CONCLUSION Duquesne Business Law Journal Vol. 14:2

CLEAR AND CONVINCING EVIDENCE AS PROPER STANDARD OF PROOF FOR A PATENT INVALIDITY DEFENSE UNDER 282 OF THE PATENT ACT OF 1952: MICROSOFT CORP. V. I4I LTD. PARTN. Meredith Norris * INTRODUCTION... 335 I. The Microsoft Decision... 336 A. Facts... 337 B. The District Court... 338 C. The Federal Circuit... 340 D. The Supreme Court... 344 II. The History of the Standard of Proof and Presumption of Patent Validity of the Patent Act of 1952... 346 A. Circuit Split Concerning the Interpretation of Congressional Intent With Regard to the Required Standard of Proof for Section 282 of the Patent Act of 1952... 347 B. Congressional Intent: Reports on Section 282 Concerning the Presumption of Patent Validity and Heightened Standard of Proof... 347 C. The Supreme Court Interpretatio of Congressional Intent Concerning the Presumption of Patent Validity and Standard of Proof Prior to 1952... 348 D. The Supreme Court Interpretation of Congressional Intent Concerning the Presumption of Patent Validity and Standard of Proof Since 1952... 349 III. Analysis of Microsoft... 351 A. Flaws in the Patent Granting Process... 352 * J.D. Candidate Spring 2014, Duquesne University School of Law; Master s in Business Administration Fall 2007, Duquesne University John F. Donahue Graduate School of Business; B.S. in Business Administration Spring 2006, Duquesne University A.J. Palumbo School of Business. 335

336 Duquesne Business Law Journal Vol. 14:2 CONCLUSION... 354 INTRODUCTION In June 2011 the United States Supreme Court upheld over a century s worth of case law concerning the presumption of patent validity, when it adopted the United States Court of Appeals for the Federal Circuit s holding regarding the proper standard of proof for a patent invalidity defense under 282 of the Patent Act of 1952 1 ( 282 ). 2 Previously, the federal circuit courts were split concerning the appropriate standard of proof for a patent invalidity defense. 3 It wasn t until Microsoft Corp. v. i4i Ltd. Partn., that the Supreme Court established clear and convincing evidence as the proper standard. 4 This Case Note examines the effects and implications of the presumption of patent validity and heightened standard of proof regarding 282. First, the Case Note discusses the facts, procedural history, and the analysis and application of law used by the Supreme Court in deciding Microsoft. Next is the examination of the historical development and implementation of law concerning the presumption of patent validity both prior to and subsequent to the enactment of the Patent Act of 1952. Lastly, this Case Note concludes with an analysis of divergent problems concerning the law and the process by which patents are granted. I. The Microsoft Decision Microsoft concerns an action brought under the Patent Act of 1952, wherein i4i Limited Partnership ( i4i Ltd. Partn. ) brought an in- 1. 35 U.S.C. 282. 2. Microsoft Corp. v. i4i Ltd. Partn., 131 S. Ct. 2238 (2011). 3. See e.g. Dickstein v. Seventy Corp., 522 F.2d 1294, 1297 (6th Cir. 1975) (holding preponderance of evidence sufficient to establish invalidity in the United States Court of Appeals for the Sixth Circuit); Chi. Rawhide Mfg. Co. v. Crane Packing Co., 523 F.2d 452, 458 (7th Cir. 1975) (requiring a clear and cogent showing in order to order to prevail in establishing invalidity in the United States Court of Appeals for the Seventh Circuit); Chiron Corp. v. Genentech, Inc., 363 F.3d 1247, 1259 (Fed. Cir. 2004) (considering the presumption of validity to emanate from the statutory command, thus holding clear and convincing evidence to be the proper standard of proof in the Court of Appeals for the Federal Circuit); Clark Equip. Co. v. Keller, 570 F.2d 778, 795 (8th Cir. 1978) (holding substantial evidence sufficient to establish invalidity in the United States Court of Appeals for the Eighth Circuit). 4. Microsoft, 131 S. Ct. at 2252.

2012 Clear and Convincing Evidence 337 fringement action against its competitor, Microsoft Corporation ( Microsoft ). 5 Following a seven-day trial held in the United States District Court for the Eastern District of Texas, Microsoft moved for judgment as a matter of law or, in the alternative, a new trial. 6 Both motions were denied, and i4i Ltd. Partn. moved for enhanced damages, attorneys fees and costs, and a permanent injunction, which were all granted. 7 The Court of Appeals for the Federal Circuit affirmed, but modified the district court s verdict concerning the injunction s effective date. 8 The Supreme Court granted certiorari to decide whether 282 requires an invalidity defense be met by a clear and convincing evidence standard. 9 A. Facts Respondent, i4i Ltd. Partn., is a software consulting company that is actively engaged in creating, marketing, and selling software. 10 In June 1994, i4i Ltd. Partn. applied for a patent regarding a method for processing and storing information in the structure of electronic documents. 11 After approximately four years, the United States Patent and Trademark Office ( PTO ) granted the application, which issued as U.S. Patent No. 5,787,449 ( 449 Patent ). 12 Since the 449 Patent was issued, i4i Ltd. Partn. developed several additional software products including an add-on 13 for Microsoft Word, a product of the Petitioner, Microsoft. 14 The add-on software expanded Microsoft Word s capability to work with documents containing custom XML, a markup language that guides computers in 5. Id. at 2239. 6. I4i Ltd. Partn. v. Microsoft Corp., 670 F. Supp. 2d 568, 573 (E.D. Tex. 2009) 7. Id. at 572-73. 8. i4i Ltd. Partn. v. Microsoft Corp., 598 F.3d 831, 864 (Fed. Cir. 2010). 9. Microsoft, 131 S. Ct. at 2242, 2244. 10. i4i Ltd. Partn., 598 F.3d at 839. 11. Id. 12. Id. 13. An add-on is a software extension that adds extra features to a program. It may extend certain functions within the program, add new items to the program's interface, or give the program additional capabilities. TechTerms.com, Add-on, http://www.techterms.com/definition/addon (accessed June 2, 2012). The add-on software in Microsoft expanded Microsoft Word's capability to work with documents containing custom XML. i4i Ltd. Partn,. 598 F.3d at 839. 14. i4i Ltd. Partn., 598 F.3d at 839.

338 Duquesne Business Law Journal Vol. 14:2 how text should be processed by inserting tags 15 around text. 16 i4i Ltd. Partn. refers to tags and similar information about a document structure as metacodes. 17 The 449 patent asserts an improved method for editing documents containing markup languages like XML by storing a document s content and metacodes separately. 18 i4i Ltd. Partn. s invention primarily achieved this separation by creating a metacode map a data structure that stores the metacodes and their locations within the document and content in a data structure called mapped content. 19 This separate storage of a document s structure and content is an improvement of prior technology, as it allowed users to work solely on a document s content or its structure. 20 In 2003, Microsoft began selling versions of Microsoft Word capable of custom XML editing. 21 B. The District Court On March 8, 2007, i4i Ltd. Partn. brought suit against Microsoft, alleging that the custom XML editor in certain versions of Microsoft Word, infringed the 449 Patent, owned by i4i Ltd. Partn.. 22 A jury trial commenced on May 11, 2009 before the District Court for the Eastern District of Texas, where i4i Ltd. Partn. claimed that: (1) Microsoft s use of certain Word 2003 and all of Word 2007 products for processing XML documents with custom XML elements infringed claims 14 23, 18 24 and 20 25 of the 449 Patent, and (2) Microsoft s in- 15. Tags give a computer information about the text. For example, some tags might tell the computer how to display text, such as what words should appear in bold or italics. Additionally, other tags can tell a computer about the text's content, identifying it as a person's name or social security number, for instance. Each tag consists of a delimiter and tag name. The delimiter sets the tag apart from the content. Thus, a tag indicating that 717 Madison Pl. NW is an address might appear as <address>717 Madison Pl. NW</address> where address is the tag's name and < and > are the delimiters. i4i Ltd. Partn., 598 F.3d at 839-40. 16. i4i Ltd. Partn., 598 F.3d at 839. 17. The specification of the 449 patent defines metacode, which includes but is not limited to a descriptive code, as an individual instruction which controls the interpretation of the content of the data, i.e., it differentiates the content. U.S. Patent No. 5,787,449 (filed Jun. 2, 1994); i4i Ltd. Partn., 598 F.3d at 840. 18. Id. 19. Id. 20. Id. 21. Id. 22. i4i Ltd. Partn., 670 F. Supp. 2d at 573. 23. Claim 14; U.S. Patent No. 5,787,449 (filed Jun. 2, 1994) states,

2012 Clear and Convincing Evidence 339 fringement of the patent was willful. 26 In arguing Microsoft s willful infringement, i4i Ltd. Partn. was required to show that: (1) that Microsoft acted with objective recklessness, and (2) that Microsoft knew or should have known the objectivity high risk. 27 Microsoft argued that: (1) its Word products did not infringe the 449 Patent, and (2) that the 449 Patent was invalid. The jury found Microsoft liable for willful infringement and entered a verdict for i4i Ltd. Partn., and subsequently awarded $200 million in damages. 28 Microsoft appealed from the jury s verdict, and unsuccessfully moved for both a judgment as a matter of law or, in the alternative, a new trial on five issues: whether there was (1) direct infringement, (2) indirect infringement, (3) willful infringement, (4) obviousness and anticipation, and (5) damages for which Microsoft also sought remitter. 29 Conversely, i4i Ltd. Partn. pleaded motions for: (1) judgment on the jury verdict and enhanced damages; (2) post-verdict damages to A method for producing a first map of metacodes and their addresses of use in association with mapped content and stored in distinct map storage means, the method comprising: providing the mapped content to mapped content storage means; providing a menu of metacodes; and compiling a map of the metacodes in the distinct storage means, by locating, detecting and addressing the metacodes; and providing the document as the content of the document and the metacode map of the document. Id. 24. Claim 18, A method as claimed in claim 14 further comprising comparing the multiplicity of metacodes in the map with a predetermined set of criteria. U.S. Patent No. 5,787,449 (filed Jun. 2, 1994). 25. Claim 20, A method for producing from a document made up of metacodes and content, a map of metacodes and their addresses of use in association with mapped content of the document and stored in distinct map storage means, the method comprising: (a) reading the content of the document until a metacode is found; (b) copying the content and storing the copied content in a mapped content storage; (c) noting in the map the found metacode and its position in the content; (d) repeating the processing of (a) (c) until the entire document has been processed; and then (e) providing the document as the content of the document separately from the metacode map of the document. U.S. Patent No. 5,787,449 (filed Jun. 2, 1994). 26. i4i Ltd. Partn., 670 F. Supp. 2d at 573. 27. Id. at 580 (citing In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007). 28. Id. at 573. A bench trial concluded that Microsoft equitable defense of laches failed, as Microsoft was unable to show unreasonable delay or prejudice by a preponderance of evidence. Further, Microsoft s equitable defense of inequitable conduct failed, as the elements of materiality and intent were lacking. i4i Ltd. Partn., 670 F. Supp. 2d at 605-608. 29. Id. at 574-93.

340 Duquesne Business Law Journal Vol. 14:2 judgment, prejudgment interest, and post-judgment interest; and (3) a permanent injunction. 30 Microsoft unsuccessfully attempted to counter the permanent injunction asserted by i4i Ltd. Partn. with a motion to stay, in which Microsoft argued that: (1) Microsoft was likely to succeed on appeal against i4i Ltd. Partn.; (2) without a stay, Microsoft and the public will be irreparably harmed; and 3) the 449 Patent required a stay pending re-examination. 31 The court rejected Microsoft s contentions, and ordered Microsoft to comply with the injunction within 60 days of the court order. 32 The district court denied Microsoft's motions for judgment as a matter of law and motions for a new trial, and granted i4i Ltd. Partn. s motions for: (1) enhanced damages 33 and attorneys' fees, in part, (2) motion for permanent injunction, and (3) post-verdict damages, prejudgment interest, and post-judgment interest. 34 The jury also found that Microsoft had waived its right to challenge, inter alia, the validity of the patent based on all but one piece of prior art and the sufficiency of the evidence supporting the jury's damage award. 35 C. The Federal Circuit On appeal before the Court of Appeals for the Federal Circuit, Microsoft challenged the district court s construction of the claim term distinct, 36 as well as the jury s findings concerning patent validity, infringement, damages and the issuance and terms concerning the permanent injunction. 37 Concerning the district court s construction of the claim term distinct, Microsoft renewed their initial arguments 30. i4i Ltd. Partn., 670 F. Supp. 2d at 593-604. 31. Id. at 602-603. 32. Id. 33. i4i Ltd. Partn., 598 F.3d at 839. Although statutorily authorized to triple the jury s $200 million award because of Microsoft s willful infringement, the district court awarded i4i Ltd. Partn. only $40 million in additional damages. i4i Ltd. Partn., 598 F.3d at 839. 34. Id.; i4i Ltd. Partn., 670 F. Supp. 2d at 608. 35. i4i Ltd. Partn., 598 F.3d at 839. 36. Microsoft asserted claims that the term distinct is used to describe how the metacode map and the mapped content are stored. Specifically, the claims say the metacode map is stored in distinct map storage means or distinct storage means. Analogously, the document's content is stored in mapped content storage, or mapped content distinct storage means. i4i Ltd. Partn. v. Microsoft Corp., 598 F.3d at 841-42. 37. Id. at 841.

2012 Clear and Convincing Evidence 341 that the term distinct added two requirements: (1) storing the metacode map and mapped content in separate files, not just separate portions of the computer s memory; and (2) the ability to edit the document s content and its metacode map independently and without access to each other. 38 The court of appeals rejected Microsoft s claim, and held that the term distinct did not require storage in separate files or independent manipulation of the metacode and mapped content. 39 In reaching its conclusion, the court considered whether the claim language required storage of the metacode map and mapped content in separate files, and concluded that it did not. 40 The court determined that because the claims did not use the word file, and that the specification disclosed embodiments where the storage format is not a file; distinct did not require storage in separate files. 41 Further, the court noted a significant fact that the claim language failed to include independent manipulation of the metacode map and mapped content. 42 Instead, the claim language stated that manipulation of the metacode map and mapped content was distinct and separate, which is different than independent. 43 Additionally, the court looked at the prosecution history, which failed to include any statements that narrow the claims to require independent manipulation. 44 The court determined that by looking at 38. i4i Ltd. Partn., 598 F.3d at 842. 39. Id. at 831. 40. Id. at 842. 41. Id. at 843. 42. Id. 43. Id. 44. Id. at 844. Initially, the examiner rejected several claims as obvious, explaining that [s]torage is always distinct, even if at distinct addresses. In response, i4i stated: [T]he architecture of a document can be treated as a separate entity from the content of the document. Thus, the architecture of the document can be treated as an entity having distinct storage from the content of the document. This separation allows distinct processes to operate on the content and the architecture, with or without knowledge of the other. In other words, using the present invention, one could change the architecture, (layout, structure, or presentation formation) of a document without even having access to the actual content of the document. This is achieved by extracting the metacodes from an existing document and creating a map of the location of the metacodes in the document and then storing the map and the content of the document separately. i4i Ltd. Partn. v. Microsoft Corp., 598 F.3d at 844.

342 Duquesne Business Law Journal Vol. 14:2 the specification language, prosecution history and claim language collectively, independent manipulation was a benefit, and not a limitation. 45 Initially, regarding the jury s findings concerning patent validity, Microsoft raised two issues: (1) whether the invention would have been obvious to one of skill in the art; and (2) whether Microsoft is entitled to judgment as a matter of law or a new trial on validity. 46 In addressing its first issue, Microsoft argued that the 449 Patent was obvious, thus invalid under 35 U.S.C. 103(a), based on several pieces of prior art. 47 Additionally, Microsoft argued that it was entitled to a judgment as a matter of law or a new trial due to the anticipation of its S4 software program, which was sold by i4i Ltd. Partn. more than a year before it filed the patent application for its 449 Patent. 48 The circuit court rejected both issues presented by Microsoft and held that there was sufficient evidence that supported the jury s finding that the patent was not anticipated by the sale of prior art software. 49 Secondly, Microsoft challenged the jury instructions and the sufficiency of evidence supporting the jury s general verdict of infringement. 50 In rejecting Microsoft s contentions, the circuit court held there was: (1) sufficient evidence to support the finding of direct infringement of method claims; (2) substantial evidence supporting a finding of contributory infringement; and (3) substantial evidence supporting a finding of induced infringement. 51 In discussing these findings in order, the court determined that there was sufficient evidence to support the finding or direct infringement of method claims as the jury was free to disbelieve the expert who testified that there was no direct infringement and, instead, believe the interrogatories 45. Id. 46. Id. at 844; Microsoft, 131 S. Ct. at 2239-40. 47. i4i Ltd. Partn. v. Microsoft Corp., 598 F.3d at 845. Microsoft argued that i4i's invention would have been obvious in light of U.S. Patent No. 5,587,902 ( Kugimiya ), when combined with either an SGML editor known as Rita or U.S. Patent No. 6,101,512 ( DeRose ). i4i Ltd. Partn. v. Microsoft Corp., 598 F.3d at 845; 35 U.S.C 103(a). 48. Id. at 844; Microsoft, 131 S. Ct. at 2239-40. Microsoft counterclaimed that the 449 patent was invalid under 102(b), which precluded patent protection for any invention sold in the United States more than one year before filing a patent application. Microsoft, 131 S. Ct. at 2239-40. 49. i4i Ltd. Partn., 598 F.3d 831. 50. Id. at 848-52. 51. Id. at 831.

2012 Clear and Convincing Evidence 343 answered by Microsoft stating that a component of Word s custom XML editor met the metacode map limitation of the 449 Patent. 52 The court further determined that the jury could have reasonably concluded that Microsoft was liable for contributory infringement, as the jury not only heard sufficient testimony of the impractical use of Word in three noninfringing ways, but also that Microsoft e-mails showed that Microsoft employees were familiar with the 449 Patent and knew that Word would infringe. 53 Finally, the court concluded that the jury could have reasonably found Microsoft liable for direct infringement because there was evidence in the forms of only training and support manuals showing that consumers were using Word in an infringing manner, as well as the aforementioned e-mail listing examples of custom XMLs use in Word. 54 With regards to damages, Microsoft argued the $200 million damages awarded by the jury and the enhanced damages of $60 million awarded by the district court. 55 The Court of Appeals for the Federal Circuit held that: (1) the damages award of $200 million were not clearly excessive; and (2) evidence was sufficient to establish that infringement was willful, and the district court did not abuse its discretion in awarding $60 million in enhanced damages. 56 In reaching the first decision, the court determined that the calculation of $200 million in damages by i4i Ltd. Partn. s expert was proper, as it relied on facts sufficiently related to the disputed issue because the conservative figure was determined based upon internal Microsoft documents. 57 Moreover, the court found sufficient evidence that Microsoft s infringement was willful and the $60 million in enhanced damages proper because: (1) Microsoft acted in bad faith, as it knew of the 449 Patent, and still included an custom XML editor in Word with similar capabilities to the 449 Patent; (2) based off of Microsoft s size and financial condition, the $60 million was only a small fraction of Microsoft's profits from the sale of Word products; (3) Microsoft not only failed to use the infringing Word products in 2002, but also failed to conduct an infringement analysis after being notified of the 449 52. Id. at 850. 53. Id. at 851. 54. Id. at 852. 55. Id. at 852, 858. 56. Id. at 831. 57. Id. at 854, 856; Fed. R. Evid. 702.

344 Duquesne Business Law Journal Vol. 14:2 Patent in 2003; and (4) Microsoft sought to render i4i Ltd. Partn. s products obsolete by implementing the infringing custom XML 58 Finally, the Court of Appeals for the Federal Circuit examined whether the district court abused its discretion in granting a permanent injunction against Microsoft. 59 The circuit court held that the district court did not abuse its discretion by granting a permanent injunction; however, it modified the district court s ruling on the injunction s effective date originally set at sixty days after the court order, and extended the effective date to five months after the court order. 60 The court reached this decision by finding: (1) i4i Ltd. Partn. products became obsolete in the custom XML market due to Microsoft s infringement; (2) sole monetary damages would be insufficient because i4i Ltd. Partn. had to change its business strategy because Microsoft s infringing products controlled 80% of the custom XML market; (3) the patented method is far more important to i4i Ltd. Partn. whose market share, revenues, and business strategy are tied to the 449 Patent, rather than Microsoft, whose infringing use of the custom XML software is only a fraction of its business; and (4) the narrow scope of the injunction 61 and the public s interest in upholding patent rights favor injunctive relief. 62 In modifying the injunction s effective date, the court of appeals relied on evidence entered by a Microsoft employee, which stated that it would take at least five months for Microsoft to comply with the injunction. 63 D. The Supreme Court The Supreme Court granted Microsoft s petition for a writ of certiorari in order to determine whether 282 required an invalidity de- 58. i4i Ltd. Partn., 598 F.3d 858. 59. i4i Ltd. Partn., 598 F.3d at 861. 60. Id. 61. In particular, the injunction's narrow scope substantially mitigates the negative effects on the public, practically and economically. By excluding users who purchased or licensed infringing Word products before the injunction's effective date, the injunction greatly minimizes adverse effects on the public. Here, the relevant public includes not only individual consumers, but also companies that license infringing Word products and manufacturers that are part of Microsoft's distribution channels. By carving out users who purchased or licensed infringing Word products before the injunction's effective date, the injunction's tailoring minimizes disruptions to the market and the public. i4i Ltd. Partn., 598 F.3d at 863. 62. i4i Ltd. Partn., 598 F.3d at 861-863. 63. Id. at 864.

2012 Clear and Convincing Evidence 345 fense to be proved by clear and convincing evidence. 64 Justice Sonia Sotomayor delivered the opinion of the Court. 65 The Court affirmed the Court of Appeals for the Federal Circuit s ruling and held that by codifying the common-law presumption of patent validity, Congress specified that clear and convincing evidence was the applicable standard of proof required for an invalidity defense under 282. 66 In rendering its decision, the Court rejected both arguments asserted by Microsoft that a defendant in an infringement action need only persuade the jury of an invalidity defense by a preponderance of the evidence, or, alternatively, that a preponderance of the evidence standard of proof must apply when the invalidity defense rests on evidence that was never considered by the PTO in the examination process. 67 In rejecting Microsoft s first argument, the Supreme Court upheld its previous decision in Radio Corp. of America v. Radio Engineering Laboratories 68 ( RCA ) by holding that the common-law presumption of validity reflected a universal understanding that a preponderance standard of proof was too ambiguous. 69. Therefore, the Court concluded that the presumption of validity must only be overthrown be clear and cogent evidence. 70 In rejecting Microsoft s second argument, the Court returned to its rationale concerning the insufficiency of a dubious preponderance standard. 71 The Court concluded that it had never adopted nor supported a fluctuating standard of proof like that envisioned by Microsoft. 72 Instead, the Supreme Court found the 1984 ruling by the Court of Appeals for the Federal Circuit in American Hoist & Derrick Co. v. Sowa & Sons, Inc. to be persuasive on the matter, and held that the burden of clear and convincing evidence in proving invalidity is con- 64. Microsoft Corp., 131 S. Ct. 647 (granting petition); Microsoft Corp., 131 S. Ct. at 2242 (clarifying that petition for writ of certiorari was granted to decide whether an invalidity defense arising under 282 required a clear and convincing standard of proof). 65. Microsoft Corp., 131 S. Ct. at 2242. 66. Id. at 2252. 67. Id. at 2244. 68. 293 U.S. 1 (1934). 69. Microsoft Corp., 131 S. Ct. at 2245-46 (citing Radio Corp. of Am., 293 U.S. at 2, 7). 70. Id. 71. Id. at 2250. 72. Id.

346 Duquesne Business Law Journal Vol. 14:2 stant as it never changes. 73 For these reasons, the Supreme Court affirmed the ruling of the Court of Appeals for the Federal Circuit. 74 II. The History of the Standard of Proof and Presumption of Patent Validity of the Patent Act of 1952 The PTO was established under the Patent Clause of the United States Constitution, which grants inventors exclusive rights to their ideas and discoveries for a specified period of time. 75 In granting these rights, Congress charges the PTO, specifically the Patent Office and not the Trademark Office, with the task of examining patent applications and granting patents to applicants who are entitled to them. 76 To determine which applicants are entitled to receive a patent, Congress set forth prerequisites that must be met to qualify for patent protection. 77 If a patent applicant is granted patent protection, the applicant is given exclusive rights to use the invention during the duration of the patent. 78 If, at any time during the duration of the patent, another person makes, uses, offers to sell, or sells the patented invention without the patentee s consent, the patentee can bring a civil action for patent infringement. 79 Once a patent infringement case is brought, the alleged infringer may, inter alia, assert an invalidity of the patent defense if it can be proven that the patent should have never been issued in the first place. 80 However, in asserting an invalidity defense, the alleged infringer must overcome the presumption of patent validity pursuant to 282, and herein lies the crux of Microsoft. 81 Section 282, in express terms, provides the presumption of patent validity. 82 This codification was followed by almost seventy years of case law that unwaveringly upheld the presumption of validity. 83 73. Id. at 2243 (quoting American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1360 (Fed. Cir. 1984)). 74. Id. at 2252-53. 75. U.S. Const. art. I, 8, cl. 8. 76. 35 U.S.C. 2(a)(1), 131 (2006); United States Patent and Trademark Office, USPTO Offices, http://www.uspto.gov/about/offices/index.jsp (accessed Mar. 24, 2012). 77. 35 U.S.C. 101-103. 78. Microsoft Corp., 131 S. Ct. at 2242. 79. 35 U.S.C. 271(a). 80. Id. at 282(2)-(3). 81. Id. at 282; Microsoft Corp., 131 S. Ct. 2238. 82. 35 U.S.C. 282. 83. Microsoft Corp., 131 S. Ct. at 2245.

2012 Clear and Convincing Evidence 347 Thus, the presumption of patent validity has remained unchanged in the judicial review of 282 since the enactment of the Patent Act of 1952, while the heightened standard of proof of clear and convincing evidence has subsequently been established. 84 A. Circuit Split Concerning the Interpretation of Congressional Intent With Regard to the Required Standard of Proof for Section 282 of the Patent Act of 1952 Section 282 does not include any express articulation of the standard of proof; therefore, it has been left to the judiciary to determine the applicable standard of proof one must establish to prove a patent s invalidity. 85 Consequently, a circuit split regarding the appropriate standard of proof arose. 86 The Supreme Court granted certiorari in Microsoft to determine whether 282 required an invalidity defense to be proved by clear and convincing evidence. 87 It held that that clear and convincing evidence was the proper standard of proof. 88 B. Congressional Intent: Reports on Section 282 Concerning the Presumption of Patent Validity and Heightened Standard of Proof The existing patent laws prior to 1952 had incorporated the sum and substance of the presumption as they assigned the burden of proving invalidity to the accused infringer. 89 Moreover, House and Senate 84. Id. 85. Id. 86. Id. at 2240; Alan Devlin, Revisiting the Presumption of Patent Validity, 37 Sw. U. L. Rev. 323, 330 (2008); See e.g. Dickstein, 522 F.2d at 1297 (holding preponderance of the evidence sufficient to establish invalidity in the Court of Appeals for the Sixth Circuit); Chi. Rawhide Mfg., 523 F.2d at 458 (requiring a clear and cogent showing in order to prevail in establishing invalidity in the Court of Appeals for the Seventh Circuit); Clark Equip., 570 F.2d at 795 (holding substantial evidence sufficient to establish invalidity in the Court of Appeals for the Eighth Circuit);Chiron Corp., 363 F.3d at 1259 (considering the presumption of validity to emanate from the statutory command and thus holding clear and convincing evidence to be the proper standard of proof in the Court of Appeals for the Federal Circuit). 87. Microsoft Corp., 131 S. Ct. at 2242. 88. Id. 89. Id. at 2249, n. 8 (citing 35 U.S.C. 69 (1946 ed.) (providing that a defendant in an infringement action may plead and prove on trial the invalidity of the patent as a defense); see also Patent Act of 1870, Ch. 230, 61, 16 Stat. 208 (same);

348 Duquesne Business Law Journal Vol. 14:2 Reports both explain that 282 introduced a declaration of the presumption of validity of a patent, which is a statement now made by courts in decisions, but has had no expression in the statute. 90 Further, a note following the 1952 version of 282 stated that prior versions of 282 established that the burden of proving invalidity is assigned to the accused infringer. 91 Because the only thing missing from the 282 predecessor was the heightened standard of proof itself. Congress must have understood the presumption of patent validity to include the heightened standard of proof attached to it. 92 C. The Supreme Court Interpretation of Congressional Intent Concerning the Presumption of Patent Validity and Standard of Proof Prior to 1952 As early as 1873, the Supreme Court explained that the defendant bears the burden of proving prior inventorship, with every reasonable doubt being resolved against him. 93 The Supreme Court reaffirmed this rule sixty-three years later when it held that a defendant bears a heavy burden of persuasion when attempting to negate novelty in a patent by showing prior use. 94 In 1934 the Supreme Court traced nearly a century of case law in its decision in RCA. 95 Justice Cardozo wrote for the unanimous RCA Court and stated that without clear and cogent evidence, the presumption of patent validity is not defeated. 96 Justice Cardozo explained that although the force of the presumption found varying expression in Patent Act of 1836, Ch. 357, 15, 5 Stat. 123 (similar); Patent Act of 1793, Ch. II, 6, 1 Stat. 322 (similar); Coffin v. Ogden, 18 Wall. 120, 124 (1873) (explaining that the Patent Act of 1836 allowed a party sued for infringement to prove, among other defenses, that the patentee was not the original and first inventor of the thing patented, or of a substantial and material part thereof claimed to be new )). 90. Id. (quoting H.R.Rep. No.1923, 82d Cong., 2d Sess., 10 (1952); S.Rep. No.1979, 82d Cong., 2d Sess., 9 (1952)). 91. Id. (providing that a defendant in an infringement action may plead and prove on trial the invalidity of the patent as a defense). See e.g. 35 U.S.C. 69 (1946 ed.). 92. Microsoft Corp., 131 S. Ct. at 2249, n. 8. 93. Id. at 2248 (citing Coffin, 18 Wall. at 124). 94. Smith v. Hall, 301 U.S. 216, 233 (1937); see also Mumm v. Jacob E. Decker & Sons, 301 U.S. 168, 171 (1937). 95. Microsoft Corp, 131 S. Ct. at 2245. 96. Id. (quoting Radio Corp. of Am., 293 U.S. at 2).

2012 Clear and Convincing Evidence 349 the Supreme Court and elsewhere, an alleged infringer cannot prove a patent s invalidity with a mere preponderance of evidence. 97 By the time Congress enacted 282, the presumption of patent validity had been a long established fixture in common-law, wherein a patent was presumed to be valid until the presumption was overcome by clear and convincing evidence. 98 This common-law presumption in cases prior to 1952 indicated a universal understanding that a preponderance standard of proof was too dubious a basis to deem a patent invalid; thus, a defendant raising an invalidity defense bore the heavy burden of a clear and convincing evidence standard of proof. 99 Thus, the common-law presumption of patent validity in cases prior to 1952 imposed a heightened standard of proof that was allocated to be borne by the defendant. 100 D. Supreme Court Interpretation of Congressional Intent Concerning the Presumption of Patent Validity and Standard of Proof Since 1952 In 1984 a California Federal Circuit Court established that a defendant seeking to overcome the presumption of patent validity must persuade the fact-finder of its invalidity defense by clear and convincing evidence. 101 Judge Giles Rich, a principal drafter of the 1952 Act, wrote for the Federal Circuit Court and held that 282 codified the existing presumption of validity of patents, which, until that point, had been a common-law presumption based on the basic proposition that a government agency such as the Patent and Trademark Office ( PTO ) 97. Id. at 2245-46 (quoting Radio Corp. of Am., 293 U.S. at 7-8). Justice Cardozo wrote, One otherwise an infringer who assails the validity of a patent fair upon its face bears a heavy burden of persuasion, and fails unless his evidence has more than a dubious preponderance. If that is true where the assailant connects himself in some way with the title of the true inventor, it is so a fortiori where he is a stranger to the invention, without claim of title of his own. If it is true where the assailant launches his attack with evidence different, at least in form, from any theretofore produced in opposition to the patent, it is so a bit more clearly where the evidence is even verbally the same. Id. 98. Id. at 2246 (quoting Radio Corp. of Am., 293 U.S. at 7). 99. Id. at 2246 (quoting Radio Corp. of Am., 293 U.S. at 7-8). 100. Id.. at 2246 (citing Radio Corp. of Am., 293 U.S. at 8). 101. American Hoist & Derrick Co., 725 F.2d 1350.

350 Duquesne Business Law Journal Vol. 14:2 was presumed to do its job. 102 In reliance upon the Supreme Court s ruling in RCA, Judge Rich held that the presumption of patent validity created by 282 assigns a clear and convincing evidence burden that is never changing, on the alleged infringer. 103 Further, in RCA, it was established that deference due to the PTO is proper with respect to evidence concerning validity that was considered, but deference is improper with respect to evidence not considered by the PTO. 104 Judge Rich included that an attacker, when sustaining the burden imposed by 282, produces prior art or other evidence not considered by the PTO, there is no reason to defer to the PTO so far as its effect on validity is concerned. 105 However, the production of new art neither: (1) has an effect on the presumption of validity or on who has the burden of proof, as they are static and different expressions of the same thing, nor (2) does the standard of proof change it must be by clear and convincing evidence or its equivalent, by whatever form of words it may be expressed. 106 Since 1984 the Court of Appeals for the Federal Circuit has never wavered in its interpretation of 282. 107 Further, since 1952 Congress has amended 282 multiple times, and although deliberated, the standard of proof required from the attacker of a patent has never been lowered. 108 In considering this, the Supreme Court affirmed the Court of Appeals for the Federal Circuit s interpretation of 282. 109 102. Id. at 1359 (quoting Morgan v. Daniels, 153 U.S. 120, 122 (1894)). 103. Id. at 1360. Justice Cardozo wrote, Section 282 creates a presumption that a patent is valid and imposes the burden of proving invalidity on the attacker. That burden is constant and never changes and is to convince the court of invalidity by clear evidence. American Hoist & Derrick Co., 725 F.2d at 1360. 104. Id. at 1360. Justice Cardozo wrote, Deference is due the PTO decision to issue the patent with respect to evidence bearing on validity which it considered but no such deference is due with respect to evidence it did not consider. All evidence bearing on the validity issue, whether considered by the PTO or not, is to be taken into account by the tribunal in which validity is attacked. American Hoist & Derrick Co., 725 F.2d at 1360. 105. Id. at 1359. 106. Id. at 1359-60. 107. Microsoft Corp, 131 S. Ct. at 2243 (citing Greenwood v. Hattori Seiko Co., 900 F.2d 238, 240 241 (Fed. Cir. 1990); Ultra Tex Surfaces, Inc. v. Hill Bros. Chemical Co., 204 F.3d 1360, 1367 (Fed. Cir. 2000); ALZA Corp. v. Andrx Pharmaceuticals, LLC, 603 F.3d 935, 940 (Fed. Cir. 2010)). 108. Microsoft Corp, 131 S. Ct. at 2252. 109. Id.

2012 Clear and Convincing Evidence 351 III. Analysis of Microsoft The clear and convincing evidence of the standard of proof for a patent invalidity defense is based on the judiciary s deference to the institutional expertise of the PTO. 110 In the Court of Appeals for the Federal Circuit s holding, adopted by the Supreme Court in Microsoft, Judge Rich wrote that the judicial deference concerning the presumption of patent validity stems from the presumption that employees of a government agency, tasked with issuing solely valid patents, possess the requisite expertise to properly perform their jobs. 111 Further, it is intuitive that the presumption of patent validity and a heightened standard of proof to overcome that validity presumption are proper. The PTO is a constitutionally authorized administrative agency, consisting of employees with specific scientific and technological expertise and competency, with the purpose of reviewing patent applications and granting patents when appropriate. 112 Therefore, a patentee who has successfully submitted a patent application, gone through the necessary application review, and is subsequently granted a patent, should expect and presume that the patent is valid otherwise, seeking patent protection would be a moot point. The purpose of 282 of the Patent Act of 1952, was to codify unchanged case law concerning the presumption of patent validity. 113 The Supreme Court decision in Microsoft was an affirmation of the Court of Appeals for the Federal Circuit s nearly 30 year holding that clear and convincing evidence was the proper standard of proof concerning a patent invalidity defense under 282. 114 While the law appears to be well settled, the current state of the presumption of patent validity is factually disproven upon judicial review of roughly half of all litigated patents. 115 Therefore, the Supreme Court s decision in 110. See Devlin, supra n. 86, at 330-31. 111. Am. Hoist, 725 F.2d at 1359. Jude Rich wrote, Deference that is due to a qualified government agency presumed to have properly done its job, which includes one or more examiners who are assumed to have some expertise in interpreting the references and to be familiar from their work with the level of skill in the art and whose duty it is to issue only valid patents. Id. 112. U.S. Const. art. I, 8, cl. 8; see Devlin, supra n. 86, at 325. 113. Microsoft Corp., 131 S. Ct. at 2245. 114. Id. at 2243. 115. J. Michael Buchanan, Ph.D., J.D., Deference Overcome: Courts Invalidation of Patent Claims as Anticipated by Art Considered by the PTO, 2006 Stan. Tech. L.

352 Duquesne Business Law Journal Vol. 14:2 Microsoft presents two divergent issues either the law is flawed, or the process by which patents are obtained is flawed. Initially, the precedential value of the presumption of patent validity and a heightened standard of proof should not and cannot be overlooked or disregarded. The presumption of validity was established by the judiciary over a century ago 116, and was codified by the legislature over a half a century ago. 117 Furthermore, in Microsoft, the Supreme Court adopted the decades long holding by the Court of Appeals for the Federal Circuit that clear and convincing evidence was the proper standard of proof for a patent invalidity defense. 118 Therefore, changing the current law would negate the principle of stare decises and be objectionable to legislative intent. Secondly, by changing the law concerning the presumption of patent validity, it would then become the task of the judiciary to review the scientific and technological intricacies of challenged patents, and subsequently define patent validity. The judiciary is not best equipped to handle this task, as most often judges and lay jurors do not have the scientific and technological understanding that is necessary to perform this review effectively and efficiently. Thus, such a change of law would so overburden the courts time and costs, that it would be adversarial to judicial economy. Consequently, it is not the law, but the process by which patents are granted that is flawed. A. Flaws in the Patent Granting Process The primary problem with the patent granting process is that the PTO serves a minimum patent screening function, rather than performing the necessary thorough review of patent applications. Currently, the PTO is comprised of over 6,500 employees, about half of whom are patent examiners that scrutinize the more than 450,000 patent applications received each year. 119 On average the patent examination process takes three years; however, of those three years, a pa- Rev. 2, n. 151. The author states that roughly half of all challenged patents are held to be invalid upon judicial review. (accessed at http://stlr.stanford.edu/pdf/ BuchananJ-Deference.pdf). 116. See e.g. Coffin, 85 U.S. at 124. 117. 35 U.S.C. 282. 118. See American Hoist & Derrick Co., 725 F.2d 1350. 119. General Information Concerning Patents. The United States Patent and Trademark Office, http://www.uspto.gov/patents/resources/general_info_concerning _patents.jsp#heading-6 (accessed on Mar.24, 2012)

2012 Clear and Convincing Evidence 353 tent examiner spends on average 18 hours reviewing the application, searching for and comparing prior art to the application, corresponding with applicant or applicant s attorney, and drafting notice of patent rejection or allowance. 120 Additionally, legal scholars have identified two structural problems that encourage the PTO to grant dubious patents including: (1) high examiner turnover; and (2) an incentive system that rewards examiners for granting patent applications, rather than rejecting them. 121 Therefore, instead of the PTO performing its task of reviewing patent applications and granting patents when appropriate, it is granting dubious patents, then relying on the judiciary to complete a full review if, and when, those patents are litigated. The second problem with the patent granting process is that patentseekers bear very little burden when applying for a patent. Initially, a patent seeker is not required to conduct a thorough search for similar prior art, but is required to merely disclose similar prior art to which they are aware. 122 After filing a patent application, the patent applicant will begin to negotiate with a patent examiner about the patent s allow-ability and scope of protection; however, the PTO bears the burden to provide a reason why the patent should not be issued. 123 If and once a patent is granted, if the patentee is dissatisfied with the claims, the patentee can file an application for continuation, where the patentee can seek broader claims and even introduce new matter and elements of the invention to the continuation application. 124 What s more is that the patent applicants are allowed to amend their applications to capture new products appearing in the market as long as they stay within the bounds of the invention described in the initial application. 125 Finally, a discontented patent applicant has the right to appeal a patent examiner s decision with regard to their patent. 126 Thus, once a patent is granted, a patentee is being conferred the presumption of patent validity with very little effort, while a challenger to 120. Mark A. Lemley & Carl Shapiro, Probabilistic Patents, 19 J. Econ. Persp. 75, 79 (2005). 121. Id. 122. Id. at 77. 123. Id. at 78. 124. Id. 125. Lemley & Shapiro, supra n. 120, at 78-79. 126. Id. at 79.

354 Duquesne Business Law Journal Vol. 14:2 the patent bears the heavy burden of a clear and convincing evidence standard of proof. In Microsoft, the Supreme Court placed the very heavy burden of a clear and convincing evidence standard of proof upon a challenger of a patent. 127 This standard, in addition to the presumption of patent validity, is proper. However, in writing for the Court of Appeals for the Federal Circuit, Judge Rich maintained that judicial deference should be given to the technological and institutional expertise of the PTO, which is presumed to have properly done its job. 128 If the judiciary is to continue to give deference to the PTO, then the PTO must properly and thoroughly review patent applications, and grant patents only when appropriate. Further, there should be a greater burden upon a patent applicant to prove to the PTO that his invention deserves patent protection. Consequently, by increasing the burden upon a patent applicant and by improving the PTO s patent granting process, both the patent applicant and the PTO will earn the presumption of patent validity and a clear and convincing standard of proof given by deference from the judiciary. CONCLUSION Microsoft upheld over a century s worth of case law regarding the presumption of patent validity and settled a circuit split by holding clear and convincing evidence as the appropriate standard of proof for a patent invalidity defense under 282. In properly establishing and affirming these laws, the Supreme Court noted that deference would be given to the PTO concerning the presumption of patent validity, and subsequently, the clear and convincing evidence standard of proof. However, the deference was due to the presumption that the PTO would properly perform its task of reviewing patent applications and granting patents when appropriate. The statistical data showing the invalidity of roughly half of all litigated patents brings the presumption of patent validity into question. Therefore, it is not the law, but instead the PTO s process by which patents are granted that is flawed and must change in order to earn the deference given by the judiciary. 127. Microsoft Corp., 131 S. Ct. at 2242. 128. Am. Hoist & Derrick Co., 725 F.2d at 1359.