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Tuesday, 7 December 2010

Letter from AmeriKat I: Supreme Court greets Microsoft v i4i

Much to give thanks for ...
The AmeriKat is still grazing on her leftovers from last week's Thanksgiving extravaganza. The rosemary lemon chicken and sweet potatoes are all gone, as is the pumpkin and pecan pie courtesy of one of the AmeriKat's colleagues. However, she has been left with the green beans, mashed potatoes and cranberry sauce whose quantities seem to be multiplying, rather than diminishing. Just when she thinks that she has had the final serving of the roasted garlic mashed potatoes, another Lock-n-Lock storage receptacle presents her with another readily prepared meal. In leftovers, as with life, just when you think something is finally over, something else crops up to prolong the inevitable.

US Supreme Court says "Hi!" to Microsoft v i4i

Something else that seems to keep nearing an end only to grasp at one last gasp of air is the i4i v Microsoft litigation (see previous AmeriKat posts here – and there are many). On the same day that the Supreme Court declined to grant Tiffany’s petition for writ of certiorari in the eBay case, the Supreme Court granted Microsoft's writ of certiorari. This follows an epic battle between the two companies which saw Microsoft mostly as the "losing" party as the case journeyed from the Eastern District of Texas's courts to the Court of Appeals for the Federal Circuit. The case, which Microsoft emphasized non-too passively in their petition to the Supreme Court, was the largest patent infringement verdict ever to be affirmed on appeal to the tune of $290 million. Such an award would indicate that even if it wasn't a question of law which made Microsoft petition the Supreme Court, it was surely a question of money. Now that the Supreme Court will be charged with hearing the case, the AmeriKat has set out in brief the parties’ arguments from their petitions which provide a preview of their upcoming oral arguments.

Background

i4i contended at trial that that Microsoft Word infringes their US Patent No 5,787,449 (the “’449 Patent”) which relates to markup languages, specifically Extensible Markup Language (“XML”) used in electronic documents. Markup languages indicate how and where text is displayed in documents. The ‘449 patent covers a method whereby the software can process and store custom XML separately and distinctly from user-imputed content. The separation of the XML is called a “metacode map” which, according to the patent, allows a computer to manipulate the structure of a document without reference to the content entered by the user. Since 2003, Microsoft Word has allowed users to edit documents containing XML.

On 8 March 2007, i4i filed a patent infringement action in the Eastern District of Texas. Microsoft denied infringement and claimed under the “on-sale bar” of section 102(b) that the ‘449 Patent was invalid because i4i previously sold a system, S4, which was alleged to have embodied the claimed invention. Unfortunately for Microsoft, the S4 source code had been “destroyed” over ten years prior to the case so was prohibited from ever-providing “clear and convincing evidence” on this point. The trial jury found in i4i’s favour and awarded the Canadian company $200 million. Microsoft appealed to the Circuit Court of Appeals and in August 2009 Judge Davis upheld the lower court’s finding and increased the damages by $40 million citing the outspoken nature of Microsoft’s trial attorney, Matthew Powers. Microsoft then appealed to the US Court of Appeals whose three-judge panel in December 2009 upheld the lower courts’ rulings. Microsoft then asked for an en banc review (i.e. getting 12 judges on the panel) of the Court of Appeals decision, which was denied in Spring 2010. Microsoft’s remaining options were to either to settle, do nothing, re-apply for an en-banc review based on a revised decision of the federal court, or go straight to the Supreme Court. Microsoft obviously went for the last option.

As the AmeriKat is herself refreshing her memory of over 3 years of litigation, it is interesting to note that Microsoft’s numerous appeals had focused primarily on remittitur of damages following the large jury award, over reliance on the plaintiff’s survey evidence, and the issue of enhanced damages. Microsoft’s petition to the Supreme Court, however, deals with one very finite point about the standard of proof required for patent invalidity arguments, which their initial appeal statement only devoted a handful of its over 100 pages to.

Section 282 and KSR

Microsoft's petition to the Supreme Court was filed on 27 August 2010 after the now-retired Justice Stevens granted them an extension for filing. Their question concerns the standard of proof required by section 282 of 35 USC (the Patent Act section of the United States Code) which states 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."
The Federal Circuit for the Court of Appeals held in the i4i case that Microsoft was required to prove its defence of invalidity under section 102(b) of the Patent Act by "clear and convincing evidence", notwithstanding that the prior art on which Microsoft's invalidity defence relied was not before the Patent and Trademark Office (PTO) prior i4i's patent being granted. The basis of section 282 is argued to mean that patents granted by the PTO are presumed to be valid because, in brief, the examiner has the facts and the expertise to properly grant or reject a patent application before it and is therefore “presumed to do its job” (Am. Hoist & Derrick Co. (1984)). Therefore, to rebut the presumption that the PTO has done its job, a party must prove invalidity based on a higher evidential standard of "clear and convincing evidence". This evidential standard is a higher burden than that of a "predominance of evidence", which Microsoft argues should be the standard of proof.

Microsoft argues that the presumption that this higher standard of proof is always automatic is wrong in cases where the PTO did not have the evidence, on which a party relies, before it at the time of granting a patent. Given that the PTO never had an opportunity to see the evidence of prior art, the presumption that they were undoubtedly correct to grant the patent is diminished and thus a lower standard of proof should be allowed, i.e., that of a predominance of evidence.

In finding basis for this argument Microsoft referred to the US Supreme Court decision of KSR International co. v Teleflex (2007) where the Court said that they thought where an invalidity defence relies on evidence never before the PTO, it was
"appropriate to note that the rationale underlying the presumption - that the PTO, in its expertise, has approved the claim, seems much diminished."
In that case, the Court held that claim 4 of the plaintiff’s patent included subject matter that was obvious and therefore not patentable due to an earlier patent not before the PTO during the prosecution of claim 4. Although the Court was not specifically charged with deciding whether the failure to present the earlier patent voided the presumption of validity, the court nevertheless noted that the arguments for requiring a higher evidential standard in such circumstances is diminished – although not destroyed, i4i would point out.


This dictum from the Court was, according to Microsoft, affirmed by all twelve regional circuits prior to the Federal Circuit’s creation in 1982. Ever since the Federal Circuit assumed jurisdiction, Microsoft contends that it has
"repeatedly disregarded KSR's invitation to reconsider its heightened evidential standard. Instead, it has clung to its pre-KSR caselaw and continued to apply the clear-and-convincing-evidence standard even to invalidity defences based on prior-art evidence that the PTO never considered."


More in Part II

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