The Supreme Court of the United States (SCOTUS) ruled today against Microsoft in its appeal of a $290 million jury verdict for infringing Canadian software company i4i's patent. It wasn't close. SCOTUS unanimously upheld a U.S. appeals court's ruling against Microsoft.

Microsoft had argued that the courts should adopt a lower burden-of-proof bar for patent violations. Previously, if you've been accused of violating a patent you must show "clear and convincing evidence" that the patent is invalid. Microsoft wants the burden of proof to be lowered to "a preponderance of the evidence." The SCOTUS didn't buy this argument for one minute.

In the Court's unanimous decision, Justice Sonia Sotomayor wrote (PDF Link), "We consider whether [a section of the Patent Act of 1952] requires an invalidity defense to be proved by clear and convincing evidence. We hold that it does."

This decision doesn't come as much as a surprise. The Obama administration had opposed Microsoft's argument. I4i had argued, with the administration's agreement that Microsoft was essentially seeking a change in patent law and that only Congress could make such a change. One of the commentators on the SCOTUS Blog noted, "The United States supported this result on behalf of the PTO [Patent & Trademark Office]. Essentially, the government never loses patent cases."

As Thomas Carey, a partner at Sunstein, a major intellectual property (IP) law firm and chair of its Business Department, commented, "Rather than settle out of court, Microsoft appealed all the way to the Supreme Court, losing at every stop along the way. At the Supreme Court level, Microsoft challenged the jury instruction concerning the 'clear and convincing' burden of proof needed to overturn a patent; a standard that has been uniformly applied by the Supreme Court for more than 100 years. Not a single justice of this often-divided court saw any reason to change this burden of proof for Microsoft's benefit."

The fight began in 2007 when i4i sued Microsoft for abusing their XML patent in Microsoft Office 2003 and 2007 Open XML (Extended Markup Language) documents format. Indeed, in 2009, the U.S. District Court for the Eastern District of Texas had issued an injunction that could have stopped Microsoft from selling any "Word products that have the capability of opening .XML, .DOCX or DOCM files (XML files) containing custom XML."

Carey thinks, "Microsoft has demonstrated arrogance throughout this affair. First by ignoring the patent, then by trying to overturn a legal standard that it found inconvenient. Had Microsoft succeeded it would have greatly weakened the patent system in the United States, a result that would have been cheered in some circles and denounced in others. But it lost, and must now pay for its decision to ignore the intellectual property rights of a competitor."

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What this Patent Decision Means

The fine, $290-million, is pocket change for Microsoft. Still, it must be a bitter loss for Microsoft since, as Carey observed, the company poured enormous resources into fighting this lawsuit. It's also, though, following in the footsteps of n Bilski v. Kappos, is seen as yet another troubling victory for IP patents by others.

Daniel Ravicher, an attorney and the head of the Public Patent Foundation, a nonprofit legal services organization that represents the public's interests against the harms caused by the patent system, thinks SCOTUS went too far in defending the status quo. "The court has latched on to ambiguous precedent that it admits was 'implicit' to bypass the plain language of the statute in order to sustain a policy choice that is out of touch with the reality of today's patent system and harmful to America."

Andrew Updegrove, a founding partner of Gesmer Updegrove, a top IP and technology law firm, sees some positive things in this decision, "Three cheers for the little guy. As this long and expensive saga shows, patent litigation is an extremely uneven playing field due to the expense and duration of the process. I4i for not only stuck it out through the normal process, but then had to beat back a challenge to change the actual rules of the game as well."

However, Updegrove continued, "Looking at the macro picture, though, the answer is a bit more nuanced. The same Supreme Court decision means that it will remain hard to beat truly bad patents, of which everyone agrees there are way too many in the IT area. That said, the best way to rectify this situation is not to encourage more endless, expensive, patent litigation, but to make sure that only truly valid patents are issued to begin with. So from this perspective, the decision also reaches the right conclusion: Congress should give the USPTO the budget to give every patent application the diligence it needs. It should also ensure that the definition of a 'patentable invention' doesn't cover inventions that don't need patent protection at all, and where the ability to obtain patents stifles, rather than promotes innovation."

Speaking of patent stifling innovation, just think, we have years of companies from Apple to Red Hat to Google to Oracle spending their resources on lawsuits instead of innovation. What fun! What a great use of their time and money!

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