The United States Supreme Court’s recent grant of certiorari in Microsoft Corp. v. i4i Ltd. raises the issue of whether patent law requires clear and convincing evidence of invalidity to invalidate a patent. The clear and convincing evidence standard of proof was intended to occupy a midway position between the preponderance and reasonable doubt standards. Outside of the patent context it has been applied sparingly in civil litigation. See Nishikawa v. Dulles, 356 U.S. 129 (1958) (denaturalization); Woodby v. Immigration and Naturalization Service, 385 U.S. 276 (1966) (deportation); Addington v. Texas, 441 U.S. (1979) (civil commitment); Santosky v. Kramer, 455 U.S. 745 (1982) (termination of parental rights); New York Times Co. v. Sullivan, 376 U.S. 254 (1964) (defamation). Descriptions of the three standards of proof were described by the Supreme Court in Addington v. Texas. “Preponderance of the evidence” means proof that something is more likely than not. Addington, 441 U.S. at 423. “Clear and convincing evidence” is defined as the weight of proof that produces a firm belief or conviction as to the truth of the allegations sought to be established. Id. at 425. “Proof beyond a reasonable doubt” is described as proof that leaves one firmly convinced of a party’s case. Id.
Little research has been done to understand the impact of the clear and convincing evidence standard on the behavior of jurors. In 1985, a series of psychology experiments were conducted at the University of Nebraska to determine the impact that the three standards of proof (“preponderance of the evidence,” “clear and convincing evidence,” and “beyond a reasonable doubt”) have on the outcome of legal cases decided by a jury. Dorothy K. Kagehiro & W. Clark Stanton, Legal vs. Quantified Definitions of Standards of Proof, 9 Law and Human Behavior, No. 2 at 159-178 (1985). In one experiment 252 students were divided into three groups; given identical factual situations; and read the same testimony. Each of the three groups was given a different standard of proof and instructed to reach a verdict. The outcome of the study was startling. The student jurors rendered verdicts for the plaintiff at roughly the same rate for all three standards of proof. In a subsequent experiment, the three groups of student jurors had nearly identical results when given a legal definition of the standard of proof they were assigned. When the subjects were given numerical values to attach to a standard of proof (e.g., clear and convincing evidence is proof, favoring the plaintiff, having at least a 71% probability of truth) the jurors found for the plaintiff at roughly the same numbers under both the preponderance and clear and convincing evidence standards. However, the jurors were much less likely to find for the plaintiff under the reasonable doubt standard.
Kagehiro and Stanton’s research might have implications for the Microsoft v. i4i litigation. Lowering of the standard of proof required to invalidate a patent might have a limited impact on jury verdicts in patent cases, but could impact the rulings of judges, settlement discussions, and the tenor with which a patent is viewed. This posting provides a brief overview of the background of the i4i litigation, and then previews the arguments which are likely to be raised by both sides in that litigation.
II. Background On Microsoft Corp. v. i4i Ltd.
i4i is a software development company based in Toronto, Canada. In June 1994, i4i filed a patent application regarding a method for processing information about the structure of electronic documents. The United States Patent and Trademark Office (“PTO”) allowed the application and on July 28, 1998, the PTO issued U.S. Patent No. 5,787,449 (“‘449 patent”) entitled, “Method and System for Manipulating the Architecture and the Content of a Document Separately from Each Other.” The ‘449 patent formed the basis for i4i’s litigation against Microsoft.
The ‘449 patent contains twenty claims which teach a method for separating a document’s content and structure. The ‘449 patent teaches a system where a document’s structural information is stored in one file (e.g., page layout information). This file is referred to as the metacode map. Meanwhile the document’s content is stored in another file entitled, “mapped content.” The ‘449 patent claimed an improved method because separately storing the document structure and content would allow users to work solely on a document’s content or on the document’s structure. This bifurication of content and structure was the key invention.
Beginning in 2003, Microsoft Word implemented a form of Extensible Markup Language (XML) called “Custom XML.” i4i would later claim that Microsoft’s implementation of Custom XML infringed claims 14, 18 and 20 of the ‘449 patent. In March of 2007, following the failure of licensing negotiations between i4i and Microsoft, i4i filed suit in the Eastern District of Texas against Microsoft alleging infringement of the ‘449 patent. Microsoft counterclaimed seeking a declaratory judgment that the ‘449 patent was invalid and unenforceable.
Curiously, despite the fact that the suit was initiated in early 2007, a reexamination request for the ‘449 patent was not filed until 20 months later. The request was granted in early 2009 prior to the conclusion of the district court case.
In 2009, an Eastern District of Texas jury awarded $200 million dollars plus interest to i4i after finding that Microsoft willfully infringed the ‘449 patent. i4i Ltd. Partnership and Infrastructures for Information, Inc., vs. Microsoft Corp., No. 6:07-CV-113 Doc. 414 (E.D. Tex August 11, 2009). Judge Leonard Davis subsequently added-on $40 million dollars for willful infringement, bringing the total damages in excess of $290 million dollars. Id. Judge Davis also issued an injunction ordering Microsoft to stop selling Word Products with the capability of using the XML technology that was at the heart of the litigation. Id. That injunction is currently stayed. i4i Ltd. Partnership v. Microsoft Corp., 343 Fed.Appx. 619 (Fed. Cir. 2009). On appeal, the Federal Circuit affirmed the lower court’s findings of validity, willful infringement, enhanced damages, and permanent injunctive relief. i4i Ltd. Partnership v. Microsoft Corp, 598 F.3d 831 (Fed. Cir. 2010). In the meantime, the USPTO has concluded its reexamination of the i4i patent — confirming that the claims at issue are patentable. Microsoft filed a second reexamination request in August 2010 (shortly after it filed its petition to the Supreme Court). However, on November 24, 2010, the USPTO denied the request to begin a new reexamination.
Judge Davis’s instructions to the jury regarding the consideration of alleged prior art would become the focus of Microsoft’s certiorari petition to the United States Supreme Court. The verdict form asked: “Did Microsoft prove by clear and convincing evidence that any of the listed claims of the ‘449 patent are invalid.” Id at 845. The Federal Appeals Court held, “the jury instructions were correct in light of this court’s precedent, which requires the challenger to prove invalidity by clear and convincing evidence.” Id. at 848. The Federal Circuit then went on to cite three Federal Circuit cases supporting this contention. Id. (citing Zenith Elecs. Corp. v. PDI Commc’n Sys., Inc., 522 F.3d 1348, 1363-64 (Fed.Cir. 2008); Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301, 1311-16 (Fed. Cir. 2009); Technology Licensing Corp. v. Videotek, Inc., 545 F.3d 1316, 1327 (Fed. Cir. 2008).
During the trial, Microsoft presented various pieces of alleged prior art including a computer program entitled S4 which was developed by the inventors of the ‘449 patent and was sold to another company (SEMI). The S4 prior art was not before the PTO as part of the ‘449 patent prosecution. Microsoft’s Petition for Certiorari at 5. Microsoft argued that the S4 prior art rendered the ‘449 patent invalid under the on-sale bar. An invalidity defense under the on-sale bar of § 102(b) requires a) sale or offer for sale at least one year before the filing of a patent b) a product that was ready for patenting at the time of the sale and which c) anticipates the claims. Pfaff v. Wells Electronics, Inc., 525 US 55, 60 (Fed. Cir. 1998). At trial, the primary dispute regarding the S4 prior art was whether the prior art practiced the claims in the ‘449 patent. In its writ for certiorari, Microsoft argued that it was hampered in its ability to prove this by clear and convincing evidence since, “i4i had ‘discarded’ the S4 source code before this litigation began.” Microsoft’s Petition for Certiorari at 8. Microsoft proposed an instruction to the jury that, “Microsoft’s burden of proof with regard to its defense of invalidity based on prior art that the examiner did not review during the prosecution of the patent-in-suit is by preponderance of the evidence.” Judge Davis rejected Microsoft’s argument, instead instructing the jury that Microsoft had to prove invalidity through clear and convincing evidence. The Federal Appeals court held that this was the proper standard. i4i Ltd. Partnership, 598 F.3d at 850.
On August 27, 2010, Microsoft filed a petition for a writ of certiorari — asking the Court to reject the “clear and convincing” evidence standard for proving a patent invalid. As Microsoft wrote in its petition for writ of certiorari, the question is, “[w]hether the court of appeals erred in holding that Microsoft’s invalidity defense must be proved by clear and convincing evidence when the prior-art was not considered by the USPTO.” Microsoft’s Petition for Certiorari at i. Microsoft had previously raised this same issue in its petition for certiorari in Microsoft Corp. v. z4 Tech. Microsoft’s Petition for Certiorari in z4 Tech at i. In z4 Tech, Microsoft framed the issue as: “When a defense of invalidity under Section 282 rests on documentary evidence that was not considered by the United States Patent and Trademark Office, whether the factual predicates of the defense must be proved by “clear and convincing evidence” or some lower burden of proof.” A review of Microsoft’ petition in z4 Tech and the petition in i4i shows that large sections of the document are nearly identical. The z4 Tech petition was withdrawn when the parties settled prior to the Supreme Court’s ruling on the petition.
III. Previewing Arguments In Favor Of Lowering The Standard For Invalidity
The petition filed by Microsoft as well as i4i’s reply provide a good view of the likely arguments which will be raised regarding whether the “clear and convincing” evidence standard is the proper one for proving invalidity for prior art which had not yet been considered by the USPTO. In addition, eleven Amicus briefs have been submitted in favor of granting certiorari. The amicus briefs were submitted from parties as diverse as Intel, the Electronic Frontier Foundation, Apple, and group of law professors. Taken together, the briefing provides a preview of some of the arguments which will be raised by the parties.
First Argument: PTO Resources Are Limited
Microsoft and some of the amicus curiae argue that the PTO’s examiners have limited resources and they only look at art in their electronic database and whatever is supplied by the applicant. The PTO lacks the resources to go out and talk to experts in the field. Thus, it’s a fiction to presume that the PTO has considered all of the relevant prior art. Microsoft argues in its petition that it makes little sense to presume that the PTO is conducting a thorough investigation of prior art. The amicus brief of 36 Law, Business and Economics Professors argues that it would be undesirable to have the PTO conduct a more in-depth review than what is conducted today. According to their argument: “To accurately evaluate the merits of all of those purported inventions would cost billions of dollars. Add to that the administrative costs of both interacting with all of the relevant lawyers and documenting the entire process, and the required budget would make patent application fees prohibitively expensive.” 36 Professors Amicus Brief at 9. These arguments are drawn from Professor Mark Lemley article on the Patent Office and rational ignorance. Mark A. Lemley, Rational Ignorance at the Patent Office, 95 NW. U. L. REV. 1495 (2001). Professor Lemley is also the lead author of the amicus brief of the 36 Professors.
Second Argument: Clear And Convincing Standard Is A Construct of The Federal Circuit
Microsoft argues that the clear and convincing standard is not required by statute and is a construct of the Federal Circuit. Section 282 of the Patent Act, 35 U.S.C. § 282, provides:
A patent shall be presumed valid . . . .The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.
In its brief, Microsoft argued that pulling the clear and convincing evidence standard from this statute is arbitrary because “35 U.S.C. § 282 . . . specifies no particular standard of proof.” Microsoft’s Petition for Certiorari at 6. The adoption of the “clearing and convincing standard” by the Federal Circuit gives to the PTO the fact finding authority. However, Microsoft has argued that this is an improper deferral because the clear and convincing evidence standard is applied to prior art which was never considered by the PTO.
Microsoft and its amici argue that the clear and convincing standard was not always the standard for evaluating prior art. Prior to the creation of the Federal Circuit, they say, the regional courts of appeal uniformly adopted a lower standard of proof than clear and convincing evidence. See, e.g., Baumstimler v. Rankin, 677 F.2d 1061, 1066 (5th Cir. 1982) (“[T]hus, the challenger of the validity of the patent need no longer bear the heavy burden of establishing invalidity either ‘beyond a reasonable doubt’ or ‘by clear and convincing evidence.’”); Mfg. Research Corp. v. Graybar Elec. Co., 679 F.2d 1355, 1364 (11th Cir. 1982).
Third Argument: Clear and Convincing Standard Conflicts With KSR
Microsoft is also likely to argue that the clear and convincing standard is not inline with the Supreme Court’s language in KSR International Co. v. Teleflex Inc. In KSR, the Supreme Court found it “appropriate to note” that the rationale for the presumption of patent validity–on which the Federal Circuit bases its deferential clear-and convincing-evidence standard–“seems much diminished” when an invalidity defense rests on prior art which the PTO never considered. KSR International Co. v. Teleflex Inc., 550 U.S. 398, 426 (Fed. Cir. 1997). Intel’s amicus brief hammers home that the language in KSR which is dicta should be given force, “this Court recognized in KSR that there is no reason for judges and jurors to defer to an analysis that the PTO never made in the first place.” Intel Amicus Brief at 14.
Fourth Argument: Discretionary Standard Would Be More Appropriate
The KSR decision also emphasized the need for rules not to be applied in a rigid and mandatory manner. KSR, 550 U.S. at 419. In its brief, Microsoft argued that the “the clear-and-convincing-evidence standard even when the supposed rationale for that standard does not apply is thus symptomatic of the same inflexible adherence to judge-made rules that this Court expressly disapproved in KSR.” Microsoft thus appears to argue that the ruling below was the type disfavored in Justice Kennedy’s opinion: “when a court transforms the general principle into a rigid rule that limits the obviousness inquiry, as the Court of Appeals did here, it errs.” KSR, 550 U.S. at 412-413.
IV. Previewing Arguments In Favor Of Keeping The Clear And Convincing Standard For Invalidity
i4i’s brief in opposition to Microsoft’s petition for certiorari provides a preview of the merits arguments that i4i is likely to raise before the Supreme Court.
First Argument: A Rigorous Standard Of Proof Is Required To Give Meaning To 35 U.S.C. § 282
i4i argues in its brief that the presumption of patent validity codified in 35 U.S.C. §282, “always requires parties challenging patents in litigation to prove the factual predicates of invalidity by clear and convincing evidence.” i4i Opposition at 5. Congress intended § 282 to place a strong presumption in favor of patent validity and the PTO’s determinations. i4i cites a long line of pre-1952 Patent Act cases that placed on defendants a heavy burden for proving an invalidity defense. See The Barbed Wire Patent, 143 U.S. 275 (1892). When Congress wrote the 1952 Patent Act containing § 282, it sought to codify the existing case law which placed a heavy burden on proving a patent invalid. In its brief, i4i points to the legislative history of the 1952 Patent Act to establish that the “House and Senate reports . . . make clear that Congress was indeed codifying the presumption.” i4i Opposition at 5.
Second Argument: Clear And Convincing Standard Is Well Settled Law
In its opposition brief, i4i emphasizes that the clear and convincing standard has been settled law for so long (27 years) that it would be inappropriate to revisit the standard: “the Federal Circuit concluded decades ago that the presumption of patent validity codified in 35 U.S.C. §282 always requires parties challenging patents in litigation to prove the factual predicates of invalidity by clear and convincing evidence.” Id. at 5. i4i is likely to argue that Congressional inaction in changing the standard for proving invalidity constitutes strong indicia that the current standard is the correct interpretation of congressional intent. i4i points out that none of the pending patent-reform legislation under consideration seeks to alter the standard of proof for proving invalidity. Altering the standard would upset the settled expectations of patent holders who have invested time and money into acquiring patents. Id.
Third Argument: Lower Standard of Proof For Prior Art Is Not Supported By Case Law
i4i is likely to argue that the language is KSR which hints at a desire for a lower standard of proof for prior art which has not been considered by the PTO is pure dicta. Microsoft’s request for a lower standard to invalidate a patent is further not based on any Supreme Court decisions: “[w]hat Microsoft and its many amici do not cite is any decision from this Court stating that the presumption of patent validity can ever be overcome with a mere preponderance of the evidence.” Id. at 24.
Fourth Argument: Lower Standard of Proof For Prior Art Is Unnecessary Given The Patent Reexamination Process
In its opposition brief, i4i argues that changing the standard of proof for previously unconsidered prior art is unnecessary because the patent reexamination process provides an administrative process for validity challenges based on unconsidered prior art. 35 U.S.C. §302 provides that, “[a]ny person at any time can, on the basis of prior patents or printed publications, initiate an ex parte reexamination of a patent by the PTO.” Id. at 19. The standard of proof during a reexamination proceeding is a preponderance of the evidence. See In re Swanson, 540 F. 3d 1368, 1377-78(Fed. Cir. 1985) (en banc). i4i argues that to lower the standard for proof for validity challenges would create an “identical” path to the existing administrative reexamination proceedings. There is no justification for the Court to second guess the Federal Circuit and create two paths with identical standards of proof for showing invalidity. Id. at 21.
V. Possible Implications Of The Supreme Court’s Ruling
The Supreme Court’s decision in i4i could have far reaching consequences on patent law. The case will be decided by eight Justices following Justice Robert’s recusal from the case. Robert’s recusal came without explanation but might be tied to recent financial disclosures that Justice Roberts owns between $100,000 and $250,000 of Microsoft stock.
The impact of a decision in i4i will be affected by the scope of the Supreme Court’s ruling. The Supreme Court could affirm the current “clearing and convincing” standard of proof, lower the standard of proof for invalidity only for prior art which was not before the PTO, or lower the standard of proof for all invalidity defenses. The scope of the question presented by the Supreme Court is left somewhat vague: “Whether the court of appeals erred in holding that Microsoft’s invalidity defense must be proved by clear and convincing evidence.” 10-290 Microsoft Corp. v. i4i Ltd. Partnership Grant of Petition.
Although research by Kagehiro and Stanton has found that jurors do not draw distinctions between the “clear and convincing evidence” standard of proof and the lower standard of “preponderance of the evidence,” it is possible that changing the standard of proof could impact the rulings of judges prior to a case going to a jury or where a case is not put before a jury. The amicus brief submitted by CTIA – The Wireless Association argues that the clear and convincing standard has led to plaintiffs opting for jury trials and changed the dynamics of negotiations and settlements in patent cases. CTIA Amicus Brief at 6. Studies cited by the CTIA also indicate that at the same time that the Federal Circuit adopted the “clear and convincing standard,” the rate of district court’s invalidating a patent has fallen by roughly half. Id.; see also Matthew D. Henry & John L. Turner, The Court of Appeals for the Federal Circuit’s Impact on Patent Litigation, 35 J. Legal Stud. 85, 95-96 (2006). However, it is hard to know whether there is a causal or correlated link between the adoption of the “clear and convincing evidence” standard and the rate of patents being found invalid. At the same time that the clear and convincing standard was codified plaintiffs also increasingly asked for jury trials, which are thought to be more sympathetic to a patent holder. CTIA Amicus Brief at 16-17. Professors Doug Lichtman and Mark Lemley also found that the heightened presumption of validity was “one of the most plausible” causes of patents not being ruled invalid. However, their article cautioned that because of the large number of variables, this was difficult to establish empirically. Doug Lichtman & Mark A. Lemley, Rethinking Patent Law’s Presumption of Validity, 60 Stan. L. Rev. 45, 69-70 (2007).
One thing is for certain–the upcoming fight over the standard for proving a patent’s invalidity is likely to continue to attract significant attention.
Dorian Berger, Irell & Manella LLP, Los Angeles
Post script: The case was heard on April 18, 2011. The likely date on which judgment will be delivered is June 2011. A copy of the transcript of the argument is attached