Supreme Court rules Microsoft must pay $290M in patent case

Microsoft has lost a Supreme Court patent case and must pay $290 million to tiny Toronto software company i4i.

The court's ruling Thursday was unanimous, with Justice Sonia Sotomayor delivering the opinion. Chief Justice John Roberts took no part in the ruling because he owns shares of Microsoft stock.

i4i originally sued Microsoft claiming that Microsoft Word had included an XML editing feature that i4i invented.

Microsoft spokesman Kevin Kutz released this statement: "While the outcome is not what we had hoped for, we will continue to advocate for changes to the law that will prevent abuse of the patent system and protect inventors who hold patents representing true innovation."

"It was unanimous. That was striking," said Loudon Owen, i4i's chairman by phone. "It is one of the more important business law decisions made by the Supreme Court in decades and it?s a watershed moment for patents."

i4i, a 17-year-old private company that makes software for managing data, has 30 employees. Owen said i4i will use the $290 million to expand its business. "It?s hard to build a business when you?re operating under the cloud of uncertainty," he said. "The clouds are cleared above our head."

Microsoft has 15 days after exhausting the final appeal to pay i4i, he said.

A federal jury in Texas in 2009 decided against Microsoft and awarded $200 million in damages, which was then raised to $290 million by a U.S. District Court judge who affirmed the decision. Microsoft also was barred from selling the previous versions of Word that contained the feature. Microsoft removed the feature from new versions.

After a federal appeals court affirmed the lower court's decision and denied Microsoft's request for a review, the company appealed to the nation's highest court. It was the largest patent verdict to withstand appellate review in U.S. history.

The legal issue in dispute before the Supreme Court was how juries weighed evidence in patent disputes.

Microsoft contended that in order to prove a patent is not valid, the Texas jury should have been asked to rule based on a "preponderance of evidence," rather than the higher standard of proof, "clear and convincing evidence." The patent office, Microsoft argued, had not considered new evidence when it granted i4i's patent.

Microsoft also said i4i forfeited its claim to the XML editing feature because the software had been sold more than a year before i4i filed the application.

In the Supreme Court's opinion, Sotomayor wrote, "According to Microsoft, a defendant in an infringement action need only persuade the jury of an invalidity defense by a preponderance of the evidence. In the alternative, Microsoft insists that a preponderance standard must apply at least when an invalidity defense rests on evidence that was never considered by the PTO [Patent and Trademarks Office] in the examination process. We reject both contentions."

The court examined the patent laws enacted by Congress. "...Not once, so far as we (and Microsoft) are aware, has it even considered a proposal to lower the standard of proof," Sotomayor wrote in the court's opinion. "...Any recalibration of the standard of proof remains in its hands."

Justices Antonin Scalia, Anthony Kennedy, Ruth Bader Ginsburg, Samuel Alito and Elena Kagan joined in Sotomayor's opinion.

Justice Stephen Breyer wrote a concurring opinion, with Scalia and Alito, that focused on evidentiary standards. Justice Clarence Thomas also wrote another separate concurring opinion that Congress did not codify a standard of proof when it passed patent law.

Sotomayor added later in the opinion in reviewing Microsoft's argument based in on past Supreme Court rulings, "Squint as we may, we fail to see the qualifications that Microsoft purports to identify in our cases."

Several large companies filed amicus briefs in support of Microsoft, including some competitors: Apple, Google, Cisco, Intuit, Facebook, General Motors, Wal-Mart, Toyota, Netflix, Intel, Verizon, Hewlett-Packard, HTC, SAP and Teva Pharmaceuticals.

The U.S. government and many companies supported i4i's position.

Microsoft chief counsel Brad Smith said Tuesday before the ruling that the company had already set aside the $290 million to pay the judgment, pending the outcome of the Supreme Court ruling.

Smith said earlier that Microsoft pursued the case to the nation's highest court on principle. "We thought there was a principle -- and $290 million -- at stake. It is the single largest patent verdict to withstand appellate review in the history of the country."

"The ruling will be important in some specific cases," he said Tuesday.

Microsoft's stock closed at $23.96 per share on Thursday, an increase of 2 cents or 0.08 percent.

Here is a link to the Supreme Court ruling against Microsoft.

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