a choice here. While §282includes no express articulation of the standard of proof, where Con-gress uses a common-law term in a statute, the Court assumes the“term . . . comes with a common law meaning.” Safeco Ins. Co. of America v. Burr, 551 U. S. 47, 58. Here, by stating that a patent is“presumed valid,” §282, Congress used a term with a settled common-law meaning. Radio Corp. of America v. Radio Engineering Labora-tories, Inc., 293 U. S. 1 (RCA), is authoritative. There, tracing nearly a century of case law, the Court stated, inter alia, that “there is a presumption of [patent] validity [that is] not to be overthrown except by clear and cogent evidence,” id., at 2. Microsoft’s contention that the Court’s pre-Act precedents applied a clear-and-convincing stan-dard only in two limited circumstances is unavailing, given the ab-sence of those qualifications from the Court’s cases. Also unpersua-sive is Microsoft’s argument that the Federal Circuit’s interpretationmust fail because it renders superfluous §282’s additional statementthat “[t]he burden of establishing invalidity . . . shall rest on the party asserting” it. The canon against superfluity assists only where a competing interpretation gives effect “ ‘to every clause and word of a statute.’ ” Duncan v. Walker, 533 U. S. 167, 174. Here, no inter-pretation of §282 avoids excess language because, under either of Mi-crosoft’s alternative theories—that the presumption only allocatesthe burden of production or that it shifts both the burdens of produc-tion and persuasion—the presumption itself would be unnecessary in light of §282’s additional statement as to the challenger’s burden. Pp. 5–13.
Also rejected is Microsoft’s argument that a preponderance standard must at least apply where the evidence before the factfinder was not before the PTO during the examination process. It is true enough that, in these circumstances, “the rationale underlying thepresumption—that the PTO, in its expertise, has approved theclaim—seems much diminished,” KSR Int’l Co. v. Teleflex Inc., 550
S. 398, 426, though other rationales may still animate the pre-sumption. But the question remains whether Congress has specifiedthe applicable standard of proof. As established here today, Congressdid just that by codifying the common-law presumption of patent va-lidity and, implicitly, the heightened standard of proof attached to it. The Court’s pre-Act cases never adopted or endorsed Microsoft’s fluc-
tuating standard of proof. And they do not indicate, even in dicta, that anything less than a clear-and-convincing standard would everapply to an invalidity defense. In fact, the Court indicated to the con-trary. See RCA, 293 U. S., at 8. Finally, the Court often applied theheightened standard of proof without mentioning whether the rele-vant prior-art evidence had been before the PTO examiner, in cir-cumstances strongly suggesting it had not. See, e.g., Smith v. Hall, 301 U. S. 216, 227, 233. Nothing in §282’s text suggests that Con-gress meant to depart from that understanding to enact a standard of proof that would rise and fall with the facts of each case. Indeed, had Congress intended to drop the heightened standard of proof wherethe evidence before the jury varied from that before the PTO, it pre-sumably would have said so expressly. Those pre-Act cases wherevarious Courts of Appeals observed that the presumption is weak-ened or dissipated where the evidence was never considered by the PTO should be read to reflect the commonsense principle that if thePTO did not have all material facts before it, its considered judgmentmay lose significant force. Cf. KSR, 550 U. S., at 427. Consistent with that principle, a jury may be instructed to evaluate whether theevidence before it is materially new, and if so, to consider that factwhen determining whether an invalidity defense has been proved by clear and convincing evidence. Pp. 14–18.
(c) This Court is in no position to judge the comparative force of theparties’ policy arguments as to the wisdom of the clear-and-convincing-evidence standard that Congress adopted. Congressspecified the applicable standard of proof in 1952 when it codified thecommon-law presumption of patent validity. During the nearly 30 years that the Federal Circuit has interpreted §282 as the Court does today, Congress has often amended §282 and other patent laws, butapparently has never considered any proposal to lower the standardof proof. Indeed, Congress has left the Federal Circuit’s interpreta-tion in place despite ongoing criticism, both from within the Federal Government and without. Accordingly, any recalibration of the stan-dard of proof remains in Congress’ hands. Pp. 18–20.
598 F. 3d 831, affirmed.
SOTOMAYOR, J., delivered the opinion of the Court, in which SCALIA, KENNEDY, GINSBURG, BREYER, ALITO, and KAGAN, JJ., joined. BREYER, J., filed a concurring opinion, in which SCALIA and ALITO, JJ., joined. THOMAS, J., filed an opinion concurring in the judgment. ROBERTS,
C. J., took no part in the consideration or decision of the case."
It was a technical legal challenge where Microsoft were trying to get the Court to accept that they could prove i4i's patent was invalid "by a preponderance of the evidence" rather than the prevailing standard that "clear and convincing evidence" is required to invalidate a patent.

I actually have some sympathy with Microsoft in this instance for reasons elucidated in chapter 6 of the recent Hargreaves review but there was a slim chance that such a challenge would succeed given the legal precedents in the US. Hargreaves (which I'll write about in more detail when I get the chance) succinctly explains the problems of economic gridlock associated with patent thickets.  There's been a huge growth over the past twenty years in applications for computer technology patents. Patent offices around the world just don't have the resources to cope and that's partly the reason that so many ridiculous technology patents see the light of day.  But as Hargreaves says:
"6.17 ... the evidence that patenting supports innovation is weaker in
computer technology and telecoms than in other areas. In these industries, inventions are nearly
always “sequential,” where innovation builds cumulatively on previous inventions and innovations,
rather than non-sequential, where a patent generally corresponds to a single product and knowledge
is not particularly cumulative.
6.18 Research has established that patents encourage innovation in non-sequential fields where upfront costs are high, such as drug development.12,13,14,15,16 But with the growing importance of sequential technologies, innovation across the economy is becoming more cumulative and collaborative in nature, building on previous inventions and innovations. The “patent model” of incentives works less well for these industries, where initial cost does not dominate to the same extent the cost of subsequent reproduction. Further, in a strongly sequential environment it is often unclear where the boundaries of protection afforded by one patent lie in comparison with another. This compounds the thickets problem discussed above.
6.19 Industries working in sequential technologies therefore face a “double whammy”: the incentives provided by patents are reduced, while the negative consequences, in the form of thickets which must be navigated, are increased. This means that while for non-sequential inventions, such as a new drug or medical treatment, having a patent system generally yields higher welfare than not having one; in a fully sequential case, higher welfare and more innovation may be more likely to result from the absence of patenting opportunities.17 Over time, as digital technology becomes pervasive across the economy, this represents a serious concern."
Microsoft are indeed facing a double whammy with this one, hence the sympathy with their position of wanting to dilute the threshold evidence base for invaliding patents in the area of computer technologies. However the sympathy is somewhat tempered by the fact that Microsoft have been guilty of playing and litigating the defensive (and offensive) patent portfolio game too.

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