For the half-year to 31 December 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Rebecca Gulbul, Lucas Michels and Marie-Andrée Weiss.

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Tuesday, 7 December 2010

Letter from AmeriKat II: Supreme Court greets Microsoft v i4i

The Circuit Courts’ approach


"Let's see what makes
this darned thing tick ..."
Microsoft cites cases from all 12 circuits in support of the contention that the circuit courts adhered to the Supreme Courts dictum in KSR, and in particular emphasizes the cases of Baumstimler v Rankin (1982) in the Fifth Circuit, Manufacturing Research Corp. v Graybar Electric Co. (1982) for the Eleventh Circuit and Futorian Mfg. Corp. v Dual Mfg. & Eng’g. Inc. (1976) in the First Circuit. Given that KSR and the pre-1982 practice recognized that the heighted standard of proof is weakened in cases where evidence was not before the PTO, Microsoft contends that the Federal Circuits departure from this practice must be examined by the Supreme Court. I4i points out that the decisions upon which Microsoft relies are “all decades old”. They would be, says the AmeriKat, because Microsoft’s argument is that prior to the Federal Circuit assuming jurisdiction in 1982 and subsequently getting it wrong, the courts were uniformly applying KSR; such cases are automatically going to be pre-1982. However, i4i are right to point out that given the age of these cases the rulings will not take into account any congressional acquiescence or the later creation of alternative methods to invalidate patents, i.e., the PTO’s invalidity examination proceedings.

i4i argue that section 282’s higher standard of proof has actually been applied uniformly throughout the regional circuits and for the Court to hold otherwise would go against the ratio that the courts are not at “liberty to repeal a statute or to legislate conditions diminishing its effect.” Such a ruling would also invalidate an almost 30-year old statutory construction which Congress has never acted to change. Such inaction following decades of consistent judicial construction, they say, “strongly suggests that the construction [i.e., that of a clear and convincing standard of proof] is correct.” Just because Congress doesn’t do something (which is often) doesn’t mean that it does not need to be changed, says the AmeriKat. i4i counter that Congress has been proactive in patent law and has “moved quickly to limit the potential fallout” for patenting of business methods, the enactment of the Patent Remedy Act and repeated amendments to the Patent Act. Further, i4i argue that Congress had held hearings where it was urged to lower the standard of proof for validity challenges to that of a preponderance of evidence. They were, i4i argue, made aware of criticisms to the higher threshold, but yet they chose not to act.

Of Policy and Philosophy

The Kat meditates
a philosophical point
Microsoft’s final argument is that of policy and philosophy. They contend, citing KSR, that invalid patents “stifle, rather than promote, the progress of useful arts” in that they confer market power without reciprocal consumer and innovative benefit. Given the increasing strain on the PTO due to the patent backlog (485,500 applications in 2009), the limited length of time an examiner has to examine an application (an average of 18 hours per application), and the lack of “reliable information about the claimed technology” Microsoft state that this “predictably and inevitable results in an increasingly large number of mistakes, some of them glaring.” This statement was supported by Justice Breyer’s re-statement of the Federal Circuit’s quote In re Bilski (2010) (AmeriKat reports here) that
“the granting of patents that ‘ranged from the somewhat ridiculous to the truly absurd’”
Because these factors lead to the PTO’s gate-keeping functions being too far stretched it is vital, Microsoft argues, that patent litigation is able to weed out patents that should not have been granted. The adherence to the clear and convincing evidence standard of proof is a bar to this process and was referred to by the 2003 Federal Trade Commission Report “To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy” as
“creating potential for judicially confirming unnecessary, potentially competition-threatening rights to exclude.”
Such a risk, Microsoft say, is even more so in cases where the evidence of invalidity was not even before the PTO at the time of grant.

I4i counter that a heighted burden of proof in litigation actually promotes innovation because it affords a patent
“robust protection against erroneous invalidation of patents [and] recognizes and protects the enormous resources that go into the innovation process”

i4i also argue that any party at any time can bring validity challenges before the PTO which does not require the heighted burden imposed by section 282. The AmeriKat, however, finds this inadequate. Why should the standard of evidentiary proof for invalidity of a patent be different at the administrative level (PTO) than at the judicial level? I4i say that this divergence is acceptable:
“…there is no reason why the two paths should be identical, and Congress was obviously aware of the differences when it authorized re-examination without changing the standard of proof in litigation. Its policy judgment not to establish an exact parallel to litigation should not be second guessed by the courts…”
Although the AmeriKat is sure that Congress appreciates this massive vote of confidence, the AmeriKat says that one should never underestimate Congress’s inability to recognize inconsistencies in their own legislation.

What’s Next

The Supreme Court has declined i4i’s invitation to allow the court of appeals to undertake a “fuller deliberation” of KSR before taking up the case, and has instead accepted Microsoft’s plea to decide on an issue that “will not benefit from further percolation in the circuits.”

Following the Supreme Court’s grant of certiorari, i4i’s Chariman, Loudon Owen, stated that
"The attack on patent holders and the adverse implications from the standard Microsoft is proposing is unprecedented and would deal a devastating blow to any US patent holder, large or small. Naturally, the proposed standard would be particularly destructive to the value of patents for inventors, technology pioneers and entrepreneurial companies that don't have the resources of Microsoft and other giants."
Microsoft’s deputy general counsel for the litigation, David Howard, stated that:

“We are gratified by the Court’s decision. It’s a clear affirmation that the issues raised in this case are critical to the integrity of our patent system.”
However, the AmeriKat can’t help to wonder whether Microsoft’s arguments for a lower standard of proof may ultimately come to bite them when they find themselves again in a plaintiff’s position in later litigation.

Although the Amerikat does not have a trial date to report on as of yet, she can tell readers that Chief Justice Roberts will not be taking part in the trial – he allegedly owns some valuable shares in Microsoft.

The IPKat and AmeriKat are interested to know what readers believe a the standard of proof should be in litigated invalidity proceedings.

3 comments:

MaxDrei said...

Chief Justice Stevens? I thought it was Roberts who had recused himself.

Standard of proof? Why the preponderance, of course, unless the finder of fact is to be a jury. Juries don't do preponderance, do they? As far as I know, their speciality lies in excluding "reasonable doubt".

I think Mr Battistelli (Pres. EPO)is right, as he travels the world pointing out that there has to be a balance of interests between those who have been issued with a patent gun, and those other members of the public who find that gun being pointed at them.

Annsley Merelle Ward said...

Oh dear, another embarassing faux-paw on the AmeriKat's part. She must have had Justice Stevens on her mind....

I do think a large part of the problems in this case really has to do with jury awards and instructions to juries in patent cases. Most of the issues for appeal by Microsoft in the lower courts were on this issue but the Supreme Court was probably not going to accept a case on which they have to tinker with a jury. So perhaps with the evidential question we will get some backdoor comments on jury instructions.

MaxDrei said...

When I offered my flippant comment on juries I had no idea it would prompt such an illuminating comment in response. Thanks AmeriKat.

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