10 June 2011

Where “Preponderance Of Evidence” Is Not Enough: Microsoft Defeated Before SCOTUS


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Supreme Court

The cold war of software patents has reached the status of a nuclear winter: earlier today the Supreme Court of the United States (“SCOTUS”) delivered its ruling in the case of i4i v Microsoft.

Background

Some years ago I blogged on how Microsoft got hit by a software patent.
However, the Redmond company denied infringement and sought a declaration that i4i’s patent was invalid and unenforceable.
Specifically, Microsoft claimed that i4i marketed the software known as S4 more than one year prior to the filing for its statutory protection.

Not surprisingly,  Microsoft contended that a defendant in an infringement action need only persuade the jury of an invalidity defence by a preponderance of the evidence.
In the alternative, Microsoft insisted that a

preponderance standard must apply at least when an invalidity defense rests on evidence that was never considered by the PTO in the examination process.

Nevertheless, Microsoft lost its case before the (patent owners friendly) District Court for the Eastern District of Texas which applied the long-standing jurisprudence of the Federal Circuit according to which

a patent shall be presumed valid and the burden of establishing invalidity rests on the party asserting such invalidity.
Under the Federal Circuit’s reading of §282, a defendant seeking to overcome this presumption must persuade the factfinder of its in-validity defense by clear and convincing evidence.

The Federal Circuit affirmed the decisions of the District Court and granted a certiorari to the Supreme Court which issued the final rejection to Microsoft’s claim of invalidity.

As PatentlyO‘s Dennis Crouch writes, Microsoft will now likely be forced to pay the $250+ million judgment for infringing i4i’s patent.

What Is The Moral Of The Story?

We must not forget that Microsoft was smote and consequently struck down by a patent troll. Since patent trolls are usually interested to sue “infringers” and force them into settlement agreements, I personally wonder why the guys from Redmond did not undertake such an agreement.

I was made aware that the patent troll allegations towards I4I might be unjustifiable.
Indeed and, unlike non-practicing entities, the company appears to have developed a product and established a sizable client base, particularly among pharmaceuticals such as Bayer, Merck and Schwartz Pharma. Obviously, Microsoft had showed an initial interest on I4I’s patented technology, but finally decided not to enter into a commercial agreement. The patent infringement lawsuit was the consequence.

One question remains: why did Microsoft act that way? Did they attempt to establish a new authority with regard to bad patents, since I4I’s patent grant showed some flaws and that remained undisputed before the Supreme Court? Was Microsoft’s challenging of the governing standard of proof, which currently favours patent owners and, their attempt to replace it with a standard more favourable to defendants in patent suits, a part of a larger strategy?

Either way, the creators of Windows failed.

All in all a disappointing decision – the Supreme Court has had a good chance to lower the threshold to invalidate bad patents, but acted pretty much as Pontius Pilate instead:

Congress specified the applicable standard of proof in 1952 when it codified the common-law presumption of patent validity. Since then, it has allowed the Federal Circuit’s correct interpretation of §282 to stand. Any re-calibration of the standard of proof remains in its hands.