Letter from AmeriKat: Part 1 (patents)

Matt Power’s l’esprit de l’escalier

The Amerikat’s week probably has been just like yours; everything the usual lawyer’s week entails including conferences with barristers, drafting letters, and finding the “un-findable” piece of evidence. However, for some reason, in all her verbal exchanges with all the usual suspects she was unable to respond with a characteristic witty retort or pointed response. Instead, she just smiled. It was, as the French say, a case of l’esprit de l’escalier … toute la semaine. Unfortunately, because life does not usually give you a second chance to respond to a comment or word in an elegant fashion you, like the AmeriKat is now, are doomed to replay scenarios in your head dreaming of what you should have said. But law, thankfully, permits l’esprit to crystallize in a full-bodied response by way of an appeal.

Right: George Rousse's L'Esprit d'Escalier

Matthew Powers, Microsoft’s trial attorney in the i4i case, had his opportunity to be rid of his espirit this week when he filed the appeal brief on Wednesday in the U.S. Court of Appeals. Two weeks ago, the AmeriKat wrote about the decision of Judge Davis who increased i4i’s award of damages for patent infringement by $40 million due in part to Powers’s comments that were “improperly trying to equate i4i's infringement case with the current national banking crisis implying that i4i was a banker seeking a ‘bailout’” in order to appeal to "the jurors' perceived prejudices" by misstating the law. Judge Davis warned Powers to “clean up” his language but, when Powers failed to do so, Judge Davis slammed Powers and Microsoft with a $40 million enhanced damages finding.

The brief’s Preliminary Statement opened up with the following damning paragraph:

“In patent cases, even more than most, the trial judge’s role as a gatekeeper is crucial. As gatekeeper, the judge must define the metes and bounds of a patent through claim construction and then ensure that the evidence presented by the parties’ numerous experts is both reliable and rooted in the facts of the case at hand. And after the jury has rendered its verdict, it is the judge who, before allowing that verdict to become an enforceable judgment, must ensure that the verdict is adequately supported by the evidence and supportable under the law. This gatekeeping function is especially important in patent cases because of the delicate balance struck by patent law to achieve its objective of promoting, rather than stifling, innovation. That balance can be lost if the district court does not protect the process, and patent litigation then becomes a tax on innovation rather than its guardian.

This case stands as a stark example of what can happen in a patent case when a judge abdicates those gatekeeping functions.” [“Miaow!”, says the AmeriKat]

Powers then continued by outlining the ways in which Judge Davis abdicated his ‘gatekeeping function’. First, Microsoft’s argument that i4i’s patent was invalid because the invention had been “implemented” and sold before the critical date of the patent was countered only by i4i’s inventor’s “self-interested” testimony that he had lied about the pre-sale invention date. i4i argued that in fact the invention came after this pre-sale to i4i’s investors and since the inventor had destroyed all the source code, Microsoft would not be able to prove otherwise. The brief stated that this uncorroborated testimony was “insufficient” to counter Microsoft’s invalidity claim or to establish that i4i’s invention was at the priority date and not before. The judge erred, therefore, in sending the question to the jury.

Second in line for attack was the formulation of the damages award as supported by i4i’s survey evidence. The brief stated that “the district court had abandoned even the semblance of gatekeeping” by allowing the survey evidence that 19 of 46 individual Microsoft Word users used the product in a similar infringing manner to be extrapolated to prove that 1.85 million Word users infringed i4i’s patent, which was in turn increased to 2.1 million six months before trial. When Microsoft countered this evidence at trial, the court responded by denying Microsoft’s motions because they had not presented any evidence that supported their argument that the survey methods were unreasonable or unreliable, nor had they presented these arguments at the time the survey and testimony were introduced. The brief argued that the “district court offered the clearly erroneous response that fundamental admissibility considerations such as whether the results were manipulated went only to the weight of the evidence” and not assumingly, the admissibility. “If this survey passes muster”, stated the brief, “there are no limits to what ‘evidence’ can be presented to lead juries astray, and patent law suffers.” The brief also stated that the district court failed to give any guidance to the jury regarding instances when a reasonable royalty may be “unreasonable.” Thus, without the appropriate guidance from the court, the “jury awarded the plaintiffs exactly what they asked for: a finding of willful infringement and an award of $200,000,000.”

Finally, at page 55 of his judgment, Judge Davis had held that none of the three factors in Soverain Software LLC v Amazon.com, Inc. pointed to a stay of proceedings pending reexamination by the USTPO of i4i’s patent. The brief however argued that the district court was wrong in this approach and should have intervened to “prevent a miscarriage of justice” which would have been appropriate, given that at the time of the post-trial motions the USPTO had provisionally invalidated i4i’s patent following re-examination of key prior art presented at trial.

The closing of the Preliminary Statement stated that:

“[t]his is not justice. If district courts are free to admit theories of infringement that nullify a patent’s claim terms, specification, prosecution history, and title; if they will allow an inventor to validate his patent by testifying without corroboration that he lied about the date of conception; if they will not intercede to preclude manifestly unreliable—indeed, concededly manipulated—surveys of infringing use, or Georgia-Pacific analyses based on “benchmarks” bearing no rational relationship to the accused product, then patent litigation will be reduced to a free-for-all, unbounded by the requirements of the substantive law or the rules of evidence or trial procedure. While that mode of dispute resolution might enrich some plaintiffs and their investors, it hardly can be said to “promote the Progress of Science and the useful Arts.”

The claws continued to be out for the next 90 some pages. In responding to Judge Davis’s award of enhanced damages, the brief stated at page 91 that the district court erred in holding that Powers’s conduct “favour[ed] enhancement.” In support of this argument, the brief cited Read Corp. v Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992), a federal court case which stated that “attorney…misconduct during litigation” is “not sufficient for an increased damages award under section 284” because it “say[s] nothing about the culpability of the infringer.” Additionally, it was argued that because Microsoft’s so-called “improper arguments” were not objected to by i4i’s counsel because “in light of i4i’s claim for $200,000,000 in damages and the belated request for injunctive relief” it indicated that i4i’s litigation had in fact been brought to achieve liquidity. In short, nothing true can be “improper.” Powers et al then criticized i4i’s counsel from McKool Smith, by arguing that, had an objection to Microsoft’s banker analogy been sustained and an “ordinary application of the goose-gander rule” been applied, then the Court should have likewise prohibited i4i from referring to Microsoft as “by far the biggest software company in the world” and informing the jury of the irrelevant fact that “$200 million represents a tiny fraction of Microsoft’s profits.” The brief stated that if the damages award was affirmed by the Court of Appeals, it would have the effect of forcing “alleged infringers to choose between rebutting the patentee’s case and risking an award of enhanced damages.”

As reported by the Wall Street Journal, i4i’s chairman, Loudon Owen called Microsoft’s brief an "extraordinary document" that "captures the hostile attitude of Microsoft toward inventors who dare to enforce patents against them." But with friends like Dell and Hewlett-Packard each filing amicus curiae briefs in support of Microsoft’s motion to stay the injunction, i4i is looking to have to fight more software and computer giants than just Microsoft. The AmeriKat predicts that with the addition of Dell and Hewlett-Packard’s briefs and in applying the third and fourth factors in the test for an injunction as set out in eBay Inc v MercExchange she would be surprised if the Court of Appeals does not lift or in someway amend the injunction given the far-reaching effect on third parties like Dell and HP.

After the Court of Appeals granted an expedited hearing, the hearing is now scheduled for 23 September 2009.