Score One For The Trolls: Supreme Court Says Congress Intended It To Be Very Difficult To Invalidate Patents

from the canada-celebrates dept

This isn't a huge surprise, but in the Microsoft v. i4i case over what the standard for invalidating a patent should be (either the super high bar of "clear and convincing evidence" or the slightly lower bar of "the preponderance of the evidence,") the Supreme Court has now decided that the higher bar is what Congress intended (pdf). This means that it's that much more difficult to invalidate bad patents. The Court's ruling is basically that the common law presumption of validity mostly (but not entirely) used this standard, and when Congress passed the 1952 Patent Act (really written by patent lawyers), it simply meant to codify what the common law had said on that issue. It was an 8-0 ruling (with Chief Justice Roberts not taking part due to Microsoft investments, I believe), though Justice Thomas had some reservations about the thinking, but not the final judgment. The opinion was written by Justice Sotomayor, who got a bit snarky at points:

"Squint as we may, we fail to see the qualifications that Microsoft purports to identify in our cases."

I recognize the general reasoning of the Court in the case. Basically, it looks like, historically, a higher standard was frequently used, and since Congress didn't specify a different standard, it seems to suggest they were fine with the standard. But I think to some extent that ignores reality. First of all, the 1952 Act was written by patent lawyers and it's not clear Congress even understood all of it, so it seems a bit rich to suggest that it purposely was trying to codify that standard. On top of that, the use of the patent system has changed dramatically over the past few decades, and the entire presumption of validity is increasingly in question given the massive number of ridiculously bad patents approved by the Patent Office. As it currently stands, USPTO examiners rush through applications, spending an average of about 18 hours on each application. To grant patents with so little review and then presume they're valid with a ridiculously high barrier to challenging that presumption seems economically stupid.

In what world does it make sense to grant innovation-limiting monopolies for nearly two decades based on 18 hours of review?

But, in the end, this is really Congress' problem to fix -- which means they won't. Congress could fix this quite easily by clarifying a lower standard to invalidate patents. This makes tremendous sense. The only patents it would impact are bad patents. And no one -- even patent supporters -- should want bad patents. But you know who does like bad patents? Those who have them and those who profit from them -- and those people are really loud in their support of not messing with the system that gives them so much in monopoly rents. So it seems highly unlikely that Congress will even bother to look at making this simple change to the patent system.

Filed Under: patents, standard, supreme court, validity
Companies: i4i, microsoft

A Succinct Description For Why Assuming Patent Validity Is A Problem

from the no-adversarial-process dept

Law professor Doug Lichtman has an op-ed in the NY Times, timed to the Supreme Court's hearing on the Microsoft/i4i case. As we've discussed, the focus is on what the standard should be for reviewing patents in the courts. We were disappointed that the US government supported keeping patents difficult to invalidate. Lichtman's op-ed does a nice job explaining why this makes no sense:

Patent examiners give most applications only a quick look, spending on average 16 hours to 17 hours per application — nowhere near the time needed to assess whether an invention is truly new and not obvious. Worse, those hours are typically spread over two to three years, and they are interspersed with work on hundreds of other open files.

These problems could in theory be fixed with more money. But resources aren’t the only issue. The extent and quality of Patent Office review is also limited by the fact that the process is not adversarial. Indeed, the only parties involved in Patent Office review are the applicant and the applicant’s lawyers — people with an obvious incentive to see the application move forward. Contrast that with litigation, where patent plaintiffs have to square off against very motivated patent defendants.

Those two issues cover exactly why it's a screwed up system where patents are automatically considered valid. The lack of time given to reviewing patents is often talked about, but the lack of an adversarial hearing is important as well. Obviously, defenders of the system today will point out that's what the court system is for. They argue that it's better for the courts to sort it out than to burden the Patent Office even further. But, if that's the case, then we should make it so the court system actually can invalidate bad patents more easily. Instead, the system works on an assumption of validity, with a very high bar ("clear and convincing," rather than the lower "preponderance of the evidence."). I still can't figure out how anyone defends this aspect of the current system. Moving the bar lower will only serve to get rid of bad patents. So the only argument I can see for defending the current system is that these people somehow believe that bad patents are important as well. And I'm left scratching my head as to who, outside of those who hold or profit from bad patents, could think that.

Anyway, the Supreme Court has, thankfully, released the transcript (pdf and embedded below) of today's hearing, and in typical Supreme Court fashion, it doesn't give away too much, but is still interesting. It seems like most of the Justices are pretty focused on the procedural issues and the specifics of Congress' intent, prior rulings, and whether or not the specific "preponderance of the evidence" standard is any more reasonable than "clear and convincing evidence." The one Justice who seems to grasp the deeper issues (again, not surprisingly if you're aware of his past), is Justice Breyer, who repeatedly brings up issues about bad patents and the harm they do. He seems to be fully aware of what's really at stake here, beyond a standard used by courts. Of course, none of that gives any indication how the case will eventually turn out. Also, Microsoft is at a bit of a disadvantage here, in that Chief Justice Roberts recused himself from this case, since he owns Microsoft stock. If the result comes out as a 4 to 4 tie, then i4i wins, and we're left with a bad standard, unless Congress finally makes its intent clear (unlikely).

Filed Under: patents, standard, supreme court, validity
Companies: i4i, microsoft

US Gov't Supports Keeping Patents Difficult To Invalidate

from the government-wants-its-fees... dept

With the Supreme Court agreeing to hear the i4i vs. Microsoft patent case, we're starting to see the amici briefs, and the US government has decided to support those against innovation, by siding with i4i. This is a pretty sad statement about the US government's understanding of patents. If you don't recall, the lawsuit focuses on a single key issue:

In court, parties have to prove their case by some "standard of proof." In almost all civil cases, the standard is "preponderance of the evidence" -- meaning it is more likely than not that the facts are true. When the question is invalidating a patent, however, the U.S. Court of Appeals for the Federal Circuit decided that a defendant trying to prove a patent invalid must do so by a higher standard than normal civil cases, that of "clear and convincing" evidence. "Clear and convincing" means that the facts are "highly probable," which is a much more difficult standard to meet when trying to invalidate a patent than just a preponderance.

That's it. It's pretty simple. The bar for invalidating bad patents should be "the preponderance of the evidence." Anyone who has any experience in actually bringing innovative products to market, and facing a bunch of threats and lawsuits from patent holders who have obviously bad patents would agree that this makes sense (or, rather, would agree that moving in this direction makes sense). In fact, that's why tons and tons of successful companies supported Microsoft in getting the Supreme Court to hear the case.

So pardon me for finding it laughable when i4i's chairman, Loudon Owen, claims that switching the standard would mean innovative organizations can't survive:

"As you can see from the amicus briefs, and from a letter previously sent to the Attorney General by over 260 signatories, this is an absolutely pivotal case that threatens the ability of inventors and innovative organizations to survive,"

Let's be 100% clear here, because Owen is lying. If you have a legitimate patent, you have nothing to fear from this requested change. Even if you have a bad patent, it's unlikely that this change would mean much for you. It's only if you have a ridiculously bad patent that this change would have any impact. And that certainly is not about the ability of inventors or innovative organizations to survive. Oh, by the way, take a guess at the level of quality that i4i has with its patents? Yeah...

In the meantime, if you look at the list of folks who filed amicus briefs supporting i4i, you'll notice that it's basically a bunch of companies who rely on patent licensing, rather than products to get by. There's also a funny one about "leading venture capital firms," which doesn't list any actual "leading" VC firms. No Accel. No Sequoia. No Kleiner Perkins. No Union Square Ventures. Those are the firms that people get excited about. Those are the firms that everyone wants to raise money from. They're all absent. The rest of the list is a mix of "IP" organizations and pharmaceutical companies -- who are hanging onto patents as their last gasp effort to stay alive, since they're failing to actually innovate.

As for the brief from the US government itself, which is embedded below, it's pretty weak if you're familiar with the problem of bad patents. But it basically says the law (which, it should be reminded, was written by a former patent lawyer, and was done before the recent burst of massively bad patents), says we should use the higher standard, so we should. It's also laughable, in that it assumes that the US Patent Office actually does its job in making sure that patents are valid before allowing them.

Finally, we should note that, yes, there's tremendous irony in Microsoft trying to lower the standard for ditching bad patents, at the same time it appears to be relying on ridiculously bad patents in lawsuits itself.

Filed Under: bad patents, evidence, invalidating patents, patents, standard, us government
Companies: i4i, microsoft

Supreme Court Will Review The Standard For Patent Infringement: Could Raise The Bar

from the preponderance-of-the-evidence dept

We've been following the Microsoft/i4i patent case for a while. If you don't remember, i4i came up with a basic system for editing XML documents and patented it. Microsoft included similar technology in Word and got sued. A court, stunningly, decided that this rarely used feature was somehow worth $98, which seemed pretty extreme for a minor (and relatively easy to implement) feature. But, such is life in a world with software patents. The CAFC (appeals court) upheld the ruling, and Microsoft appealed to the Supreme Court. At the time, I didn't think there was much of a chance of review, as I didn't realize there was a bigger legal point that Microsoft was attacking here. However, it later came out that the focus of the appeal was the standard used in patent cases. As the EFF summarized in discussing the case:

In court, parties have to prove their case by some "standard of proof." In almost all civil cases, the standard is "preponderance of the evidence" -- meaning it is more likely than not that the facts are true. When the question is invalidating a patent, however, the U.S. Court of Appeals for the Federal Circuit decided that a defendant trying to prove a patent invalid must do so by a higher standard than normal civil cases, that of "clear and convincing" evidence. "Clear and convincing" means that the facts are "highly probable," which is a much more difficult standard to meet when trying to invalidate a patent than just a preponderance.

That question apparently was intriguing enough to at least four Supreme Court Justices, as this is one case they have agreed to hear. For the past decade or so, the Supreme Court has been smacking CAFC around on a variety of patent issues, and if it was comfortable with how CAFC ruled here, it could have declined to hear the case. So just taking the case indicates concern among at least a core group of the Justices. This could mean that the standard for invalidating a patent could be lowered -- which would be a pretty big win for those of us who worry about how often bad or obvious patents are allowed to remain standing in various innovation-hindering lawsuits.

Filed Under: patents, standard, supreme court
Companies: i4i, microsoft

Will The Supreme Court Review Patent Invalidation Standard In Microsoft vs. i4i Case?

from the perhaps dept

At the end of August, when Microsoft officially appealed its loss in a patent infringement lawsuit filed by a company named i4i over features for editing XML in a document (patent 5,787,449), I doubted that the Supreme Court would hear the case, given the lack of any larger significance. However, I may have underestimated how much the tech and legal community would rally behind a key point in the appeal: the legal standard for invalidating a patent -- something the Supreme Court hinted it had trouble with way back in the famous KSR case.

As the EFF explains in its blog post about its own brief:

In court, parties have to prove their case by some "standard of proof." In almost all civil cases, the standard is "preponderance of the evidence" -- meaning it is more likely than not that the facts are true. When the question is invalidating a patent, however, the U.S. Court of Appeals for the Federal Circuit decided that a defendant trying to prove a patent invalid must do so by a higher standard than normal civil cases, that of "clear and convincing" evidence. "Clear and convincing" means that the facts are "highly probable," which is a much more difficult standard to meet when trying to invalidate a patent than just a preponderance.

Considering the massive economic harm that bad patents can do, you would think that it would absolutely make sense for there to be a lower standard to invalidate bad patents. And, certainly, it seems that lots of folks agree. The link to Law.com above has links to most of the briefs filed in support of changing the standard -- including summaries of what's in each brief. We already mentioned EFF (whose filing was done with Public Knowledge, CCIA and the Apache Software Foundation), but other briefs came from CTIA, Google, Yahoo, Intel, Apple, Verizon, Facebook, Wal-Mart, HP, Dell, HTC, Intuit, Toyota, Netflix, Newegg, SAP, GM, Teva Pharmaceuticals, Cisco and a few others as well. In other words, there are a lot of folks interested in this issue, and reasonably see this as an important way to stop the harm caused by bad patents.

The key issue, of course, is that patent examiners really don't have that much time to spend on patents, so their ability to really review the state of the art and the prior art is limited. That's not putting down the patent examiners; it's just the fact of the matter. An average examiner spends just a few days on a patent, which is hardly enough time to recognize what the real state of the art might be. So it seems to make a lot of sense to have a low bar to proving a patent invalid at a later date -- especially if more evidence can be shown on the state of the art at the time.

Along those lines, in a filing by a bunch of law, economics and business professors it's pointed out that, not only do patent examiners not have nearly enough time to understand the state of the art, but that a patent examination process happens with no real "opposition," who has the real incentive to point out the state of the art or the prior art. That's what happens during a trial, and that's a more likely situation to be able to fairly evaluate patent quality. Thus, the courts shouldn't put too much weight on the examiner's determination, as it's hardly the best review.

Another key point made in the filings, is the fact that, back before CAFC (the appeals court that handles most patent appeals) was created and started using this standard, disputed patents were much more likely to be rejected as invalid. However, since this change has occurred, a much higher percentage are held valid. The quality didn't change -- those are still bad patents. It's just that the standard for invalidating bad patents changed. It's hard to see who would argue that leaving bad patents in place is a good thing... unless your business relies on bad patents.

I'm still not convinced the Supreme Court is really interested in taking this on, but given the amount of firepower asking it to fix this issue, perhaps the Court will do the right thing.

Filed Under: cafc, clear and convincing, invalidation, patents, preponderance of the evidence, standards, supreme court
Companies: i4i, microsoft

Microsoft, Who Supports Software Patents, Now Asks Supreme Court To Help It Against Patent Holder

from the live-by-the-patent... dept

Microsoft, who has become a strongly pro-software patent company (despite Bill Gates' old claim that patents would have harmed the software industry in the early days), is finding out (yet again) that such a stance can come back to bite you. We've already covered the somewhat ridiculous lawsuit that Microsoft faced from a small Canadian company, i4i, who claimed a patent (5,787,449) on an XML editing feature. Microsoft lost the lawsuit, and the court issued an injunction against Microsoft and claimed that the feature was worth an astounding $98 per copy where the feature was used. Microsoft appealed the case to CAFC who upheld the lower court ruling. Microsoft then appealed to have the entire CAFC rehear the case, and that got rejected. The only move left is to appeal to the Supreme Court that's exactly what Microsoft has now done.

To be honest, I can't see the Supreme Court actually taking this case. Unlike some of the other patent cases that the Supremes have taken recently, there doesn't seem to be any big constitutional questions here. It's just a silly patent that Microsoft is on the hook for infringing. Perhaps rather than fighting this individual battle, Microsoft will finally realize that it's stance on patents is only going to do it more harm in the long run.

Filed Under: editing, software patents, xml
Companies: i4i, microsoft

CAFC Won't Rehear Patent Case Of Editing XML

from the too-bad dept

One of the more troubling patent rulings in the past year involved a Canadian company, i4i, that held a patent (5,787,449) that appears to broadly (very broadly) cover editing a custom XML document, separate from the presentation layer of a document. Microsoft included such functionality in Word, and i4i sued. Amazingly, the court not only found the patent to be valid and that Microsoft infringed, but somehow decided that the functionality was worth $98 in each copy of Word where this product was used (estimated to be 1.8 million users). Of course, Word itself doesn't cost much more than that (in reality), and this is a tiny feature of Word that was very unlikely to be a key buying point for most users of the program. But the courts were having none of it, and even issued an injunction against selling Word, along with a huge fine. At the end of the last year, the appeals court (CAFC) upheld the ruling and the potential injunction.

Microsoft appealed to have the case reheard by the full panel of judges at CAFC, but that's now been rejected as well. Microsoft can (and may) still appeal to the Supreme Court, but I doubt there's enough of a core issue at play in this lawsuit to have the Supreme Court bother with it.

Of course, this is just one more reminder why Microsoft might want to reconsider its strongly pro-patent position. It seems like it can come back to bite you.

Filed Under: cafc, microsoft word, patents, xml
Companies: i4i, microsoft

CAFC Upholds Huge Fine; Injunction Against Selling Microsoft Word

from the does-mercexchange-mean-nothing? dept

Another example of how the patent system is being used to hinder, rather than help, innovation. While we're no fans of Microsoft's view on patents these days, that doesn't mean we approve of ridiculous lawsuits against the company either. The one that got all the attention this year was a tiny Canadian startup, i4i, that claimed a patent (5,787,449) on editing an XML document, and then sued Microsoft and won (in Texas, of course). Not only did the company win, but the court ruled that Microsoft owed $98 per copy of Microsoft Word for this minor feature. On top of that, the court issued an injunction saying Microsoft could no longer sell Microsoft Word with this feature. Given the MercExchange ruling that said that injunctions don't always make sense in patent cases, it was hard to defend such an injunction as being necessary.

But... never let common sense get in the way of how the judicial system works when it comes to patents. The appeals court (CAFC) has now upheld the lower court ruling, requiring Microsoft to pay the $290 million and bars further sales of any copy of Microsoft Word with this feature as of January 11th. Microsoft's response is that it will simply remove this "little-used" feature. So this feature is rarely used, and yet it's worth $98 per copy of Word sold? How does that make sense?

Meanwhile, the tiny Canadian company is thrilled. It just made hundreds of millions of dollars for stating the obvious. And, rather than encouraging innovation, it's forcing a company to remove features. How is that innovative? How does that do anything at all to "promote the progress"? While some Canadian law professors might like to make up facts as to why these types of rulings make sense, I'm still at a loss as to how progress has been promoted here.

Filed Under: cafc, injunction, patents, xml
Companies: i4i, microsoft

Canadian Law Professors Insist Banning The Sale Of Word Is Good For Society & Innovation

from the really,-now? dept

Rob Hyndman points us to two Canadian law professors, Michael Trebilcock and Edward Iacobucci, insisting that patents are "the mother of invention" in an article that mostly spends its time trying to defend the silly injunction (already put on hold) barring Microsoft from selling Word or Office, because it supposedly violates a patent, 5,787,449, on XML editing of a word processed document. There are all sorts of problems with the column, kicking off with Hyndman's question as to how law professors should be considered experts on innovation...

But, let's dig further into the details.

Patents are essential to the modern system of innovation. Once produced, information can be transmitted at zero cost. In the absence of patent protection, would-be inventors become vulnerable to competition that would drive the value of their discovery to zero, leaving them with no compensation for the costs of producing that information in the first place.

This is the usual story. And it sounds good. But there's no factual evidence to support it. That's because it ignores reality. Yes, information can be transmitted at zero cost, but that does not mean that implementation is assured, or that the market stands still. Besides, I'm curious as to the claim "vulnerable to competition," as if competition is a bad thing. Most people recognize that competition drives innovation -- and yet, these law professors are suggesting the exact opposite. That you need less competition to drive innovation.

Furthermore, they are wrong in claiming that in the absence of patent protection "the value of their discovery" is driven to "zero, leaving them with no compensation." They say this as if the compensation is for the idea, rather than the implementation. That is simply wrong. No one compensates you directly for an idea. If you have a good idea, you need to bring a product to market and sell it. If someone else copies that idea, you still have a large first mover advantage and you understand the market better. On top of that, you should be ahead of the curve in terms of improving on the concept for the next iteration. That's competition. It doesn't mean the value of the idea is zero or that there's no compensation. Claiming such makes no sense.

Again, beyond common sense, the historical evidence suggests that these law professors are simply wrong. Countries with no or weak patent protection have seen tremendous innovation over time. And it's because it's competition that's the mother of innovation, not a lack of competition. For well over two hundred years, economists have recognized that monopolies that remove competition are bad for innovation. These lawyers are insisting that the opposite is true, and present no proof.

Microsoft objects that the injunction ordered by the trial judge goes too far. (It has been put on hold until after the appeal, which is to begin Wednesday.) But injunctions are almost always ordered to prevent continuing infringement, and for good reason. To simply order money damages for future infringement would be to force i4i to license out its technology at a court-imposed price.

This is misleading. While it is true that in the past injunctions were the norm, since the US Supreme Court's MercExchange ruling more than three years ago, courts recognize that injunctions often do not make sense. The reason they don't make sense is because they require stopping the sale of an entire product (or lines of products) due to a single infringing feature. That makes no sense, and the courts have recognized this. I'm not sure why these law professors do not.

Just as there are good reasons not to compel citizens to sell or rent out their homes at prices set by judges, there are very good reasons in general to avoid compulsory licensing of intellectual property. Court determinations of the value of intellectual property are necessarily somewhat conjectural, yet damages awards require courts to act, in effect, as price regulators. By contrast, injunctions do not prevent a licensing deal from being done, but rather cede to the owner of the property the authority to set a price. Just as giving homeowners the right to decide whether to sell or rent out their houses does not destroy the housing market, in terrorem arguments about the death of Word under this injunction are without merit.

Again, this is quite misleading. It implies that an injunction leads to the natural market setting the price for licensing, but nothing could be further from the truth. If someone is pointing a gun at your head and negotiating over how much you have to pay to stay alive, that's not exactly a fair and open economic transaction that both parties enter into under their own free will. Claiming that this is somehow a more accurate market is pure folly.

Meanwhile, Microsoft has vociferously argued that despite the trial judge's careful vetting of the evidence, i4i did not establish at trial a firm basis for its damages claim for past infringement. This claim about the speculative nature of past damages sits uncomfortably with Microsoft's opposition to injunctions. Given the complexity of measuring supply and demand for a unique product, it must be true that there is some empirical uncertainty about the precise level of past damages. But if patents are to have value, this uncertainty is unavoidable: A damages award is the only available remedy for infringement that has already taken place.

Again, I have to admit confusion over these claims, which seem to have no basis in reality. It is not "the patent" that has value. It is the product. For sale in the market. And it's the consumer who values it. The fact is that many more people seemed to value a complete package of Microsoft Word. They were not buying it because of i4i's silly and questionable patent. They were buying it because Microsoft Word is a useful product. The difference in sales for Microsoft Word if it had not included XML editing would likely be negligible at best. There is no evidence of damages. If i4i and these lawyers are claiming that the "damages" are i4i's inability to sell its own product, again, that is difficult to square with reality. Competition happens all the time, and it's as good thing. i4i's inability to come up with a product or marketing plan that people wanted is its problem, not Microsoft's.

Also, the lawyers, in claiming that there was "careful vetting of the evidence," conveniently leave out that this was done in East Texas, which has a long history of vetting in favor of patent holders. Don't ask me, ask the bull that TiVo bought.

Protecting i4i's patent protects incentives to invent and the competitive process. In this case, the trial judge wisely offered such protection, while recognizing the court's own institutional limitations, by ordering damages for past infringement and injunctions going forward. While the decision was not a good one for Microsoft, it was clearly in the best interests of society.

Really? So, completely banning the sale of an entire office suite offering because one tiny, rarely used, feature might infringe on some random other company's products is "in the best interests of society"? That seems wholly without support. That would mean making every user of Microsoft's office suite suffer, for the benefit of a small 30 person company that developed a rather obvious concept. How is that possibly in the best interests of society?

Filed Under: canada, edward iacobucci, injunctions, innovation, michael trebilcock, patents, society
Companies: i4i, microsoft

Judge Bars Sale Of Microsoft Word For Patent Infringement (Though It Won't Stick)

from the nice-work dept

Just last week, plenty of tech publications were up in arms over the news that Microsoft had apparently secured a patent on XML word processing documents (patent 7,571,169). Of course, when you live by software patents, expect to die by software patents... as a judge (in East Texas of course) has now issued an injunction against Microsoft, barring the sale of Microsoft Word because it infringes on a patent that involves (you guessed it) XML word processing documents.

The judgment against Microsoft in this case actually isn't new. We wrote about it and the $200 million judgment back in May, noting how insane it was that the company holding the patent, i4i, felt that it deserved $98 for every copy of Microsoft Word ever sold. For what? Its patent, 5,787,449, is about XML editing of a word processed document. How that could be worth $98 per copy of Word is beyond me. Actually, how it's patentable at all is beyond me... but that's another story.

Of course, there's about 0% probability that this will actually stop the sales of Word, but it's ridiculous for Judge Leonard Davis to issue this injunction in the first place. As he well knows, the Supreme Court ruled in the MercExchange case that injunctions often don't make sense in patent infringement cases. In that case, the Supreme Court says that a judge should weigh a variety of factors in determining if an injunction is reasonable. From the actual injunction, there's no evidence at all that the judge weighed anything at all. However, he gave Microsoft 60 days to comply, which is ample time for Microsoft to appeal the injunction, and in such cases it's quite common for the appeals court to stay the injunction.

But, honestly, the whole thing shows (yet again) how screwed up the patent system has become. The fact that a judge would ban all sales of Microsoft Word because it can edit an XML document? And that's on top of a $200 million award for infringing on this patent? How can anyone think that's a sane outcome?

Filed Under: east texas, injunction, patents, xml
Companies: i4i, microsoft