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Patent Invalidity Standard of Proof Re-examined – Preserve your Rights

Intellectual Property Litigation Law Update Anthony A. Tomaselli, Martha J. Snyder

For almost 30 years, the Federal Circuit has required clear and convincing evidence to find a patent invalid, despite the lesser burden - preponderance of evidence - placed on a patent holder to show infringement. See American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1359 (Fed. Cir. 1984). Yet, the invalidity standard could be in for a change, at least to the extent the evidence is based on prior art not considered by the U.S. Patent and Trademark Office ("PTO") before issuing the patent. The Supreme Court recently granted a petition for writ of certiorari, which poses the question: "Whether the court of appeals erred in holding that [the alleged infringer's] invalidity defense must be proved by clear and convincing evidence." Microsoft Corp. v. i4i L.P., Petition for Writ of Certiorari, 2010 WL 3413088, at *i.

i4i Limited Partnership v. Microsoft Corporation

i4i sued Microsoft for infringing U.S. Patent No. 5,787,449 ("the '449 Patent"), which relates to editing custom XML. A jury in the Eastern District of Texas determined that the '449 Patent did, in fact, read on certain versions of Microsoft Word. Microsoft, however, maintains that the '449 Patent is invalid in light of the prior art, particularly an alleged sale by the inventors of an embodiment of the invention more than one year before the application was filed that was not disclosed to the PTO. Microsoft contends that i4i's sale of a system, referred to as S4, constitutes an on-sale bar, rendering the '449 Patent invalid. That the S4 system was sold by i4i more than one year prior to the filing of the '449 Patent application was undisputed. However, the source code for the S4 system was destroyed years before i4i sued Microsoft; thus, the dispute at trial revolved around whether the S4 system practiced the claims of the '449 Patent. Issued patents are presumed valid based on the idea that the PTO vetted any prior art before issuing the patents. However, where the patent examiner is missing information, such as a prior sale of an alleged embodiment of the claimed invention, the presumption is less logical.[1] After receiving instruction that Microsoft must show invalidity by clear and convincing evidence, and considering evidence from both parties, the jury rejected Microsoft's invalidity defense.

Subsequently, Judge Leonard Davis of the Eastern District of Texas rejected Microsoft's argument for a new trial based on the allegedly improper jury instruction. Judge Davis also increased the jury award of $200 million plus interest by
$40 million for willful infringement and instituted an injunction. Microsoft appealed to the Federal Circuit arguing, among other points, that "the burden of proof should have been less for prior art that was not before the PTO" during prosecution of the '449 Patent. The Federal Circuit stayed the injunction pending its decision of Microsoft's appeal, but eventually affirmed the Eastern District of Texas, holding in relevant part that there was no error in instructing the jury to apply the clear and convincing evidence standard for invalidity.

The Standard of Proof for Invalidity

Section 282 of the Patent Act mandates only that "[t]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity," but is silent on the standard of proof. 35 U.S.C. ยง 282. Yet, the Federal Circuit has maintained for almost 30 years that clear and convincing evidence of invalidity is the proper standard of proof, in contrast to the default used in civil cases, preponderance of the evidence.

In KSR Int'l Co. v. Teleflex Inc. ("KSR"), the Supreme Court hinted at its disapproval of the Federal Circuit's higher standard for invalidity, at least to the extent the prior art before the Court had not been disclosed during prosecution of the patent at issue: "We nevertheless think it is appropriate to note that the rationale underlying the presumption - that that PTO, in its expertise, has approved the claim - seems much diminished [where prior art was not disclosed during prosecution]." KSR Int'l Co. v. Teleflex Inc., 550 U.S. 398, 426 (2007). The Federal Circuit, however, blatantly ignored this hint: "the Supreme Court's decision in KSR . . . did not change the burden of proving invalidity by clear and convincing evidence." i4i L.P. v. Microsoft Corp., 598 F.3d 831, 848 (Fed. Cir. 2010).

The Amicus Briefs

The sheer number of amicus briefs filed in support of Microsoft's petition for writ of certiorari is an indication of the importance of this issue; eleven briefs were filed by companies that Microsoft alleged "employ more than three million people." In addition to companies such as Google, HP, Wal-Mart, Facebook, Apple and Intel, filers include law professors, the Securities Industry and Financial Markets Association, and the Electronic Frontier Foundation, among others.

The amicus briefs largely echoed many of the arguments raised by Microsoft, including the perceived conflict with the Supreme Court's decision in KSR, that the current standard stifles, rather than promotes, progress of the useful arts, and that the Federal Circuit's standard conflicts with the holdings of all 12 circuit courts prior to the creation of the Federal Circuit. The amicus briefs also stressed that the clear and convincing evidence standard makes the cost of invalidating a patent so high that patentees, especially nonpracticing entities, are able to obtain significant settlements even on patents that should never have been issued, let alone enforced. Intel even went so far as to allege that there exists "a thicket of invalid patents that stifles the competition and impedes further innovation." The law professors, in turn, argued that the current bureaucratic obstacles at the PTO make the clear and convincing evidence standard illogical because of the vast number of issued patents that would fail a serious examination for obviousness.

Practical Consequences of the Court's Grant of Microsoft's Petition

In the long run, the Supreme Court will likely at least follow its own guidance in KSR and lower the standard of proof with respect to art not considered by the PTO. Whether the Court will go beyond that to also lower the standard for art considered by the PTO is uncertain. However, until the Supreme Court issues an opinion, the immediate consideration for those in litigation involving patent validity should be to raise the uncertainty of the standard of proof and reserve the right to reargue invalidity as appropriate if the Supreme Court alters the standard.

If you have any questions on this client update or other related intellectual property litigation issues, please contact Martha Jahn Snyder at (608) 283-2429 / martha.snyder@quarles.com, Anthony Tomaselli at (608) 283-2491 / anthony.tomaselli@quarles.com or your Quarles & Brady attorney.




[1]  Re-examination requests have been submitted to the PTO regarding the '449 Patent, but an on-sale bar cannot be considered in re-examination because it is not a publication. Following the first re-examination, the PTO confirmed the patentability of the claims at issue in the '449 Patent. The PTO then denied the second re-examination request as failing to raise a substantial new question of patentability.