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.‹
[Note the section highlighted in red, which relates to the inequitable-conduct argument in drug-patent litigation. Please see #msg-60150853 and the chart in #msg-37325719 for background.]
›By Susan Decker and Kathleen Hunter - Jun 21, 2011 1:19 PM ET
House leaders agreed today to give the U.S. Patent and Trademark Office greater control over its own funding, paving the way for a floor vote on legislation to overhaul the U.S. patent system.
Texas Republican Lamar Smith, who heads the Judiciary Committee, had proposed letting the agency set its own fees and keep any money collected. Representatives Paul Ryan, a Wisconsin Republican who heads the Budget Committee, and Harold Rogers, a Kentucky Republican who heads the Appropriations Committee, objected, saying that would eliminate congressional oversight and give the “power of the purse” to the Obama administration.
Under the deal announced today, a special fund would be established to hold user fees collected in excess of the agency’s budget. Rogers agreed that the fund could only be tapped by the patent office, which would have to submit a spending plan to Congress to access the money.
Guaranteed access to all the fees collected by the agency is the cornerstone of a wide-ranging bill, H.R. 1249, that mirrors a measure passed by the Senate on a 95-5 vote in March. If passed, the legislation would mark the biggest change to the U.S. patent system since 1952.
Like the Senate bill, the House measure seeks to end lawmakers’ longstanding practice of steering fees collected by the patent office toward non-patent purposes. Since the passage of a 1990 law requiring the agency to fund itself, Congress has retained more than $800 million in user fees.
Application Backlog
The diversion of fees has been linked to an increase in the number of patent applications awaiting first review by agency examiners. It takes, on average, about 34 months to complete a review, and more than 700,000 applications have yet to receive a first response from the agency.
Companies from a range of industries, including drugmaker Eli Lilly & Co. (LLY) and chipmaker Intel Corp. (INTC), as well as universities, venture capital firms, unions and the U.S. Chamber of Commerce have expressed support for ending fee diversion.
In letters to Congress, the businesses and organizations say the patent office needs a stable source of funding to properly protect innovation. That in turn helps lure investment dollars, fostering the creation or expansion of businesses and the hiring of more workers.
One lawmaker who played a central role in developing the original user-fee language, Senator Tom Coburn, said he opposes the proposed changes and is weighing his options. If the House passes a version of the bill that includes the change to the fee-using process, the Oklahoma Republican may block any Senate action.
First to File
The legislation, the result of more than six years of negotiations, testimony, and compromise, continues to have detractors of other provisions.
Some small businesses have objected to language that would grant patents to the first inventor to file an application. Under existing law, patents go to the first person to invent something, which has led to often years-long fights over the timing of ideas. The patent office, which supports the change, says it would align U.S. law with the rest of the world.
Another provision would create a new process to review patents after they’ve been issued. Independent patent owners or firms that often sue big companies, like Acacia Research Corp., say it gives big companies another way to intimidate independent inventors and avoid paying for the use of someone’s technology. Large technology companies including Cisco Systems Inc. (CSCO) and Google Inc. (GOOG) say it would help weed out patents of questionable validity.
Banking Industry
Datatreasury Corp., a closely held company that owns patents related to digital images for checks, contends a provision establishing a special review of patents for finance- related business methods would allow large banks to harass patent owners seeking compensation.
Republicans Aaron Schock of Illinois and James Sensenbrenner of Wisconsin, and Democrats Maxine Waters of California, Dan Boren of Oklahoma and Marcy Kaptur of Ohio have south to remove that provision, which has the backing of the banking industry.
The trade group representing generic-drug companies including Mylan Inc. and Teva Pharmaceutical Industries Ltd. (TEVA) opposes a provision that would let patent owners who make errors or withhold information from the agency go back and make corrections. The generic-drug makers say it would help brand-name companies avoid having their patents deemed unenforceable as punishment for misleading the agency.
Other provisions would limit lawsuits in which a manufacturer is accused of putting expired patent numbers on packaging; allow for third parties to submit information that could be used in the review process; and establish satellite offices that the patent office could set up nationwide to tap into the local workforces.
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