i4i Claims Victory for Innovation in SC Ruling Against Microsoft

The U.S. Supreme Court has upheld a lower court ruling that found Microsoft unlawfully infringed on i4i’s document-editing patents by incorporating its technology in some of its Word products.

The US$290 million penalty is small change for Microsoft, but the verdict could have more troubling implications for the company, as well as for fellow tech giants Google and Apple, which supported Microsoft’s appeal.

Essentially, the high court rejected Microsoft’s attempt to overturn the lower court’s ruling because the judge did not use Microsoft’s requested lower standard of proof — the preponderance of evidence standard rather than the clear and convincing evidence standard — in his instructions to the jury.

It was narrowly decided, in other words: Congress had set the standard of proof several decades ago, the justices said, and thus it would be incumbent on Congress to change it.

If Microsoft had succeeded with the court, it would have made it more difficult for smaller firms to bring patent claims against large companies.

“This is a great day for innovation in America,” Doug Cawley, i4i’s lead trial counsel and partner at McKool Smith, told the E-Commerce Times. “If the Supreme Court had decided the case differently, it would have substantially reduced the value of patents and the protection of innovation.”

The Supreme Court issued its decision in a 8-0 ruling., with Chief Justice John Roberts abstaining from the case.

Microsoft declined to comment directly to the E-Commerce Times but said in a statement that it was disappointed in the ruling and would continue to advocate for changes to prevent abuses of the patent system.

Big Win for Small Biz

As the players’ reactions indicate, the case was a divisive one for the business community. Small companies, in particular, worried that innovation would be threatened if it became harder to secure patent claims.

“The decision is a win for small company patent owners who find themselves facing large companies who are using their patent technology,” Robert G. Sterne at Sterne, Kessler, Goldstein & Fox, told the E-Commerce Times.

The tech community, for its part, has been bedeviled by patent claims that arise seemingly out of nowhere, filed by so-called patent trolls.

The decision is a setback for Microsoft and other big tech companies that feel they have been most victimized by lawsuits enforcing “bad” patents, Steven Rizzi, a partner in the IP litigation practice of Foley & Lardner, told the E-Commerce Times. “It means that such companies are likely to continue to face a steady, and perhaps increased, flow of patent lawsuits brought by non-competitors.”

It appears unlikely that the ruling will spur new legislation.

“The Court essentially ratified what has been the status quo for the past 30 years,” said Rizzi, “noting that Congress has not acted to change the law. There would also be powerful opposition to any attempt to alter the effect of the presumption through legislation, as evidence by the roster of companies that sided with i4i in this case.”

Long Haul

Though Microsoft fought hard to reverse the decision, it has taken pains to point out that the patents cover a little-used feature in Word, and the company does not expect its loss in court to seriously impinge its day-to-day operations.

The showdown began in 2007 when i4i sued Microsoft, alleging that Word unlawfully infringed on its patents based on XML, DOCX and DOCM file formats. In August 2009, a jury found the software giant had indeed violated i4i’s patents. Judge Leonard Davis of the U.S. District Court for Eastern Texas subsequently issued an injunction against the sale of Microsoft Word.

That September, the U.S. Court of Appeals for the Federal Circuit temporarily stayed the injunction against the sale of Word that had been set to take effect the following month. Eventually, though, the injunction did go into force, on Jan. 11, 2010, requiring Microsoft to remove the infringing code from the relevant versions of Word on store shelves — namely Microsoft Word 2007 and Microsoft Office 2007 suite.

The court also ordered Microsoft to pay $240 million in damages.

Back to Business as Usual?

For the most part the ruling maintains the status quo, said Rod S. Berman, chairman of the intellectual property department at Jeffer Mangels Butler & Mitchell.

“For companies like Google and Apple, who are sued for patent infringement often, I would expect that they are not particularly happy about the ruling, as it does not make their burden for invalidating patents any easier, ” he told the E-Commerce Times.

“The Court’s emphatic recommendation of helpful jury instructions should give them some comfort,” continued Berman.

“On the other hand, this decision should make it easier for patent trolls to proceed with suits, since the defendants will still have a high burden to invalidate the troll’s asserted patents,” he said.

The narrow ground of the decision avoided completely the intense debate over whether patents are too easily granted, James J. Foster, litigation shareholder with Wolf, Greenfield & Sacks, told the E-Commerce Times. “The Court did suggest that in certain circumstances the trial court could, and perhaps should, give an additional jury instruction that might help a defendant, but I see the practical effect of such instructions as minimal.”

Still, the ruling might have a harder-hitting impact in the battle of jury instructions that will follow, suggested David Long at Dow Lohnes.

“This may go further in invalidating patents than the mere words of the invalidity standard itself,” he told the E-Commerce Times.