Intellectual property lawyers throughout the 1st Circuit say a recent decision out of the U.S. Supreme Court firmly establishes that the clear and convincing evidentiary test continues to be the appropriate standard of proof in patent invalidity claims.

In Microsoft Corp. v. i4i Limited Partnership, et al., Justice Sonia M. Sotomayor rejected a bid by Microsoft to apply the less stringent preponderance of the evidence standard when an alleged infringer argues a patent is invalid.

Michael M. de Angeli of Jamestown, R.I., said the ruling is a major victory for smaller businesses.

Had the decision gone the other way, the confidence that patent holders have in the strength of their property would have taken a significant hit, he said.

“A lot of the big corporations feel they are being held up by small companies with patents,” he said. “I represent a small company that just won a big case against Toyota, and [Toyota] would’ve loved it if they didn’t have to deal with clear and convincing evidence because, plain and simple, it would have made their job a lot easier.”

Donald R. Ware, who submitted an amicus brief in Microsoft on behalf of the American Intellectual Property Law Association, said the innovator community “dodged a major bullet here” because a serious attempt was being made to materially change the rules when it comes to granting and challenging patents.

“We are all breathing a major sigh of relief here,” he said.

Ware, chairman of Foley Hoag’s IP department in Boston, said the Supreme Court — dating back to the 19th century — has consistently held that the more patent-owner-friendly clear and convincing standard applies to all infringement defenses.

“But the fact that the Supreme Court accepted cert raised a lot of concern that a change was coming,” Ware said. “It is no exaggeration to say that a ruling to the contrary would’ve had a devastating effect on investment and innovation.”

Avoiding the negative

Ware said Microsoft’s position “came out of left field” and is really a policy argument that should be addressed before Congress, not the courts.

Smaller technology companies, which are typically financed through venture capitalists, would have run into major problems had the court switched to the preponderance test, he added. The lower threshold would have weakened the strength of patents by allowing more infringement challenges to succeed.

“There would’ve been considerably less predictability of the patents that underlie the products being developed,” he said. “A preponderance standard means that all you have to do is tip 51 percent one way and the patent is suddenly invalid.”

Steven J. Frank, an intellectual property and commercial technology partner at Bingham McCutchen in Boston, said the closely watched Microsoft case came in the wake of a series of Supreme Court decisions viewed as unfavorable to patent owners.

Several of those cases were also highly critical of the Federal Circuit Court of Appeals, which ruled in favor of maintaining the clear and convincing standard, he said.

“People were worried about the fact that the Supreme Court’s decisions had served to limit patent rights over the last couple of years,” Frank said. “There was a genuine concern that if they are taking cert on this question rather than merely declining to review it and letting the Federal Circuit decision stand, a negative result for patent owners was on the horizon.”

Word on trial

In 2007, i4i brought suit against Microsoft, asserting that the computer company’s manufacture of Microsoft Word infringed on its patent.

The computer giant responded by stating that i4i’s patent was unenforceable and invalid under 35 U.S.C. §282.

At trial, Microsoft argued it should not be compelled to prove all of its invalidity claims under the clear and convincing evidence standard.

Microsoft claimed, in part, that the burden of proof on prior art that the U.S. Patent and Trademark Office did not review should be decided under the preponderance of the evidence standard.

But a U.S. District Court judge disagreed, and a jury eventually concluded that Microsoft had not proven invalidity.

When the Federal Circuit affirmed, Microsoft appealed to the Supreme Court.

Head-scratcher

Sotomayor wrote that courts generally defer to Congress when the law’s intent is clear as to what standard of proof should apply.

While the law did not expressly articulate an intent to use the clear and convincing standard, common-law interpretation of its language left little room for debate, she said.

Where the statute states that a patent is “presumed valid,” Sotomayor said, Congress used a term that had a well-settled meaning.

Citing the 1934 ruling in Radio Corp. of America v. Radio Engineering Laboratories, Inc., the judge said “there is a presumption of [patent] validity [that is] not to be overthrown except by clear and cogent evidence.”

She also rejected Microsoft’s argument that a preponderance standard must at least apply when the evidence before the fact-finder was not reviewed by the PTO during the examination process.

“It is true enough that, in these circumstances, the rationale underlying the presumption — that the PTO, in its expertise, has approved the claim — seems much diminished,” she wrote.

But the question remained as to whether Congress specified the applicable standard of proof, Sotomayor said.

“As established here today, Congress did just that by codifying the common-law presumption of patent validity and, implicitly, the heightened standard of proof attached to it,” she said. “The Court’s pre-Act cases never adopted or endorsed Microsoft’s fluctuating standard of proof.”

She said the legislative history pointed to a finding against Microsoft.

“Nothing in §282’s text suggests that Congress meant to depart from that understanding to enact a standard of proof that would rise and fall with the facts of each case,” Sotomayor wrote. “Indeed, had Congress intended to drop the heightened standard of proof where the evidence before the jury varied from that before the PTO, it presumably would have said so expressly.”