United States: "Microsoft Corporation v. i4i Limited Partnership:" Supreme Court Unanimously Affirms "Clear And Convincing" Evidence Standard For Patent Invalidity

But Indicates That Juries Should Be Instructed That This Burden Is Easier to Carry When the PTO Did Not Consider Material Evidence

On June 9, 2011, the U.S. Supreme Court issued its highly anticipated decision in Microsoft Corp. v. i4i Limited Partnership. All eight participating justices (Chief Justice Roberts was recused) affirmed the Federal Circuit's longstanding requirement that parties challenging a patent's validity in litigation must prove the patent invalid by "clear and convincing" evidence. That requirement applies, the Court held, even in cases where the Patent and Trademark Office ("PTO") did not consider evidence and arguments made in litigation. Seven justices, led by Justice Sotomayor, held that Congress had expressly adopted a "clear and convincing standard" in § 282 of the Patent Act, 35 U.S.C. § 282, by using language that the Court's earlier precedents had equated with that standard. Justice Thomas concurred in the result, reasoning that Congress presumably followed the existing common law standard when adopting § 282.

Although the decision marks an important victory for patentees, the day was not a total loss for challengers. The Court recognized that the "clear and convincing" evidentiary standard may be easier to carry when, as is often the case, the PTO did not consider material evidence of invalidity presented in litigation. Moreover, the Court indicated "that a jury instruction on the effect of new evidence can, and when requested, most often should be given." Although the majority did not craft an instruction itself, it noted that "[w]hen warranted, the jury may be instructed to consider that it has heard evidence that the PTO had no opportunity to evaluate before granting the patent," to decide whether the evidence is "materially new," and "to consider that fact when determining whether an invalidity defense has been proved by clear and convincing evidence." In so doing, the Court appears to have disagreed with the Federal Circuit's 2007 holding in z4 Technologies v. Microsoft that district courts may refuse such instructions on grounds that they may confuse the jury and detract from the "clear and convincing" standard.

Justice Breyer's concurring opinion, joined by Justices Scalia and Alito, emphasized that the "clear and convincing" evidentiary standard applies only to questions of fact, not matters of law, and that many issues in patent cases involve application of law to fact. The concurring Justices encouraged district judges to give precise jury instructions and to require detailed special verdict forms to ensure that predicate fact findings and ultimate legal conclusions are separated.

Background

i4i sued Microsoft for infringing i4i's patent on a method for editing computer documents in which the content is stored separately from metacodes. One of Microsoft's defenses at trial was that the claims were invalid under 35 U.S.C. § 102(b) because i4i had sold a product embodying the claimed invention more than a year before applying for its patent. The PTO did not consider that issue when allowing the patent. Because the software's source code had been destroyed before the litigation, the parties' dispute over what i4i had sold before the critical date turned largely on the testimony of the named inventors.

At trial, Microsoft asked the district court to instruct the jury that Microsoft needed to prove its on-sale bar defense only by a preponderance of the evidence, not by "clear and convincing" evidence, because the PTO had not considered whether the on-sale bar applied. The district court disagreed and instructed the jury that "clear and convincing" evidence was required. The jury found for i4i and awarded it $240 million. The district court upheld that verdict.

Microsoft appealed on numerous grounds. Most relevant here, it challenged the district court's requirement of "clear and convincing" evidence of invalidity, urging the Federal Circuit to heed the Supreme Court's observation in its 2007 decision in KSR International Co. v. Teleflex Inc. that "the rationale underlying the presumption [of validity]—that the PTO, in its expertise, has approved the claim—seems much diminished" when a court considers prior art that the PTO has not considered. The Federal Circuit disagreed, however, and reiterated that a challenger must always prove invalidity by clear and convincing evidence.

With the backing of many leading high-technology companies, Microsoft took the case to the Supreme Court, and the Supreme Court granted certiorari. Before the Supreme Court, Microsoft not only challenged whether the "clear and convincing" standard applies in cases where the PTO did not consider evidence of invalidity argued at trial; it argued for a preponderance standard for all invalidity defenses in all cases.

The Primary Holding: The "Clear and Convincing" Standard Applies in All Cases

Justice Sotomayor wrote the opinion of the Court, joined by all the Justices except Chief Justice Roberts, who recused himself, and Justice Thomas, who concurred on other grounds. The decision began by focusing on the language of the governing statute, 35 U.S.C. § 282, which reads, in relevant part: "A patent shall be presumed valid. . . . The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity."

The Court acknowledged that the statute "includes no express articulation of the standard of proof" but reasoned that Congress had nonetheless chosen one by using the phrase "presumed valid." The Court concluded that its precedent before the current language was adopted in 1952, most notably its 1934 decision in Radio Corporation of America v. Radio Engineering Laboratories, Inc., had given "presumed valid" a settled meaning in patent law, i.e., requiring proof of invalidity by clear and convincing evidence. Because a statute is normally presumed to incorporate the established meaning of common law terms it employs, the Court held that § 282 had codified the prevailing "clear and convincing" standard of proof. The Court rejected Microsoft's contention that pre-enactment case law had not applied a consistent standard. The Court recognized that its construction implied some redundancy in the statutory language, but it pointed out that all the proposed constructions were redundant to some degree.

The Court then turned to whether the same standard should apply where the PTO had not considered the evidence of invalidity presented at trial, and held that it should. Although Microsoft argued that the administrative deference rationale behind the "clear and convincing" standard did not apply, the Court concluded that neither the pre-enactment case law nor the statute suggested a standard of proof that "would rise and fall with the facts of each case." If Congress had intended such an approach, the Court reasoned, Congress would have said so expressly. The Court also expressed concern that a standard of proof that varied depending on the facts of the case would be impractical, in part because it is not always clear when an examiner has considered a particular issue.

The Court did, however, endorse the "commonsense principle . . . that new evidence supporting an invalidity defense may 'carry more weight' . . . than evidence previously considered by the PTO." In particular, "if the PTO did not have all material facts before it, its considered judgment may lose significant force," and "concomitantly, the challenger's burden to persuade the jury of its invalidity defense by clear and convincing evidence may be easier to sustain." Accordingly, the Court concluded, "a jury instruction on the effect of new evidence can, and when requested, most often should be given." While not suggesting "any particular formulation," the Court provided a road map: 

The Court held, however, that Microsoft could not complain that the district court gave no such instruction in this particular case because Microsoft had not requested one from the district court.

Finally, the Court summarized the policy arguments by the parties and their amici for and against each standard of proof but declined to weigh them. Because Congress had never lowered the standard of proof or even considered a proposal to do so, the Court deemed itself bound to adhere to the traditional "clear and convincing" standard. The Court thus voted to affirm the Federal Circuit's judgment.

Justice Thomas's Concurrence in the Result

Justice Thomas concurred only in the result and filed a separate opinion to explain that he disagreed with the Court's premise that "presumed valid" had a fixed meaning in 1952 that § 282 had codified. Nonetheless, he agreed with the majority's holding that the "clear and convincing" evidentiary standard should apply in all cases on the ground that the statute's silence left the existing common law rule unaltered.

Justice Breyer's Concurrence Regarding the Separation of Legal and Factual Issues

Justice Breyer, joined by Justices Scalia and Alito, wrote a brief concurrence to underline that the "clear and convincing" standard of proof applies only to questions of fact and not to questions of law. The concurring Justices emphasized that although the "clear and convincing" standard is used to reach factual findings, that evidentiary standard has no bearing on the application of law to the facts found—including the ultimate question of validity. They suggested that courts can separate the fact-finding and law-applying functions and avoid granting legal protection where none is due by using clearer, case-specific jury instructions and by using detailed special interrogatories and verdict forms so that the court can apply the law to specific fact findings.

Significance of the Decision

The Supreme Court's holding will be a great relief to patentees because it ensures that the "clear and convincing" evidence standard will continue to apply in all litigation cases, regardless of whether the PTO considered the evidence and arguments raised at trial. The result is a major disappointment for the defense bar, which was hoping for a tectonic shift benefiting challengers.

On the other hand, the defense bar can take some solace from the Court's assertion that juries not only may, but should, be instructed that challengers can more easily carry their burden of proving invalidity when they rely on evidence that the PTO did not consider. The Federal Circuit's 2007 decision in z4 Technologies v. Microsoft declined to require such an instruction, warning that it might confuse the jury and lead it to think that less than "clear and convincing" evidence was required. This decision appears to undermine that holding, and challengers presumably will once again ask for such instructions in cases involving grounds of invalidity that the PTO did not fully consider. The practical impact remains to be seen, but a jury instruction that the burden of proving invalidity is "easier to sustain" and that the PTO's "considered judgment may lose significant force" when the PTO did not consider an issue should at least help challengers deflate the usual instructions that patents are presumed valid and must be proven invalid by "clear and convincing" evidence. Indeed, given the potential practical impact of such instructions, their wording will likely be heavily litigated.

Although the decision focuses primarily on patent litigation, it may also have an effect on patent prosecution. In Therasense v. Becton, Dickinson, the en banc Federal Circuit recently adopted a more rigorous standard for proving the "materiality" required for inequitable conduct. One of the animating reasons was a concern that applicants were burdening the PTO with too much information in an effort to avoid inequitable conduct charges. Ironically, the decision here, just days later, may push in the opposite direction: applicants will continue to have an incentive to disclose prior art to the PTO so that they can avoid an "easier to carry" instruction.

Finally, Justice Breyer's concurrence is significant even though it did not command the votes of a majority of the Court. As the concurring Justices observed, evidentiary standards apply only to factual issues, not to the application of law to fact. Historically, the Federal Circuit has treated anticipation as a fact question, but obviousness as a legal question; it has treated the adequacy of a written description as a fact question, but enablement as a legal question. As a practical matter, however, all these issues tend to have both factual and legal components and are thus mixed questions of fact and law. The concurring opinion may add force to challengers' arguments that judges must make the ultimate legal determinations regarding the validity of patents, even though they must accept jury fact findings that are supported by substantial evidence. The concurrence may also encourage district courts to adopt more detailed special verdict forms so that the courts can apply the law to particular facts expressly found rather than relying on findings presumed to be implicit in more general verdicts.

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