i4i predicts ‘patent chaos’ if Microsoft wins at Supreme Court

Microsoft Corp.’s appeal yesterday before the U.S. Supreme Court to make it easier to challenge patent could cut both ways and may hold perils for both patent holders and challengers, according to technology industry observers.

In April 2010, the U.S. Court of Appeals denied Microsoft’s appeal after which a three-judge panel upheld a $290-million judgment over willful patent infringement. Toronto-based i4i sued Microsoft in May 2007 claiming it had patented the technology behind the XML in Word 2003 and 2007. The last chance for a successful appeal for Microsoft is at the Supreme Court level.

The Redmond, Wash.-based software giant yesterday argued that the court should reject the requirement that a defendant in a patent infringement case must prove by “clear and convincing evidence that a plaintiff’s patent is invalid. A lower standard ought to be used instead, said Thomas Hungar, lawyer for Microsoft Corp, which is appealing before the U.S. Supreme Court a record $290 million jury verdict for infringing the software patent of i4i, a Canadian software company.

Microsoft wants the standards for challenges to the validity of a properly issued patent be based on mere “preponderance of evidence,” according to i4i. Seth Waxman, lawyer for the Toronto-based i4i, said that Congress has accepted the standard which has been in effect for the last 28 years.

This is something that could potentially “cause chaos,” says Loudon Owen, chairman of i4i.

“Microsoft is basically asking the court to move from seeking evidence beyond reasonable doubt to a mere flip of a coin,” he said.

If patents are easier to invalidate, then the patent system will suffer overall, said Owen. “If anything can come up in 10-12 years that can invalidate your patent, then people are going to take mountains of information, they’re going to dump the library of congress on the patent examiner and that’s going to make it impossible to examine the patents,” said Owen. “They’re legal argument is fatally flawed.”

“Tinkering with something that is fundamental to the entire patent system could result in disaster,” Owen added.

He said “watering down” prevailing standards will “erode the confidence that patent filers have on the system.”

One Canadian lawyer specializing in patents said he was baffled by Microsoft’s petition.

“I am puzzled by Microsoft’s position,” said Euan Taylor, head of the patent practice group at Davis LLP in Vancouver. “One would imagine they (Microsoft) have lots of patents as well that they would want to protect.”

If Microsoft gets its way, he said, there would be lots of concern among many patent holders. “It will simply make it harder for inventors to defend their patent,” said Taylor.

In exchange for 20 years of exclusivity on an invention, patent holders are required to make public the details of their intellectual property so that others may benefit from it after the period of exclusivity has ran out, Taylor explained.

“People will be less likely to trust the patent system if they know their filings can be easily challenged and that they risk reaping the benefits of their invention,” he said.

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The Court is set to decide on the appeal in June but technology industry experts said the case which has been going on since 2007, has reached a new level that now touches the concerns of both small and large businesses.

ITBusiness.ca sought a comment from Microsoft, but the company has yet to issue a statement on the matter.

The record $290 million ruling in favour of i4i is enough to get “people to sit and take notice,” said Sarah Dale-Harris, Toronto-based legal counsel for Accenture, a managing, technology and outsourcing services firm.

But with Microsoft petitioning the Supreme Court to lower the standards of proof for patent challenges, she said “things have certainly become more interesting.”

“The appeal could turn out to be a double-edged sword,” says the lawyer, who specializes in transactions and intellectual property in the IT space.

“If the test is lowered it could mean good and bad for all sides,” said Dale-Harris.

For challengers to a patent it could mean that they would have a higher chance of success. Patent holders on the other hand would potentially have a harder time protecting their intellectual property.

Of course it could cut both ways. If the Supreme Court approves the appeal and somewhere down the line Microsoft finds itself defending its patent, its lawyers could be battling the a ruling that the company fought for.

“This will have an impact on the technology market for sure,” said Stuart Crawford, president and chief marketing officer of Ulistic Inc., a full service Internet consulting firm based in Calgary.

Crawford said he imagines a lot of tech companies are now concerned about the outcome of the case. “Technology companies, especially smaller might have some apprehensions about just how much their intellectual property is protected against a challenge.”

“Things might get worse for both big and small firms…because a lot of new technology these days are interrelated rather than developed distinctly apart,” he said.

How to protect your intellectual property

Dale-Harris of Accenture said that companies need to consider four key strategies in protecting their intellectual property:

1. Seek expert opinion – Companies need to obtain a patentability opinion from a patent specialist. These experts will provide companies with crucial information and advice on whether it is worthwhile to seek a patent on their IP. “These experts know the space. The know if similar patents have been submitted and they can guide you through the process,” said Dale-Harris.

2. Pro-activitely work with your patent agent or expert – Once you have identified a suitable patent expert, work with them actively in drafting your patent filing. “You better than anyone else knows what your technology is all about. But your agent knows how to craft a document that covers the issues that need to be considered,” said Dale-Harris.

3. Consider alternatives to a patent – Filing for patent approval could cost a company tens of thousands of dollars. Know your options. IP holders can opt to have a copyright instead which provides right to and IP for 50 years after the lifetime of the IP’s author. A patent grants legal monopoly but covers only 20 years after the patent is filed.

“You can also keep your ‘secret sauce’ a secret. That costs nothing but you could lose everything if it’s ever found out,” said Dale-Harris.

4. Get litigation insurance or litigation funds. These are funds you dip into should you ever find yourself in a legal mess. Despite its smaller size compared to Microsoft i4i was able to go head-to-head with the software giant because it has litigation funds, said Dale-Harris.

Nestor Arellano is a Senior Writer at ITBusiness.ca. Follow him on Twitter, read his blog, and join the IT Business Facebook Page.

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