The U.S. Supreme Court Thursday denied Microsoft's appeal of a $290 million patent infringement verdict against it by a tiny Toronto technology firm, i4i, ruling that the standards for challenging the validity of patents are more stringent than the software giant had claimed in its defense.
Microsoft (NASDAQ: MSFT) had argued that, because i4i had sold a version of its product in the U.S. a year prior to filing for its patent, the patent was invalid -- an assertion that the court denied. The software giant's legal team had also asserted that it should only need to prove that i4i's patent was invalid by a "preponderance" of evidence, a lower standard of proof than the lower courts demanded. The court's ruling also denied that assertion.
Instead, the main ruling, which was authored by Justice Sonia Sotomayor, found that the validity of patents should be judged by the more stringent "clear-and-convincing standard." That puts the responsibility for challenging the validity of a patent squarely on the party aiming to invalidate the intellectual property in question.
"Microsoft tried to gut the value of patents by introducing a lower standard for invalidating patents. It is now 100 percent clear that you can only invalidate a patent based on 'clear and convincing' evidence," Loudon Owen, chairman of i4i, said in a statement.
The decision was a clear win for i4i, whose legal team had claimed that Microsoft had intentionally infringed its patent for what is called a custom XML editor by including that capability in various versions of Microsoft's products, including Office and Word 2007 and 2003. (Microsoft's latest versions of these products, Office and Word 2010, do not include the infringing code.)
I4i first filed its case in 2007. A lower court jury found Microsoft liable and the court awarded i4i some $290 million, including penalties and interest. Microsoft challenged the ruling in the appeals court, which ultimately denied Microsoft's arguments.
Microsoft's lawyers also tried to challenge the validity of i4i's patent at the U.S. Patent and Trademark Office (USPTO), which also turned the software giant's requests to invalidate i4i's patent down.
Last fall, Microsoft announced it would double down and asked the Supreme Court to hear its appeal, which it agreed to do.
The high court heard oral arguments from both parties this spring.
Perhaps a little ironically, Microsoft tried to put the best possible face on Thursday's decision.
"This case raised an important issue of law which the Supreme Court itself had questioned in an earlier decision and which we believed needed resolution. While the outcome is not what we had hoped for, we will continue to advocate for changes to the law that will prevent abuse of the patent system and protect inventors who hold patents representing true innovation," a Microsoft spokesperson said in an emailed statement. The case is Microsoft Corporation v. i4i Limited Partnership (as PDF).