How Microsoft lost 8-0 at the Supreme Court

June 9, 2011

By Alison Frankel

The views expressed are her own.

Seth Waxman, the former U.S. solicitor general, was at home Thursday morning, preparing for an argument next week at the U.S. Court of Appeals for the Second Circuit. At around 10:05, he got up to pour himself a cup of coffee. When he returned to his desk, he told OTC, his in-box was flooded with e-mails, including one from the clerk of the U.S. Supreme Court that said, “You won!”

“It was a real yabba dabba doo moment,” said the Wilmer Cutler Pickering Hale and Dorr partner (heretofore unknown to be a Flintstones fan). “This is one of the most important business cases the Supreme Court has decided in decades.”

Waxman was speaking, of course, of Thursday’s landmark 8-to-0 ruling in Microsoft v. i4i, in which the Court upheld a Federal Circuit en banc decision that sets a high bar for challenges to patent validity. (Here’s Reuters’ story on the ruling.) Waxman came into the case for i4i, a small Canadian software company, when the Federal Circuit granted Microsoft’s en banc request in 2010. He then argued i4i’s case at the Supreme Court on April 18. (The indispensable Scotusblog has a recap of the argument, as well as all the merits and amicus briefs and lower court rulings, here.)

Waxman said the Court’s ruling, which holds that patent challengers must establish invalidity by “clear and convincing” evidence, rather than just a preponderance of evidence, is a victory for every inventor or business that holds a patent issued by the U.S. Patent and Trademark Office. “Microsoft was asking for a regime in which a single lay jury, on a preponderance of evidence standard, could invalidate a patent for all time,” Waxman said. “That would have dramatically altered the climate for innovation.”

The United States endorsed i4i’s position (after what Waxman called “a titanic battle” between Microsoft and i4i for the Justice Department’s support), as did a plethora of individual and corporate patent holders via amicus briefs. “Inventors have to be able to rely on the validity of an issued patent unless the Patent Office reconsiders it,” Waxman said. (Waxman also noted that Thursday’s ruling was Wilmer’s second Supreme Court patent win this week. The firm represented Roche Molecular Systems in a high court dispute with Stanford University over rights to an HIV testing kit; on Monday, the Justices sided with Roche, in a ruling that sets limits on the rights of federal contractors to federally-funded inventions.)

The Supreme Court’s i4i ruling is all the more dramatic because it comes against Microsoft, which has reputation for post-trial invincibility in patent cases. The company has lost its fair share of jury verdicts for infringement, but it has never before seen such a verdict upheld by the Federal Circuit, let alone the Supreme Court. Microsoft previously described the i4i verdict as the largest patent verdict ever upheld by the Federal Circuit. (Reuters called Thomas Hungar of Gibson, Dunn & Crutcher, who argued for Microsoft at the Supreme Court; and e-mailed Matthew Powers of Weil, Gotshal & Manges, who handled Microsoft’s case at the trial and Federal Circuit level. Neither responded to requests for comment.)

Waxman wasn’t the only i4i lawyer celebrating on Thursday. This case began in East Texas, where McKool Smith partner Mike McKool took on i4i as a client and partner Douglas Cawley tried the company’s case against Microsoft before Tyler federal district court judge Leonard Davis. The jury returned a $200 million verdict in May 2009. Judge Davis subsequently tacked on another $90 million in enhanced damages, which the Federal Circuit eventually upheld.

McKool, which took i4i’s case on contingency, advised its client to bring in appellate specialists to go up against Microsoft at the Federal Circuit and the Supreme Court. “We think Donald Dunner [of Finnegan, Henderson, Farabow, Garrett & Dunner is the best before the Federal Circuit so we brought him in,” said McKool. “And we think Seth Waxman is the best at the Supreme Court.” With its contingency fee riding on the appellate results, McKool Smith split the cost of the appellate lawyers with i4i, according to Mike McKool.

McKool partner Cawley said he never imagined, when he first tried the case in Tyler, that it would end up at the Supreme Court. “I knew Microsoft would take it as far as they could,” he told OTC. “But I didn’t think the Supreme Court would take it.” Like Waxman, he was home Thursday morning. At around 9 a.m. Texas time, he said, “for the very first time, I went to the Supreme Court website and looked for the opinion. It wasn’t there. I said, okay, I’m going to do this one time. I hit refresh, and there it was.” Cawley said he scanned the first page of the ruling until he saw the word, “affirmed.” That was as far as he got.

“We are celebrating a great day for innovation in America,” Cawley said.

It’s also not a bad day for McKool Smith, which will receive a big chunk of an award that, with interest, is now more than $300 million.“This is tremendously important to our firm,” McKool said. “For the people here to see that the risks we take can pay off handsomely, and for the world to see us connected with a victory like this.”

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