Microsoft's persistence brings software patent fight to Supreme Court

April 18 2011

The Supreme Court on Monday heard oral arguments on i4i's patent lawsuit against Microsoft, and the software industry is holding out hope that a pro-Microsoft ruling will help bring sanity to a software patent system run amok.

Microsoft wants the high court to lower the standard of proof required to overturn a patent. But opposition to the change is also running high as the ruling would affect all patents, not just those for software, potentially making it easier to overturn any patent.

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Intellectual property experts and patent-owning corporations from multiple industries have piled on this case, filing more than 40 amicus briefs, with the software industry mostly on Microsoft's side. Support from Microsoft even includes its typical rivals such as Red Hat and Google. In opposition stand such heavyweights as the U.S. government itself.

"The case raises a pivotal issue in patent law, and the standard that applies when the defendant challenges the validity of a patent," Andy Culbert, associate general counsel at Microsoft, told Network World. "I don't think this case is anything at all like the David versus Goliath case that i4i says it is. If you look at all amicus briefs that i4i solicited, many of them are from major pharmaceutical companies. I don't think you could characterize pharmaceutical companies as 'the little guy.'"

CASE UNFOLDS: History of i4i v. Microsoft

The legal issue revolves around a special rule, created by the Federal Circuit. It applies only to patent cases and not to other types of civil cases involving property rights, and it stacks the odds in favor of the patent holder, Culbert explained. A higher standard of proof is required to overturn a patent than the standard of proof required for other civil matters. For patent cases, the standard to overturn a patent is that there must be "clear and convincing" evidence that shows a patent should not have been issued in the first place, whereas in other civil cases the standard is a "preponderance of the evidence."

That special rule originally included a punishment, too: The courts would issue an automatic injunction against selling the disputed product or service if the defendant was found to have infringed. In a case involving eBay (eBay v. MercExchange, 2006), the Supreme Court decided that injunctions should not be automatic. Microsoft is now arguing to eliminate the special rule that creates a higher standard of proof to overturn a patent, too.

"Microsoft wants the same burden of proof to apply to patents that applies to other civil cases," Culbert said.

Steve Chang, a patent attorney from national law firm Banner & Witcoff, attended Monday's hearing and characterized the discussion as lively, sprinkled with chuckles. While the justices didn't tip their hand, there were some questions over i4i's position.

"It's kind of like reading tea leaves," Chang told Network World. "The questions were not hostile to one side or other, but it was clear that some justices, like Justice Alito, were questioning what the statuary support would be for the 'clear and convincing' standard. Justices Ginsberg and Sotomayor asked if the Patent Act was passed in 1952, and the Federal Circuit was created in 1982 and the 'clear and convincing' standard came along after that, what happened in the first 30 years?"

Microsoft typically tries to settle such cases, and tried to settle this one, too, sources told Network World. i4i originally sued Microsoft for infringement over a method of parsing XML called "custom XML" in 2007. On May 20, 2009, i4i won a $290 million judgment against Microsoft, which included an injunction to stop selling Word.

But at some point, Microsoft was no longer interested in settling and instead launched an all-out fight. It chose to fight even though the specific disputed technology is no longer at issue. It has long since been removed from Microsoft Word. The money at stake, while not trivial, isn't a backbreaker for the mighty Microsoft either. In 2010, the company was defending 50 patent suits and had reported payouts of nearly $2 billion from losses of patent suits (which included the i4i $290 million).

Microsoft chose to fight even after it lost an appeal with the Federal Circuit Court, which i4i calls the largest patent infringement judgment ever upheld by the Federal Circuit. And Microsoft was twice unsuccessful at getting the patent overturned by a re-review of it by the U.S. Patent Office.

Microsoft doesn't automatically apply to the Supreme Court for all lost appeals. This is only the second civil case Microsoft has ever argued in front of the Supreme Court. (The first was also a patent case, Microsoft v. AT&T in 2007, which Microsoft won.)

"The day that you learn they have taken your case is a very good day. It calls for celebration because a tremendous amount of work goes into the effort to get to the Supreme Court. The vast majority [of appeals] are denied. It is very exhilarating," Culbert described.

TRY, TRY AGAIN: Supreme Court ruling dashes hopes that software patents will go away

So, then, why this one? Simply put: Microsoft doesn't think this patent should ever have been granted. And because the argument involves a rule created by the Federal Circuit, Culbert and team felt confident the Supreme Court would choose to hear it, and despite the setbacks from the lower courts, is equally confident that Microsoft could win it.

Loudon Owen, chairman of i4i, sees it differently. He said in a written statement, "Microsoft cannot overcome the prevailing law and sound policy of the clear-and-convincing standard based on its spin campaign that now seems to be focused on innuendo about i4i and an atrociously weak argument that weakening the patent system will encourage innovation. We are confident we will continue to prevail."

i4i is not what some would call a patent troll, meaning it didn't buy the patent from another inventor in order to sue or sell licenses to it. Yet Microsoft contends that this is exactly the kind of bad patent, and subsequent lawsuit, that hurts all patent owners.

Culbert says that the USPTO shouldn't have granted the patent because the application for it was submitted after i4i sold the technology. He says its validity should also be questioned because i4i "never gave the source code for the product and didn't have it available at trial. ... It's a very compelling case why this particular patent is invalid ... a compelling case why it doesn't make sense to give this deference to the patent office ... they never had the source code."

Owen disputes all of these assertions. "First of all, the invention was not contained in any earlier product and that was exhaustively reviewed at trial both by the jury and by the judge. i4i had a duty of candour to file all applicable prior art and it did so. Moreover, the judge held a separate inequitable conduct hearing that confirmed i4i had met the standard. It is utter nonsense, as the old technology Microsoft is alluding to had nothing to do with i4i's invention," he told Network World. "It is incorrect and it is another unsubstantiated Microsoft allegation/declaration to say i4i sold their product and did not patent the invention within the one-year time limit. This is wrong." (See court documents posted by i4i.)

Owen added that the missing source code is "a misunderstanding of the facts and i4i was proven to have met its duty of candour and disclosed everything applicable to the patent office."

The hearing was conducted by attorneys for hire who are experts at arguing in front of the Supreme Court. Thomas Hungar of Gibson Dunn represented Microsoft in Monday's hearing. Hungar served as deputy solicitor general of the United States during the George W. Bush administration. Seth Waxman, of WilmerHale, who was solicitor general in the Clinton administration, argued on behalf of i4i. The United States argued in favor of i4i's position, and was represented by Malcolm L. Stewart, deputy solicitor general.

Intellectual property attorneys near and far have traveled to the court to watch the proceedings. "It is a very exciting, good argument," Culbert said. "The justices jump in and pepper the lawyer with questions -- the justices are brilliant and ask good questions, and the lawyers that do arguing are also brilliant."

i4i had accrued 22 amicus briefs in its corner, which represent more than 100 companies, organizations and individuals, including the U.S. government, individuals from the military and venture capitalists. Meanwhile Microsoft roped in 20 amicus briefs, which represent about 60 companies and individuals, including Google, Apple, Cisco, Intel, Red Hat, the Electronic Frontier Foundation and 37 law and economics professors.

The Supreme Court is expected to render a decision on the case by the end of June.

Previously, hope that the Supreme Court would end the software patent problem had rested on the Bilski case, which could have all but eliminated the problem if the Supreme Court had issued a ruling that made "business process" patents difficult or impossible to obtain. Most software patents fall into the "business process" category. The Supreme Court's ruling on Bilski, however, managed to sidestep that issue and create more confusion, not less.

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