Biotech Values

[DewDiligence]

Microsoft Patent Case Affects Wide Swath of Tech/Biotech Industries

http://online.wsj.com/article/SB10001424052748704495004576265090610775226.html

›APRIL 15, 2011, 3:00 P.M. ET
By BRENT KENDALL

Microsoft Corp. will ask the Supreme Court next week to make it easier for companies to challenge the validity of patents, a significant case for technology firms and drug makers that has divided the business community.

On Monday, the justices will hear the software giant's attack on long-standing court precedent that requires a defendant in a patent-infringement case to prove by clear and convincing evidence that a plaintiff's patent is invalid. Critics contend a win for Microsoft, in a case involving its popular Word program, would significantly weaken important patent protections that allow inventors to profit from their creations.

"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," 3M Co., Johnson & Johnson, General Electric Co. and nine other companies said in a brief to the court.

Yet other companies support Microsoft's position, saying it would provide much-needed balance against aggressive plaintiffs that sue deep-pocketed defendants for patent infringement.

"Those allegations are often based on invalid patents, but they are nonetheless costly and risky to defend, in part because of the clear-and-convincing standard," Google Inc., Verizon Communications Inc., and 16 other companies said in court brief supporting Microsoft.

The case centers on a 2007 lawsuit by Toronto-based technology company i4i Inc., which convinced a jury that Microsoft Word infringed one of its patents related to document editing. I4i obtained a $290 million judgment against Microsoft, as well as an injunction that barred sales of certain versions of Word that infringed the patent.

A federal appeals court upheld the judgment, rejecting Microsoft's argument that the patent was invalid because the i4i invention was not new. Microsoft said it complied with the injunction without suspending sales of Word by modifying the products. The latest version of the software, Word 2010, doesn't contain the technology at issue, the company said.

Microsoft, in its written arguments to the Supreme Court, says juries and courts should be able to invalidate patents if a preponderance of the evidence supports doing so. This should happen at least in cases where the defendant is offering new evidence that a patent shouldn't have been granted, the company argues.

"The litigation process plays a critical role in weeding out invalid patents, and it cannot properly fulfill this role if the scales are tipped sharply in favor of upholding patents," the company said.

A long list of tech companies are supporting the software maker, including Apple Inc., Cisco Systems Inc., eBay Inc., Facebook Inc. and Intel Corp.

Banks and financial firms, which often are targets of patent litigation, are also backing Microsoft's efforts, as are generic drug companies, which often seek market entry by challenging the patents held by brand-name drug makers.

I4i argues in its court brief that Microsoft is seeking "a radical change in patent law—an area in which stability and predictability are paramount."

Brand-name drug makers, which depend heavily on their patent portfolios, are among those who see Microsoft's legal efforts as a threat. The Pharmaceutical Research and Manufacturers of America, the industry's trade group, said its members rely on strong patent protections when they invest billions in developing new drugs.

"If a mere preponderance of the evidence were to suffice to invalidate a patent in litigation, then the incentive to invest the time and money required to discover and develop new medicines would be substantially reduced," the group argued in a brief supporting i4i.

The Obama administration is also supporting the Canadian company, as are venture capital firms, which warned that weaker patent protections could lead to dramatically less private investment.

Views differ on how often a lower standard for proving patent invalidity would affect the outcome of patent infringement lawsuits.

"Ending the clear-and-convincing standard would remarkably weaken the position of patent owners," said Harold Wegner, an attorney with Foley & Lardner LLP.

But a recent study by Etan Chatlynne, a patent agent for Hughes Hubbard & Reed LLP, found that lowering the standard would not have made a difference in at least 74% of recent cases that were before the federal court that hears patent appeals.

The case is Microsoft Corp. v. i4i Limited Partnership, 10-290. A decision is expected by the end of June.‹