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Patent Challenges Debated as Top Court Hears Microsoft Case

U.S. Supreme Court justices debated making it easier to challenge some patents, reviewing a case that led to changes in Microsoft Corp. (MSFT)’s Word software and may force the company to pay a $300 million award.

Microsoft today urged the justices in a one-hour hearing in Washington to overturn a jury verdict won by closely held I4i LP, which sued the larger company for patent infringement. The verdict now stands as the largest ever upheld by an appeals court in a patent case.

Microsoft and its allies -- including Apple Inc. (AAPL), Google Inc. (GOOG), Cisco Systems Inc. (CSCO) and Intel Corp. (INTC) -- say the appeals court ruling favoring I4i left companies vulnerable to infringement suits by making it too hard to invalidate patents that never should have been issued.

In upholding the verdict, the U.S. Court of Appeals for the Federal Circuit said Microsoft didn’t prove that the disputed patent, which covers a feature that lets large companies add special data to Word files, was based on technology that was already in the marketplace.

The appeals court said Microsoft needed to offer “clear and convincing evidence” to overcome the traditional presumption that patents approved by the U.S. Patent and Trademark Office are valid. Microsoft says a less-demanding standard should apply when a jury is presented with evidence about pre-existing technology that the patent examiner didn’t consider.

Change in the Law

“When the Patent Office didn’t even consider the evidence, it makes absolutely no sense” to use the clear-and-convincing standard, Microsoft’s lawyer, Thomas Hungar, argued.

Justice Stephen Breyer said Microsoft’s position “would be a change” in the law, and several other justices suggested they were resistant to making such a shift. Justice Elena Kagan said Microsoft’s approach was inconsistent with a 1934 Supreme Court opinion.

“If you read that opinion, no one would gather from that opinion the kinds of limits that you’re suggesting on it,” Kagan told Hungar.

Chief Justice John Roberts didn’t take part in today’s argument. His most recent financial disclosure form indicates he or his family owns Microsoft stock worth between $100,000 and $250,000.

Longstanding Rule

Toronto-based I4i argues that the clear and convincing standard is a longstanding rule that has encouraged innovation. I4i’s Supreme Court lawyer, Seth Waxman, said Congress had “actively acquiesced” in the clear-and-convincing standard.

“Congress has been very, very active in this field,” Waxman said. “It is well aware of the clear-and-convincing evidence standard and it has done almost nothing to change it.”

I4i has support in the case from venture capital firms and a trade group representing the pharmaceutical industry. Microsoft also has support in its appeal from trade groups representing the financial services and wireless industries.

The case stems from a method developed by I4i for editing documents using XML, a so-called markup language that tells the computer how text should appear. I4i created a way to store the content and the XML codes separately, making it easier for users to work alone with either the content or the codes.

Customers including drugmakers Merck & Co. and Bayer AG use I4i’s software to make sure that people get up-to-date information on the labels of their medicine.

Word Program

In its 2007 lawsuit, I4i accused Microsoft of incorporating the invention into the larger company’s Word program, which is used by 500 million people worldwide.

Microsoft argued in defense that I4i had included its innovation in a product it sold to a client more than a year before it filed its patent application. That prior use would have rendered the invention ineligible for patenting under federal law.

A jury agreed with I4i and awarded $200 million. The judge overseeing the case increased that sum because of misconduct by Microsoft’s trial lawyer, and the figure has continued to grow with interest. The court also ordered Microsoft to stop using the invention, forcing the company to update the Word software.

The case, which the court is scheduled to resolve by the end of June, is Microsoft v. I4i Limited Partnership, 10-290.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net.

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