Posted by Boris Milivojevic
You may have noticed when upgrading from Microsoft Office 2003 to Office 2007 or later that Microsoft Word documents are now by default saved in the ‘docx’ file format. The ‘x’ denotes that Microsoft has moved to an XML-based file format. XML is a ‘mark-up language’ which tells your computer how text should be displayed in a document. Not a big deal, you might have thought – except that, by incorporating a particular feature relating to ‘custom XML’ in migrating to its XML-based file format, Microsoft is alleged to have infringed a patent held by i4i, a Canadian software company. (While XML is a royalty-free standard, companies are still free to file patents on inventions that implement the standard.)
In early 2008, i4i filed a suit against Microsoft in the Eastern District of Texas alleging that Microsoft infringed its custom XML patent. Under US law, i4i's XML patent is presumed to be valid, and Microsoft, as the party seeking to invalidate the patent, has the burden of proof to show that the patent is invalid.
When applying for a patent in the US, the US Patent and Trademark Office (USPTO) subjects applications to a review before the patent is granted. The applicant must submit all relevant prior art they are aware of, and the USPTO also searches for all relevant prior art. However, due to the limited resources of the USPTO, often not all of the prior art material is considered when granting a patent, creating grounds for alleged patent infringers to argue that the patent is invalid.
In attempting to invalidate i4i's patent, Microsoft pointed to prior art in the form of i4i's SEMI-S4 software, which i4i had developed and sold in 1993. Microsoft alleged that i4i's SEMI-S4 software contained the ‘custom XML’ code that i4i later patented in 1998. If true, this would have constituted a violation of section 102(b) of Title 35 of the US Code (the equivalent of Australia's Patents Act 1990 (Cth)), and render i4i’s patent invalid.
i4i argued that the SEMI-S4 software did not contain the subsequently patented code. Importantly, the code was destroyed after the SEMI-S4 project was completed and could not be put into evidence. This made the standard of proof which Microsoft had to satisfy in order to show patent invalidity a high one. In the end, Microsoft was unable to convince a jury that there was 'clear and convincing' evidence that i4i’s patent was invalid.
Microsoft has now sought to take this issue to the US Supreme Court, arguing that, because the SEMI-S4 software was prior art that the USPTO had not considered in granting i4i’s patent, Microsoft should not have to provide ‘clear and convincing’ evidence that i4i’s patent is invalid. Microsoft has asserted that it should only have to establish a ‘preponderance of evidence’ – the civil standard in US law, broadly equivalent to the Australian ‘balance of probabilities’ standard. In other words, Microsoft argued that it should only have to prove that it was ‘more likely than not’ that i4i’s patent is invalid.
The US Supreme Court has agreed to consider this issue. Interestingly, if the US Supreme Court does agree with Microsoft that it does not have to provide ‘clear and convincing’ evidence that i4i’s patent is invalid, such a decision may be indicative of the Court’s shift away (in more recent times) from interpreting US patent law in favour of patent rights holders.
This shift is exemplified by the case of eBay Inc v MercExchange LLC 547 U.S. 388 (2006). In that case, the US Supreme Court reversed decades-old court practice, and unanimously held that an injunction should not be automatically granted on a finding of patent infringement. Instead, as is the Australian approach, it held that a court must consider a number of balancing factors in determining whether or not an injunction is appropriate.
The eBay decision not only significantly favours alleged patent infringers, but brings US law into closer alignment with Australian law. Before the eBay decision, injunctions provided a strong bargaining chip for patent holders – the spectre of having infringing products banned from the marketplace often forced alleged patent infringers to settle, rather than go to trial and test the validity of the patent. Today, even if patent infringement cases do go to trial, the eBay decision means that a compulsory licence is the more likely remedy, and the royalties payable under this licence are likely be lower than a patent holder could have negotiated with the looming spectre of a permanent injunction.
If the US Supreme Court now decides to lower the evidentiary standard for prior art to a ‘preponderance of evidence’, this will further shift the balance of power towards alleged patent infringers.
Indeed, such a decision (had it been handed down earlier) might have had a material impact on cases such as the CSIRO’s now-settled Wi-Fi patent dispute with various US tech companies, in that it may have made the Wi-Fi patent easier to invalidate (and potentially waylaid any settlement).
These cases may have also led to a different outcome in cases such as that of RIM, the maker of the BlackBerry, which in 2006 agreed to pay NTP Inc, a Virginia-based patent holding company, US$612.5 million to settle a patent dispute, as it could not invalidate NTP’s patent and an injunction may have shut down the BlackBerry system in the US.
Will the judicial tide continue to turn against patent owners?
Partner: Paul Kallenbach
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