Intellectual Property - 2010-2011 Winter Bulletin


The Supreme Court Heeds Calls to Consider Lowering the Standard of Proof for Patent Validity Challenges Federal Circuit Rejects Attempt to Narrow Standing Requirements for False Patent Marking Claims Quick Updates Even When Trade Secret Misappropriation Leads to Financial Loss, a Reasonable Royalty May Apply Timely Action Required to Oust Cybersquatters Law Firm Sued for Sham Reexaminations First Circuit to Address Limits on Copyright Damages The Supreme Court Heeds Calls to Consider Lowering the Standard of Proof for Patent Validity Challenges By Ilana S. Rubel

On November 29, 2010, the Supreme Court granted certiorari in Microsoft Corporation v. i4i Limited Partnership, 598 F.3d 831 (Fed. Cir. 2010), cert. granted, 79 U.S.L.W. 3326 (U.S. Nov. 29, 2010) (No. 10-290), a case that could prove to be a patent litigation game-changer. The Court was asked by Microsoft (and a small army of amici) to strike the Federal Circuit's long-held rule that all patent invalidity defenses, even those based on prior art never considered by the USPTO, must be proven by clear and convincing evidence. The granting of certiorari suggests that the Supreme Court is seriously considering reducing the standard of proof for invalidity defenses to a lower "preponderance of the evidence" standard in at least some circumstances; the likely repercussions of the ultimate ruling have broader implications.

It is possible that the Court will simply endorse the Federal Circuit's current standard, if that were the plan it is not clear why the Supreme Court would have bothered to take the case at all. Assuming some change in the standard is likely, the Court could strictly limit any change in the standard of proof required to show invalidity, or it could take a more sweeping approach, lowering the standard from "clear and convincing evidence" to a "preponderance of the evidence" standard for all invalidity challenges, even as to prior art considered by the USPTO (as some amici propose). Many herald a loosening of the invalidity standard of proof that could stem the tide of questionable patent suits. At the same time, others predict dire unintended consequences of such a change, claiming the USPTO would face a debilitating deluge of irrelevant prior art, the validity of all patents suddenly would become uncertain, and incentives to invent would evaporate.

The Patent Act's Presumption of Validity and the Federal Circuit's Standard of Proof

Section 282 of the Patent Act, 35 U.S.C. § 282, states, in relevant part:

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.

While the statute itself specifies no particular standard of proof for the establishment of invalidity, for more than 25 years, the Federal Circuit has interpreted the presumption of validity codified in the provision to require that invalidity of a patent must be proven by clear and convincing evidence rather than by a preponderance of the evidence.

The Federal Circuit instituted this rule in order to accord deference to the work done by the USPTO patent examiner, who holds expertise in the area of the claimed invention, has examined pertinent prior art, and has found the patent at issue to be valid. However, the Federal Circuit has applied the heightened "clear and convincing evidence" standard to all invalidity defenses, regardless of whether the prior art evidence at issue was ever presented to or considered by the patent examiner during prosecution of the patent being asserted.

Dicta in the Supreme Court's decision in KSR International Co. v. Teleflex, Inc., 550 U.S. 398 (2007), raised doubts about whether such uniform application of the clear and convincing standard is appropriate. The Court noted therein that "the rationale underlying the presumption—that the USPTO, in its expertise, has approved the claim—seems much diminished" when the prior art underlying the invalidity defense was never presented to the USPTO. Moreover, prior to the creation of the Federal Circuit in 1982, all regional circuit courts had challenged or rejected the application of a clear and convincing evidence standard to invalidity defenses where the prior art in question had not been considered by the USPTO. However, notwithstanding KSR International and the historical treatment of the issue by circuit courts, the Federal Circuit has adhered to its application of the heightened evidentiary standard to all invalidity defenses.

The Microsoft v. i4i Case

The underlying rationale for the current heightened invalidity standard is coming under fire in Microsoft v. i4i, a case that reflects the largest patent infringement verdict ever to be affirmed on appeal. i4i brought suit against Microsoft alleging that the latter's WordPerfect software infringed i4i's patent related to customizing extensible markup language, or XML. Microsoft contended at trial that the disclosed invention had been embodied in an earlier version of i4i's software that had been sold years before the patent application was filed. If true, this would render the purported invention unpatentable under the "on-sale bar" of 35 U.S.C. § 102(b).

There was no dispute that this earlier, potentially invalidating version of i4i's software was not provided to the patent examiner during the patent's prosecution (although i4i did dispute that the earlier software practiced the invention). However, because the source code for the earlier product had been destroyed prior to the filing of the lawsuit, the U.S. District Court for the Eastern District of Texas jury concluded that Microsoft could not show invalidity by clear and convincing evidence. Microsoft was ordered to pay $290 million for its alleged infringement, an award that was upheld by the Federal Circuit on appeal.

Microsoft petitioned the Supreme Court for certiorari, arguing that the rationale for application of a "clear and convincing" standard is not present when the invalidity defense rests on prior art evidence that was not presented to or considered by the USPTO. That is, why accord deference to the examiner's conclusion as to materials the examiner did not even consider?

Of perhaps greater note than Microsoft's petition, however, was the cavalry riding to Microsoft's defense. Eleven amicus curiae briefs were filed in support of Microsoft's position – the most such filings in support of a certiorari petition in eight years. The filers comprised a remarkable array of academic and industry players, including Google, Verizon, Dell, Hewlett- Packard, Walmart, Apple, Facebook, Yahoo!, Intel, Intuit, Netflix, Toyota, Cisco Systems, General Motors, the Electronic Frontier Foundation, the Securities Industry and Financial Markets Association, and a group of 36 law, business, and economics professors.

Some of these amici focused on...

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