Supreme Court Heard i4i and Microsoft Arguments on Monday

Appraisers, IP Managers and Technology Transfer Officers may recall the $290 million verdict that a small Canadian software provider won against mega-co Microsoft back in 2009. (See BVWire #85-1.)

Here’s the background:

In 1994, Michel Vulpe, i4i founder, and Stephen Owens received patent 5,787,449 for a "Method and system for manipulating the architecture and the content of a document separately from each other." The patent essentially covers deconstructing a document from its native structure, something XML does.

Microsoft showed interest during the development of Office 2003. They met with i4i many times, had the patent explained to them, used the methodology in Word, and directly cited the patent multiple times in their own patents.

In March 2007, i4i filed a patent infringement suit alleging that Microsoft's “approach to custom XML schemas in Office 2003 and 2007 violated U.S. patent 5,787,449.”

i4i prevailed before the jury, and won on appeal. After losing the 2010 appeal of the damages award in the U.S. Court of Appeals for Federal Circuit, Microsoft took its case to the U.S. Supreme Court. At issue is not the damages award (or its expert evidentiary support), but the standard by which defendants must prove that a patent is invalid. Currently, that standard is “by clear and convincing evidence.” Microsoft argues that standard should be lowered to the one more common in civil cases—that is, “by a preponderance of the evidence.” Supporters say a lower standard will encourage legitimate innovation and reduce costly patent litigation, but detractors claim the higher standard protects innovation and lowers the cost of patent enforcement.

The Supreme Court heard arguments on the case on Monday. Its decision will be closely-watched by patent attorneys as well as the U.S. Government (which filed an amicus brief against Microsoft) and major U.S. companies on both sides of the question.

Valuators have reason to watch this case closely. If a willingness to protect one's intellectual property increases its value, if securing one's IP increases its value, then surely lessening the standards by which the IP can be challenged will diminish its value.  i4i Chairman Loudon Owen feels the aggregate value of U.S. patents stands to decrease appreciably if Microsoft prevails. "If the Microsoft position actually is successful, it will be devalue patents for everybody," Owen claims. “That devaluing would apply to Microsoft's patent portfolio, too.”

Though the big tech companies line up behind Microsoft, pharma, venture capital, university technology offices and former USPTO commissioners filed amicus briefs on behalf of i4i. We'll be watching this summer's Supreme Court decisions closely.