Microsoft takes patent battle to Supreme Court

Editors' note, 11:39 a.m. PT: The Supreme Court has posted a transcript (PDF) from the morning's hearing. We'll have a story up on that shortly, looking at the justices' questioning and what that might portend.

This morning, Microsoft plays its last card defending itself against a patent lawsuit that could cost the company much more than the $200 million judgment a jury awarded a tiny Toronto company two years ago.

The case, being taken up by the U.S. Supreme Court today, could reshape patent law, potentially shielding Microsoft and other industrial giants from intellectual property litigation. Both Microsoft and i4i, which has already prevailed at both the district and appellate court levels, argue that innovation itself is at stake.

In 2007, i4i sued Microsoft, claiming that the software giant violated one of its patents covering the way XML, or Extensible Markup Language, is used in its Word program. A jury ruled in i4i's favor, prompting a Microsoft appeal, which it also lost. Microsoft petitioned the Supreme Court to take up the case, which the court agreed to do last November.

That has turned the case into one of the most important patent battles in years. And it's brought out a who's who of global business arguing both sides. i4i has found support in the form of friends-of-the-court, or amici, briefs from such companies as 3M, Proctor & Gamble, General Electric, and Dolby Laboratories. Its position has won backing from pharmaceutical giants Eli Lilly and Bayer, which produce patented drugs that can pay off in the billions. And a host of venture capital firms and universities are also backing i4i.

And perhaps most notably, the little Canadian company has the backing of the United States government in its battle against one of the most iconic American companies ever. The U.S. Solicitor General office will take 10 minutes of i4i's 30 minutes to present its arguments to the Supreme Court this morning.

"We have a gargantuan array of amici briefs," i4i Chairman Loudon Owen said. "We go from the start of the innovation process to the end."

The list of companies involved in the case are tech elite. Support for Microsoft's case comes from longtime partners such as Hewlett-Packard, Dell, and phone maker HTC. There are also younger, Net-generation leaders such as Facebook, eBay, LinkedIn and Netflix. And, somewhat surprisingly, Microsoft's friend-of-the-court filings include its two biggest rivals of the day, Apple and Google.

"The innovative companies have come out to support us," Microsoft's associate general counsel Andy Culbert said.

The sheer volume of amici filings indicate the importance of the case. "You don't often see that many companies investing in writing amici briefs," said Sarah Chapin Columbia, who runs the intellectual property litigation practice group at McDermott Will & Emery in Boston, which is not involved in the case. "It's a big deal."

That's because the issues being litigated go right to the heart of patent law. Currently, defendants in patent-infringement cases must provide "clear and convincing evidence" evidence that a plaintiff's patent is invalid. Microsoft, which has had to defend itself against several patent lawsuits over the years, wants the court to lower the standard, requiring defendants to offer only a "preponderance of the evidence" to invalidate a plaintiff's patent.

To hear both i4i and Microsoft tell it, there's plenty at stake. If Microsoft wins, i4i argues that all patents would be devalued, reducing the incentive to innovate. Venture capital, i4i says, would dry up and companies would need to adjust their balance sheets for the devaluation of their patent assets.

"It's the established law and it's more important than ever in today's knowledge-based economy," Owen said. In its amicus brief, Bayer, for example, argues that Microsoft prevailing would have a "stifling effect on innovation" in pharmaceutical drug discovery. "The inevitable consequence will be reduced investment in research and development in this vital area."

Microsoft worries that an i4i victory would fuel more spurious patents and specious litigation. "It would make it hard to rid the system of bad patents," Culbert said.

Apple filed its amicus brief with Intel and argues that requiring clear and convincing evidence to invalidate every patent is too much of a burden. "It shields a growing number of poor-quality patents from the truth-seeking function of our adversarial system," the companies argue in their filing.

One thing Microsoft may have in its favor is the Supreme Court's willingness to hear the matter. "The status quo could have stayed as it is had the court just not taken the case," Columbia said. That suggests a willingness perhaps to set new precedent. The court is expected to issue its decision by the end of June.