Obama Administration to the Supremes: Judges Should Defer to U.S. Patent and Trademark Office Expertise

WASHINGTON, March 21, 2011 — The Obama Administration told the U.S. Supreme Court on Friday that federal judges should trust the procedures undertaken at the United States Patent and Trademark Office to ensure that any patents that they approve are valid, and thus uphold a strict legal standard that is currently used by juries to decide whether a piece of key evidence presented during litigation is sufficient to invalidate disputed patents.

The administration’s argument is particularly noteworthy on several counts. The USPTO has come under fire in recent years for granting patents of questionable quality as it strains to keep up with the workload imposed by an explosion of increasingly complex applications.

The Obama Administration has made improving the situation at the patent office a centerpiece of its effort to modernize the U.S. economy, and to create high-value jobs. It’s been vigorously lobbying congress and public opinion to enact a sweeping patent reform package that would give the USPTO the resources its advocates say it needs to improve its performance.

The case pits technology giant Microsoft against i4i Limited Partnership, a small consulting company in Toronto, Canada. The consulting company owns a patent to a specific configuration  for editing custom XML, a computer mark-up language, and it sued Microsoft for patent infringement in 2007 for selling a version of its Word processing program that incorporated the ability to edit custom XML without licensing it.

A sign of how big of a financial impact the Supreme Court’s decision in this case could have on the economy is the eye-opening range of entities that have chipped in with their opinions.

Household brand names from every corner of the business world — from pharmaceuticals, technology, finance, retailing, to autos, and their industry trade groups — as well as public interest groups have weighed in with their opinions.

As of Friday, 22 friend-of-the-court briefs were filed with the court against Microsoft, and on the same side as i4i and the Obama Administration.

Opinions are all over the map, with many venture funds, former patent commissioners, technology companies and universities siding with i4i, and many Silicon Valley companies such as Apple, CISCO, Google and Intel (who are often the target of similar suits) siding with Microsoft.

Microsoft had responded to the patent infringement suit by asking the federal district court to find i4i’s patent invalid and unenforceable.

A jury in the federal district court for the Eastern Texas decided in favor of i4i on multiple counts, and Microsoft repeatedly, and unsuccessfully, appealed its decision.

Microsoft didn’t give up. The Justices of the Supreme Court agreed in September to hear company’s appeal of the Federal Circuit’s 2009 affirmation of the district court’s decision. Chief Justice Roberts, an expert in business law, is recused from the case.

Microsoft argues that the legal standard for considering evidence to invalidate a patent during litigation is too high.

The current standard juries are instructed to use when they have to decide whether a piece of evidence renders a patent invalid or not is “clear-and-convincing,” which is higher than a preponderance of the evidence — the legal standard for evidence considered in all other civil litigation.

This standard, established by the Federal Circuit,  is even more ironic in this particular case because the consultants destroyed the source code before they filed for the patent, so Microsoft has nothing other than individual testimonies to prove its contention that i4i and Information Infrastructures sold a version of its patented product more than a year before it filed for a patent. The USPTO does not grant patents on ideas that have been sold or used for a year before an application.

As Microsoft’s lawyers put it in their legal brief on the case to the Supremes:

“Yet because i4i had destroyed the source code for the software before filing its  action against Microsoft, i4i’s technical expert and counsel were able to stress to the jury repeatedly that Microsoft could not prove by clear and convincing evidence that the software embodied the patented invention.”

Microsoft is also arguing that the legal standard shouldn’t be applied to evidence used to prove that a patent is invalid during litigation if that evidence was never considered by the USPTO examiner when granting the patent.

“Where an agency has failed to address the relevant evidence or issue, no deference could even conceivably be warranted,” argued Microsoft’s lawyers Matthew Powers of Weil, Gotshal & Manges, former Attorney General Ted Olson and his colleagues at Gibson, Dunn & Crutcher and Microsoft’s in-house counsel. “The Federal Circuit accordingly erred when it affirmed the district court’s application of a clear-and-convincing-evidence standard to Microsoft’s onsale-bar defense, which (it is undisputed) the PTO never considered because the patent applicants did not disclose their own prior-art software.”

The Obama Administration argued in a filing with the Supreme Court of Friday that changing the standard would undercut patent examiners’ authority.

“A contention that a patent is invalid is in essence a collateral attack on the PTO’s prior administrative action, and it therefore implicates principles of deference to agency authority and expertise,” wrote Bernard J. Knight, the USPTO’s general counsel, his colleagues at the agency, and Neal Kumar Katyal, the acting solicitor general, Tony West, assistant attorney general and Malcom L. Stewart, deputy solicitor general and several other Justice Department colleagues.

“By allowing a lay jury to second-guess the PTO’s judgment even in close cases, the preponderance standard would diminish the expected value of patents and would reduce future investors’ incentives to innovate and to disclose their inventions to the public,” they added.

It should be Congress, not the courts, that get to change the standard, if the standard has to be changed, they argued.

The Supreme Court is scheduled to hear oral arguments mid-April. The administration on Friday petitioned the court to participate.