The United States Patent and Trademark Office exists to protect the rights of American innovators, granting them a license to reap just rewards from their inventions.
But today the U.S. patent system is under attack—in the form of a terribly wrong decision in the very court that was purposely established by Congress in 1982 to support and enforce the protections for patents enshrined in Article One of the U.S. Constitution. The court in question is the U.S. Court of Appeals for the Federal Circuit (CAFC). The bad decision is in Soverain Software LLC vs. Newegg Inc.
In September, the CAFC ruled in favor of Newegg, reversing earlier rulings that Newegg had infringed three patents of Soverain’s relating to Internet commerce technologies.
In doing so, the CAFC disagreed with the facts established by the USPTO when it decided to award Soverain the patents in the first place. It reversed two successive lower court decisions which upheld the USPTO’s position and awarded Soverain both damages and a royalty payment from Newegg. And its decision conflicted with the exact opposite conclusion from the USPTO in reexaminations of the three patents where the same prior art was considered.
What’s worse: in making its ruling, the CAFC appropriated the right to decide the facts underlying its ruling by itself. Finding fact is not the role of the CAFC.
If the CAFC now considers itself in the fact-finding business, exempt from abiding by facts as established by the USPTO or by lower courts whose work it is to examine, verify, and judge on those facts, then the role of the USPTO as arbiter of innovation is dangerously undercut. Business suffers, because it adds more uncertainty to the patent system. And the CAFC itself will suffer: it will be overwhelmed with new appeals that challenge the facts of any USPTO or lower court ruling.
Soverain has rightly petitioned the U.S. Supreme Court to hear the case, questioning whether the CAFC has effectively converted obviousness into a pure question of law, contrary to the Seventh Amendment and the Supreme Court’s precedent. My company, technology innovator i4i, recently submitted a friend-of-the-court amicus brief supporting Soverain’s petition.
This ruling cannot stand, and the CAFC needs to step back from the brink. The CAFC has vastly overreached in Soverain v. Newegg, and it is imperative that the Supreme Court hear the case and that Soverain prevail. This attack on patent-holders and the adverse implications from the change proposed by Newegg are unprecedented, and would deal a devastating blow to any U.S. patent-holder, large or small. The proposed change would alter the law and effectively eviscerate the patent system.
Under the Patent Act, patents issued by the USPTO are “presumed valid” (35 U.S.C. §282). Speaking plainly, this means that if the USPTO awards you a patent for your invention, infringers arguing your patent is invalid had better be able to show it, and they must prove it with clear and convincing evidence.
In Microsoft v. i4i, the Supreme Court reaffirmed that the challenger defending a claim of invalidity (in this case, it was Microsoft) must present “clear and compelling” evidence. In the Supreme Court’s ruling: “We consider whether §282 requires an invalidity defense to be proved by clear and compelling evidence. We hold that it does.”
The CAFC’s decision in Soverain v. Newegg undermines that Supreme Court decision. The CAFC substituted its own facts for determinations of the USPTO during initial examination, for those of the USPTO during reexamination, for those established in the district court’s decision at trial, and for those in the jury verdict in co-pending district court case on the same patent.
All four of these tribunals, each charged with finding fact and applying that fact, held that Soverain’s patents were not invalid—in other words, confirming validity.
Is the CAFC to supplant its own factual determinations for those of the trial judge, a jury, or the USPTO? It cannot, and the Seventh Amendment of the Constitution and Supreme Court precedent concur. If the decision in Soverain v Newegg is left to stand, there will be severe, long-term consequences. It will discourage innovation, thereby harming the public interest, by weakening patent rights and creating great uncertainty as to whether patents can be enforced. It will unfairly upset the settled expectations not only of inventors but also of investors, licensees, and others who have played by the existing rules for decades. And it will marginalize the USPTO, to which Congress long ago gave primary authority over issues of patentability and which has the expertise to establish facts and award patents.
About the Author
Loudon Owen is a practising lawyer, and is Managing Partner and co?founder of McLean Watson Capital Inc., one of Canada’s pre-eminent venture capital firms with offices in Toronto and Singapore. He is also a principal of Patent Monetization Inc., an investment and advisory firm that assists owners in monetizing their intellectual property. As Chairman of i4i Inc., a global technology company headquartered in Toronto, he was instrumental in the preparation, launch and enforcement by i4i of its patent against Microsoft, which resulted in the largest patent award ever affirmed by the Court of Appeals ($315M), and an injunction against Microsoft’s Word product. The case went to the US Supreme Court, and i4i prevailed with a unanimous decision on June 9, 2011.