Tuesday, April 19, 2011

How Much Does the "Clear and Convincing" Standard Matter? Study Suggests "Not Much"

In the case of Microsoft v. i4i, some of Microsoft’s amici contended that the clear and convincing evidentiary standard has a “compelling effect on jurors” and that it is “tremendously difficult to persuade a jury to go against the decision of the Patent Office.”

Etan S. Chatlynne, Stephen Kenny and Lucas Watkins decided to test this assertion by looking at validity challenges from two data sets: cases from 1966-1982 (the "Graham v. Deere-to-CAFC" period) and cases from 2008-2010 (the "KSR" period).  More importantly, before 1982, rebutting a patent’s presumption of validity generally required clear and convincing evidence.  However, the standard would shift to a preponderance of the evidence if a validity challenger introduced “unconsidered evidence” (i.e. prior art not before the PTO during examination).  Since 1982, rebutting a patent’s presumption of validity has required clear and convincing evidence in all instances.

The authors analyzed the validity challenges from the first data set (1966-1982) to determine whether: 1) the court instructed the jury to apply one of the evidentiary standards; 2) the court discussed unconsidered evidence that a jury could have considered in evaluating invalidity; and 3) the jury determined that the validity challenger satisfied its evidentiary burden for at least one claim.  Unconsidered evidence raised the inference that the jury applied a clear and convincing evidentiary standard, while a finding that there was unconsidered evidence raised the inference that the jury applied a preponderance of the evidence standard.


For the second data set (2008-2010), the authors analyzed the challenges to determine whether: 1) the challenger introduced unconsidered evidence; and 2) the jury determined that the validity challenger satisfied its evidentiary burden for at least one claim. For this data set, evidence was deemed unconsidered if it was: 1) discussed in the Federal Circuit opinion, the district court opinion, or a party’s brief; and 2) not listed on the front of the asserted patent.

What did they find?

Challengers that introduced unconsidered evidence:

  • 1966-1982 - 32% of patents challenged on unconsidered evidence were invalidated on a "preponderance of the evidence" (8 out of 25 times).
  • 2008-2010 - 34% of patents challenged on unconsidered evidence were invalidated on a "clear and convincing" standard (13 out of 38 times)

Challengers that did not introduce unconsidered evidence:
  • 1966-1982 - 13% of patents challenged were invalidated under "clear and convincing" standard (6 out of 45 times). 
  • 2008-2010 - 0% of patents challenged were invalidated under "clear and convincing" standard (0 out of 5 times)
Note the authors:
[I]rrespective of the evidentiary standard, such challengers [using unconsidered evidence] in both periods established the factual bases of invalidity approximately one third of the time.  This indicates that the clear and convincing evidentiary standard may not be as significant a driver in invalidity outcomes as some have suggested.

The study concludes
The comparison herein of data from periods separated by more than twenty-five years surely implicates additional factors such as changes in applicable practice, procedure, search technology and much of the surrounding body of legal rules, including the change made by the Supreme Court to the legal standard for obviousness in KSR.  These factors could impact this investigation in ways the authors could neither determine nor account for.

Nevertheless, subject to the validity of the assumptions employed, this investigation suggests that a challenger’s likelihood of establishing the factual bases of invalidity are driven more by the likely greater impact of unconsidered evidence than by a shift to a preponderance of the evidence standard. Whether this means that the clear and convincing evidentiary standard has a “compelling effect on jurors” and that it is “tremendously difficult to persuade a jury to go against the decision of the Patent Office,” the authors cannot say. The data, however, suggest that a shift to a preponderance of the evidence standard will not significantly affect a validity challenger’s ability to establish the factual bases of invalidity to a jury.

Read/download a copy of the study here (link)

Monday, April 18, 2011

SCOTUS Hears Oral Arguments on "Clear and Convincing Standard" for Patent Validity

Today the Supreme Court heard oral arguments in the case of Microsoft v. i4i, where Microsoft argued that attempts to invalidate patents using prior art not considered by the USPTO should be judged by a "preponderance of the evidence" instead of the more demanding "clear and convincing" standard.

The SCOTUS bench consisted of only 8 Justices, as Chief Justice Roberts recused himself from the case; Justice Scalia sat in on his behalf.

First up was Thomas Hungar, who argued on behalf of Microsoft.  After stating (four sentences in) that "it was error to require clear and convincing proof of invalidity in this case," Justices Ginsberg, Scalia and Kagan began peppering Hungar with questions regarding the 1934 SCOTUS case of Radio Corp. of America v. Radio Engineering Laboratories (link), where Justice Cardozo stated

"Even for the purpose of a controversy with strangers, there is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence."
and
"[The] presumption of validity [is supported by] the familiar principle, repeatedly applied in our decisions, that the concurrent findings of the courts below will be accepted by this court 'unless clear error is shown.'"

and

"[I]t is said that 'the presumption of the validity of the patent is such that the defense of invention by another must be established by the clearest proof - perhaps beyond reasonable doubt." 

and
"This court held the view when these patents were last before it that the evidence was insufficient to overcome the presumption of their validity in any clear or certain way. If our estimate of probative values had been different, the invention must have gone to Armstrong, no matter though other courts or administrative officers had been persuaded to the contrary. The evidence that was insufficient at that time to evoke a clear conviction that the patents were invalid is the same in all essentials as the evidence before us now."

JUSTICE GINSBURG: It would be hard to argue, Mr. Hungar, that it makes no sense, but it made sense to Cardozo and Judge Rich.

JUSTICE SCALIA: So, you're contradicting Cardozo?

JUSTICE KAGAN: But Justice Cardozo certainly didn't limit his holding in the way you suggest. The language of that opinion is extremely broad. And if you read that opinion, no one would gather from that opinion the kinds of limits that you're suggesting on it.

Hungar countered that the holding in RCA was addressing the issue of priority in a prior invention and that "the RCA case didn't address the question that was discussed in KSR . . . that the preponderance standard should govern across the board."
HUNGAR: To the extent that -- that Justice Cardozo was discussing a heightened standard in the limited context of priority inventions, we think that that's not consistent with section 282, which, of course, came later . . . every single one of the cases that [Cardozo] cites there, without exception . . . is a priority of invention case, The Barbed Wire Patent case being the leading example which had explained this rationale for a heightened concern in that specific context. But you don't have cases applying -- Supreme Court cases applying the heightened standard in other contexts. And, indeed, you have many cases decided after RCA that don't mention any heightened standard in viewing invalidity questions.

Hungar then turned to section 282 of the 1952 Patent Act and argued that there was no congressional intent to codify the RCA holding, and "when you don't have a clear rule to be codified, the default rules of statutory construction apply . . . [which is] the preponderance standard."

To which Justice Ginsburg replied
JUSTICE GINSBURG: [I]t is true that the Federal Circuit has been consistent now since almost the beginning, since that court came on the scene, and it does have a monopoly on appeal in patent cases since 1984. Because the -- the Federal Circuit has consistently taken this position [on the clear and convincing standard], one would have expected that there would have been bills proposed to change it. Were there any?

Justice Sotomayor added that jury instructions could possibly address Microsoft's concerns:
JUSTICE SOTOMAYOR: [H]aving read some of those cases that you've cited that you claim weakened or eliminated the burden of proof standard, most of them didn't quite eliminate it. Virtually all of them added an instruction to the jury of some sort that said that the application of the standard should take into account the fact that the PTO did not consider evidence -- did not consider the prior art relied upon in the invalidity challenge.

You didn't ask for such an instruction in this case; is that correct? And if you didn't, why isn't that adequate to convey the point that you're trying to convey, that a jury should, in fact, consider that the PTO never got to see that prior art? . . . [O]ther judges . . . give a clear and convincing standard, and they add a separate instruction that tells the jury, in applying that standard, you should consider the fact that the PTO did not see this evidence.

Justice Breyer seemed to agree with Sotomayor and further added that, if you like the preponderance of the evidence standard, then the USPTO is the place to be.
JUSTICE BREYER:  I know your proposal. But we have also seen in these briefs the following proposal:  One, somebody who thinks there is [an] error, go back to the Patent Office and ask for reconsideration. That's pretty good. We get the experts to look at it again.

And then that's coupled with: Tell the district judges to stick very closely to their job, allow the clear and convincing standard to apply to facts, and by that we mean brute facts, and let them decide the brute facts, but let the judge decide whether that amounts to obviousness, novelty, or any of the other prerequisites.

Now, I've gotten that out of the amicus briefs, some of which say they support you but they really don't. . . . [W]hat struck the thought in my mind that careful instructions limiting the juries to brute facts and giving the judge the notion, the job of characterizing that -- you heard what I said -- that that will go a long way towards curing the problem you're worried about.

-------------------

Next was Seth Waxman, who argued for i4i, noting that congress was "well aware of the clear and convincing evidence standard, and it has done nothing whatsoever to change it, even make any effort to consider making such a sweeping change in long-standing doctrine."

Which led to the following exchange with Justice Alito:
JUSTICE ALITO: I have three problems in seeing your interpretation in the language of section 282. First, the statute says the burden of establishing invalidity of a patent, et cetera, et cetera, shall rest on the parties asserting such invalidity. If Congress wanted to impose a clear and convincing burden, why in the world would they not have said that expressly in that sentence?

Number two, if the first sentence, "a patent shall be presumed valid," means that -- is talking about the burden, then it's superfluous, because that's dealt with in the second sentence ["The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity"].

And, third, the phrase "shall be presumed valid" doesn't seem to me at all to suggest clear and convincing evidence. A presumption normally doesn't have anything to do with clear and convincing evidence. Most presumptions can be disproved by much less than clear and convincing evidence. So how do you read that in  your position into the language of the statute?

WAXMAN: Well, as to presumptions generally, I found particularly persuasive your opinion for the Third Circuit in GI Holding. But more -

JUSTICE ALITO: I've gotten a lot smarter since then.

(Laughter.)
With regard to the jury instructions and standards of proof, Waxman had this interesting point:

WAXMAN: I'm not aware of any instance in Anglo-American jurisprudence, and certainly Microsoft and its amici have not cited one in which the jury is told that depending on the weight you ascribe to the evidence you heard, you should apply a different standard of proof.

The issue goes to the weight of the evidence. I mean, imagine a case in -- a regime in which you said, well, you've heard eyewitness testimony.  If you, ladies and gentlemen of the jury, find that the eyewitness really had an unimpeded view, the standard is preponderance, but if you think that the view was impeded or obscured, the standard is clear and convincing evidence.

Waxman went further and proposed a jury instruction "that the burden of proof is clear and convincing evidence, but you may find that burden more easily met if you find that there was, in fact, evidence relating to validity that was not, in fact, considered by the PTO when it issued this property right."  This elicited a response from Justice Sotomayor, who pointed out that "it's not clear and convincing evidence if you phrase it that way, that it's something less than that."  Scalia added that the instruction "would require determining what it was that the Patent Office considered" and that such a circumstance "would better be avoided."

-------------------

Next up was Malcolm Stewart, Deputy Solicitor General, Department of Justice, on behalf of the United States, as amicus curiae, supporting i4i.  Early in the argument, Justice Sotomayor repeated Justice Alito's question regarding the language of section 282: " If Congress was intending to sweep up in the use of the word 'presumption' the need to overturn it by clear and convincing evidence, why did you need the second sentence saying that the other side now bore the burden of persuasion?"

Stewart replied:

STEWART: I think there is a belt and suspenders quality to the statute, no matter how you parse it, but I think that Microsoft has essentially the same problem, because they have constructed a theory under which the second sentence does something that the first has not, does not, but they haven't constructed any theory as to why the first sentence is not superfluous. That is, given the second sentence to the effect that the burden of establishing invalidity is on the challenger, there's no more work to be done by the first sentence.

Judging from the oral arguments alone, it appeared that Ginsburg, Sotomayor and Breyer (and to a lesser extent Kagan) were not hell-bent on overturning the "clear and convincing" standard.  While Scalia was not particularly active, it would not be unreasonable to expect him (and probably Justice Thomas, who did not comment during oral arguments) to maintain the status quo as well.  Being that i4i needs only four Justices to "win" (since a 4-4 tie would maintain the Federal Circuit's ruling), there is a good likelihood that it will prevail.

Read/download a copy of the oral transcript here (link)

See also:

Wall Street Journal:  "Microsoft Takes Patent Fight to Supreme Cour" (link)

PC Magazine: "Microsoft, i4i Argue Patent Rights at Supreme Court" (link)

Financial Post: "Chairman of i4i confident Microsoft defeated" (link)

Computer World: "Patent expert gives Microsoft edge after Supreme Court hearing" (link)

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