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With Microsoft’s Patent Battle, Innovation Goes On Trial

Many of our Most Innovative Companies appear to want to weaken an element of patent law. But don’t patents protect innovation? A look at Microsoft’s case before the Supreme Court, and how it could alter the course of innovation in America.

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Microsoft is fighting a Supreme Court battle to overturn a $290 million patent-infringement judgment. The case, if decided in Microsoft’s favor, could make it easier to invalidate patents. And in what might come as a surprise, an array of Fast Company‘s Most Innovative Companies have thrown their weight behind Microsoft, including Facebook, eBay, LinkedIn, Netflix, Intel, and even arch-competitors Apple and Google.

You’d think the most innovative companies would want a robust patent system, to protect their own innovative ideas. But as it turns out, the situation is more complicated than that.

The case is a showdown between Microsoft and a Canadian software company called i4i. i4i has alleged that an earlier version of MS Word infringed on US Patent No. 5,787,449, filed back in June 2000. It’s a little esoteric to a non-coder, but as Ars Technica helpfully explains in actual English, the patent has to do with “a method of manipulating the structure of a document separaretly from its content.” In 2009, a federal jury ruled in favor of i4i, awarding $200 million in damages and briefly ordering Microsoft to stop selling Word. Later that same year, the United States Court of Appeals for the Federal Circuit affirmed that ruling; Microsoft then appealed to the Supreme Court, which agreed to hear the case.

As sometimes happens in cases of great importance, the specific issue at hand seems almost trivial. The court isn’t taking up the sweeping question–at least not directly–of what the patent system is or should be, or even the question of whether Microsoft infringed on this particular patent, per se. The court is examining what burden of proof should be involved in invalidating a patent. i4i says that the legal system should (and does) require a higher standard of evidence–so-called “clear and convincing evidence”–to prove a patent invalid. Microsoft wants it to be easier to pick off a patent it thinks shouldn’t have been issued, wanting the requirement to merely be a “preponderance of evidence.”

More than just $290 million dollars hinge on that handful of words–to an extent, the future of innovation in America also hangs in the balance.

Ars Technica again has one of the better explanations out there of why these words matter. Microsoft claims that i4i already sold a product that would qualify as “prior art” for its invention, a year before it applied for a patent. If so, that would invalidate the patent. i4i says that only an examination of the source code–which, incidentally, can no longer be dug up–would meet the “clear and convincing” evidence standard.

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So what does this mean for innovation and the patent system in America? And why are so many companies we’ve deemed innovative (though not all of them–GE, #45 on our Most Innovative list this year, sides with i4i) wanting to apparently weaken patent protection?

If you’re a company that finds itself on the receiving end of patent lawsuits more often than not, you have an incentive to get in Microsoft’s corner here. High-tech companies are the sort of organizations that are constantly getting sued. A smartphone alone is a bundle of thousands of ideas. When you deal with complex technology, it’s often possible to infringe on another’s patent without being aware that you’re doing so. Lawsuits become so common in such situations that they’re almost just a form of saying hello (cease-and-desists are too easy to ignore): “Oftentimes the way a party signals to another party in one’s industry, ‘I’m serious about this–you need to speak with me,’ is by filing a lawsuit,” legal scholar Adam Mossoff once told me.

So companies that develop complex products involving a multitude of ideas would side with Microsoft on this one. By contrast, companies that earn billions based on a single blockbuster patent have a massive incentive to side with i4i here, and to make their patents less easy to pick off. It should come as no surprise that Eli Lilly and Bayer, the pharmaceutical companies, are backing i4i here. So are venture capital firms and universities, according to CNet–both realms where the single big idea, if it’s protected, can lead to massive and sustained revenue.

So that’s the cynical answer to the question of why innovative companies have taken different sides here: the bottom line.

But giving them the benefit of the doubt, for a moment, and taking their words at face value, each party is also making the larger case that its side represents a brighter and more innovative America.

A patent system is successful to the extent that it fosters innovation. To maximize innovation doesn’t necessarily require maximizing the protection of patents. It means striking an optimal balance, protecting patents that deserve it, while not protecting patents that don’t.

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i4i has said that “patent law [is] at a crossroads,” with this decision; if patents can be so easily overturned, goes the argument, than what incentive do creative thinkers have to innovate? (Incidentally, a little entity known as the Obama Administration itself has taken the same point of view, filing an amicus brief on i4i’s behalf.) Microsoft takes the opposite stance, naturally, with regards to the i-word: “If you have a really bad patent that shouldn’t have been issued, what happens? It stops innovation,” argued Microsoft’s associate general counsel, Andy Culbert, according to several sources.

Experts are divided. The Microsoft-scrutinizing blog at the Seattle Post-Intelligencer has rounded up several who go either way. One patent-law expert, Florian Mueller, declared sympathies with Microsoft–but admitted to an opposition to software patents in general, a stance that Microsoft itself would hardly support, as the owner of many patents and frequent plaintiff in suits as well.

There’s one last possibility we might briefly consider. Microsoft may just want to hang on to its $290 million, whether or not its stance in this case is in its long-term best interest. But then we must swiftly reject it: for Microsoft, in the long run, $290 million is chump change.

Follow Fast Company on Twitter. Email David Zax, the author of this post, or follow him on Twitter.

[Images: Flickr users Mark Fischer and AZRainman]

Read More: Most Innovative Companies: Microsoft

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About the author

David Zax is a contributing writer for Fast Company. His writing has appeared in many publications, including Smithsonian, Slate, Wired, and The Wall Street Journal.

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