Supreme Court Hears Microsoft's Plea For New Patent RulesSupreme Court Hears Microsoft's Plea For New Patent Rules

In a case that could have far reaching implications for intellectual property rights, Microsoft attorneys went before the Supreme Court on Monday seeking more lenient rules on the evidentiary standards defendants in patent trials must meet to show plaintiffs' claims are invalid.

After losing a suit first brought in 2007 by Toronto-based i4i, Inc., a small developer of document management software that claimed Microsoft Word violated its patents, Microsoft appealed to the Supreme Court, which in November agreed to hear the case.

Microsoft's appeal centers on its argument that the federal courts for years have wrongly imposed too great a burden of proof on defendants in patent cases. Microsoft maintains defendants in such cases should only need to show that a plaintiff's patents are invalid by "a preponderance of evidence"—the standard that applies in most civil litigation outside the patent arena.

Microsoft claims that the lower courts have incorrectly interpreted current laws to mean that defendants, to be successful, must show that their adversaries' patents are invalid "by clear and convincing evidence"—a much more difficult test to meet.

"The default standard of proof in civil cases is a preponderance of evidence," said Microsoft, in a brief filed with the Supreme Court prior to Monday's arguments. "This Court has authorized departures from that standard only in a narrow category of cases implicating uniquely important individual liberty interests that are more significant than property rights."

Based on that argument, Microsoft is asking the Supreme Court to overturn a 2009 ruling by the U.S. District Court for Eastern Texas, which was subsequently upheld by the U.S. Court of Appeals, that ordered Microsoft to pay i4i $290 million in damages and remove the allegedly offending code—mainly a module that can open and edit custom XML documents—from Word.

For their part, i4i officials said the courts' use of the "clear and convincing" standard reflects Congress' desire to foster innovation and provide a level playing field for smaller developers. "Microsoft's position is weak both in law and policy," said i4i chairman Loudon Owen, in a phone interview conducted just moments after he emerged from Monday's hearing. Owen said the Justices "didn't tip their hand in any way" in terms of how they might rule.

If the Supreme Court decides that the more lenient preponderance of evidence standard should be employed broadly in patent cases, it could make it much easier for big software companies to demonstrate that a litigant's supposedly unique technology is merely an instance of so-called "prior art", a common defense in patent cases that basically holds that the invention in question is not new, and thus should not be entitled to protection.

The stakes are high. Big software vendors claim they need to be able to operate without fear of nuisance suits from so-called patent trolls. That's why a number of major developers, including Apple and Google, have filed briefs in support of Microsoft, normally their bitter adversary.

"The protection for invalid patents that results from the clear and convincing standard is a threat—not a boon—to innovation," Google wrote in an amicus brief. "Questionable patents do not foster innovation." Other big tech vendors that have jumped to Microsoft's defense include SAP, EMC, and Cisco.

Advocates for startups and small developers say Microsoft's efforts to lower the prevailing evidentiary bar in patent cases is a thinly veiled attempt to preserve its power in a rapidly changing industry where it's falling behind in key new markets. "They have a lot of patents but I'm absolutely convinced they want a weaker patent system," said Deepak Malhotra, a Washington State-based attorney who practices software patent law.

Malhotra said he believes the current evidentiary standard fairly protects big companies and small innovators. "It's already not that difficult to prove a patent is invalid," said Malhotra. "It's bad for the country to have a weaker patent system."

Those opposed to the introduction of a more stringent evidentiary standard in patent trials also include established manufacturing and industrial companies, whose primary interest is protecting their rich intellectual property portfolios. “Inventors and society would suffer from such a rule, which would simultaneously reduce the rewards of innovation by weakening property rights while increasing the costs of innovation,” said a brief filed in support of i4i by 3M, Johnson & Johnson, General Electric, British Petroleum, Caterpillar, and several other old-line giants.

Also backing i4i, and the status quo, is the U.S. government. “If patents are too easy to invalidate, the risk of invalidation--as well as the prospect that every infringement suit will be met with a burdensome validity challenge--may raise the cost of enforcing a patent to the point where the expected value of the patent cannot justify the outlays entailed in innovation,” said the Department of Justice, in its own brief.

It's expected the Justices will hand down a decision by the end of June. Chief Justice John Roberts recused himself because he owns Microsoft stock.