Microsoft-i4i case before high court could have far-reaching reverberations

WASHINGTON — It's a feature few Microsoft Word users knew about and even fewer ever used.

But a document-editing function no longer included in Word landed Microsoft before the Supreme Court on Monday in a case that could potentially wipe out billions of dollars of value from existing U.S. patents should the Redmond software giant prevail.

The question before the high court: Should the evidence standard in patent disputes be lowered to make it easier to toss out bad patents?

The matter pits Microsoft against a tiny Toronto software company, i4i, which claims Microsoft cribbed in Word 2003 and Word 2007 its improved method for editing XML, computer codes that use invisible "tags" embedded in the text to italicize words or to convey other display instructions.

But the legal and financial reverberations from the case could reach far beyond the two combatants.

At stake are millions of new drugs, machines and other inventions whose very worth hinges on the expectation that, once granted, patents are valid and tough to overturn. At the same time, companies as varied as Google, Wal-Mart and MasterCard are seeking relief from a growing number of infringement claims involving patents they say never should have been issued.

Microsoft contends the U.S. Patent and Trademark Office erred in issuing the patent to i4i. Specifically, Microsoft alleges patent examiners failed to take into account that i4i's invention was on the market more than a year before it sought to patent it — past the deadline for patent application.

So far, Microsoft has lost every court decision in the case. In 2009, a Texas jury concluded the company willfully infringed on the patent and ordered it to pay $200 million. A district court judge upped i4i's award by $90 million.

The U.S. Court of Appeals upheld the ruling.

To prove that i4i's patent was invalid, Microsoft had to produce "clear and convincing evidence " its claim was highly probably true.

Microsoft and its sympathizers argue that such a threshold — akin to just short of "beyond a reasonable doubt" standard used in criminal cases — is too daunting to knock out any but the most dubious patents.

Instead, Microsoft contends the default standard in patent disputes should be "preponderance of the evidence," which would require it to show i4i's patent was more likely than not to be obvious and not novel.

On Monday, Justice Stephen Breyer grappled aloud about the competing demands on patent law.

Breyer noted that many legal rulings on patent cases have been based on the principle that invalidating a patent is economically disastrous for the owner.

But it might be just as bad, Breyer said, to shield weak patents, especially given the growing complexities of technology.

"So I can't work out in my own mind whether in today's world these first principles cut for the patentee or cut for the challenger to the patent," he said.

Thomas Hungar, an attorney for Microsoft, and Seth Waxman, an i4i attorney, spun dueling interpretations of congressional intent behind the Patent Act of 1952.

The law declares that "a patent shall be presumed valid" and puts the burden of disproving it on the accuser. But Congress did not specify the height of that burden.

Justice Samuel Alito seemed skeptical of Waxman's contention that despite its silence, Congress intended to codify previous Supreme Court decisions upholding the higher threshold for evidence.

"If Congress wanted to impose a clear and convincing burden, why in the world would they not have said that expressly in that sentence?" Alito asked.

Justices Ruth Bader Ginsburg, Elena Kagan and Antonin Scalia pressed Hungar, the Microsoft attorney, about whether his position would contradict a 1934 Supreme Court decision that patents should not be overthrown "except by clear and cogent evidence."

Hungar argued that the court's opinion in that case, involving the Radio Corp. of America, did not apply broadly to all patent cases.

Chief Justice John Roberts did not hear the case because he owns between $100,000 and $250,000 worth of Microsoft stock.

The Justice Department is supporting i4i in the case. Deputy Solicitor General Malcolm Stewart said patent holders "should have reasonable confidence that [a patent] won't be overturned unless the evidence is clear."

Because of constraints of time, money and expertise, patent examiners judge applications based on best available, but not exhaustive, evidence. The government's fear is that under a "preponderance" evidence standard, challengers with enough lawyers could easily dig up evidence overlooked by the patent office.

Andy Culbert, Microsoft's associate general counsel, argued just the opposite.

Speaking after the hearing, Culbert said those getting patents now have an incentive to sit on information that could weaken their applications. But the specter that undivulged but relevant evidence could later undermine their patents, Culbert said, would force companies to be more diligent about their claims.

"I actually think it would strengthen the patent system," Culbert said.

The case seems it could cut both ways for Microsoft, since the company is also a prolific patentee.

Not so, according to Culbert. "This case won't affect Microsoft because we have high confidence in our patents," he said.

On the court steps, i4i Chairman Loudon Owen said he's confident his company's patent would withstand even the lower evidence standard.

Nonetheless, he accused Microsoft of trying to usurp his company's property rights.

"If we win, justice will prevail," Owen said. "If Microsoft wins, I think it will be highly destructive to an entire generation of innovators."

Kyung Song: 202-662-7455 or ksong@seattletimes.com