US Supreme Court Expected To Weaken Patent Validity

Patents will soon receive less protection in the United States. That’s the view of many experts who have been closely following Microsoft Corp. v. i4i Ltd. Partnership, which will be argued before the United States Supreme Court later this year.

The case, linked here, could create a “sea change” in US patent law, according to Paul Devinsky, a partner in McDermott Will & Emery. “It has the potential to affect what patent applications are filed, how patent applications are prosecuted … and how patents are litigated,” he said.

Currently, anyone who challenges the validity of a US patent must prove its case by “clear and convincing evidence.” That is significantly greater than the normal standard of proof in civil litigation, which is a mere preponderance of evidence.

“The current rule places a huge thumb on the scale in favour of invalid patents. Often even invalid patents will be sustained under this heightened standard of proof,” said Thomas G. Hungar, a partner at Gibson, Dunn & Crutcher who represents Microsoft in this lawsuit.

The current rule is usually explained as a justified acknowledgement of the US Patent and Trademark Office’s expertise. If the agency has reviewed an invention and granted it a patent, this determination by expert examiners should not be easily overruled in court by a jury of lay people who are unfamiliar with the intricacies of both patent law and the applicable technology.

But what if the evidence of patent invalidity was never considered by the USPTO? Should the “clear and convincing” standard still apply? Or should a preponderance of evidence suffice, allowing a jury to strike down a patent on the basis that, more likely than not, the patent is invalid?

US courts once routinely applied the preponderance standard to evidence of invalidity that had not been considered by the USPTO. That changed in 1983. The then-recently-created Federal Circuit Court of Appeals (often called the country’s “patent court”) went out of its way to declare in Connell v. Sears, Roebuck & Co. that the “clear and convincing” standard applied even to evidence not previously considered by the USPTO.

That’s precisely the type of evidence at issue in Microsoft v. i4i. Back in 2009, i4i convinced a jury in Texas that Microsoft had wilfully infringed a patent owned by the small Canadian company. The court awarded $240 million in damages. With interest, that amount is now $290 million, according to an attorney who has represented i4i in this case.

Microsoft asserts, however, that i4i’s patent is invalid because the Canadian firm violated the on-sale bar, 35 USC § 102(b): More than one year before i4i had filed for its US patent, i4i’s predecessor company had sold software in the US incorporating the claimed invention.

The jury rejected this argument at trial, and the verdict was upheld by the Federal Circuit. A three judge panel ruled in i4i Ltd. Partnership v. Microsoft Corp. that Microsoft had to provide clear and convincing evidence that i4i had violated the on-sale bar – even though the USPTO had never considered such evidence. The panel found that a reasonable jury, applying the “clear and convincing” standard, could find that Microsoft had failed to prove its case.

Microsoft asked the US Supreme Court to review the ruling, and the high court agreed on 29 November 2010. Oral argument has not yet been scheduled, but it will occur no sooner than April.

The US Supreme Court stated in 2007 – as dicta in KSR International Co. v. Teleflex Inc. – that when the USPTO has not reviewed evidence of invalidity, the presumption in favour of a patent’s validity is “much diminished.” Many experts thus expect the court will side with Microsoft and reject the Federal Circuit’s bright-line requirement for clear and convincing evidence.

If the court does adopt a more flexible approach for challenges to patent validity, US patents will be significantly weakened. “Reducing the presumption of validity would make patents less powerful and more likely to be overturned,” Devinsky said.

This could discourage research and investment in the US, some argue. “A lot of my foreign clients appreciate the strong IP protection that is available in the US. That’s one of many reasons why they invest here,” said Marylee Jenkins, a partner in Arent Fox LLP.

The biotech and pharmaceutical industries would suffer the most from any weakening of patent protection. It can take over a decade and hundreds of millions of dollars for a company in these sectors to bring a new product to market, and that product may be based on a single patent. So companies in these areas often have a lot riding on each of their patents.

Software, IT and internet businesses, on the other hand, are awash in patents. It is not uncommon for a new piece of software to involve tens of thousands of patents. So technology firms tend to put less value on patents – and often see patents as an annoyance.

That’s because many technology firms are beset by so-called “patent trolls” – companies whose sole business is to licence their patents and to sue those who decline to take out licences. If even one small aspect of a complicated technological product infringes, the maker could face hundreds of millions in damages and be forced to stop selling its product. Not surprisingly, technology companies often pay off patent trolls rather than risk fighting and losing in court, even though many of the patents asserted in these suits are of dubious validity.

Technology companies like Microsoft would thus be quite pleased if the Supreme Court weakened the presumption of patent validity. “The number of suits brought by holders of dubious patents would be reduced,” Hungar said. “It is not a panacea for all the problems in patent litigation, but it would bring more fairness and rationality to the system.”

Weakening the presumption of validity may be bad not just for patent trolls, innovative pharmaceutical firms, and biotech companies, but for all patent applicants and the USPTO. Because if the presumption of validity is decreased for evidence not considered by the patent office, applicants will make sure the patent office considers all possible evidence.

“The first thing we are all going to do is back up the trucks to the patent office. We are going to submit anything we think may be even tangentially related to the patent application, we will insist it be made part of the record, and we will insist it be examined,” said Hans Sauer, associate general counsel for intellectual property at the Biotechnology Industry Organization, a trade group representing the biotech industry.

These data dumps will make patent applications more lengthy and expensive, increase the backlog at the USPTO, and put additional stress on already-overworked patent examiners, experts fear.

“It will slow things down incredibly [at the USPTO] and will not help patent quality at all. But if that will help the strength of our patents, that’s what we will do,” Sauer said.

Whether all this comes to pass depends, of course, on how the US Supreme Court rules in this case. A ruling is unlikely before summer.