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High court rulings go against Microsoft, big phone companies

By Bill Mears, CNN Supreme Court Producer
  • The Supreme Court upholds a $290 million judgment against Microsoft
  • The case pivoted on what standard of proof was to be applied
  • Court: Big phone companies must provide competitors certain types of access
  • Talk America had sued to get entry into AT&T's existing transmission facilities

Washington (CNN) -- In a pair of closely watched business technology appeals, the Supreme Court on Thursday offered separate, unanimous rulings dealing with patent infringement and telephone competition.

The justices in an 8-0 decision upheld a $290 million judgment against software giant Microsoft Inc. for stepping on the patents of a small Canadian global tech firm.

At issue was the standard of proof required to challenge the validity of a properly issued patent. Justice Sonia Sotomayor said the current "clear and convincing" measure should be applied, instead of a "preponderance of the evidence" as Microsoft hoped the court would use.

The differences may appear dense and indistinguishable to the non-legal mind, but in the often arcane, highly specialized world of patent law, interpreting such federal guidelines can be worth billions of dollars in disputes over property rights.

Toronto-based i4i had sued Microsoft in 2007, saying it owned the technology behind a digital tool used in Microsoft's popular Word program. The technology in question gave Word 2003 and Word 2007 users an improved way to edit XML, which is computer code that tells the program how to interpret and display a document's contents. Lower federal courts had ruled in favor of i4i in the patent infringement case.

A federal judge also issued an injunction blocking sales of specific versions of Word that had infringed i4i's patents.

Sotomayor, writing for the court, said Congress clearly wanted the current standard to apply in such disputes, and that legislators, not the courts, could change things if it wanted.

"Congress specified the applicable standard of proof in 1952 when it codified the common-law presumption of patent validity," she wrote. "... Any recalibration of the standard of proof remains in its hands."

Officials of i4i applauded the ruling. "Microsoft tried to gut the value of patents by introducing a lower standard for invalidating patents," said Loudon Owen, the company's chairman. "This is one of the most significant business cases the court has decided in decades. ... While this ruling maintains the prevailing standard, the innovation community must be ever vigilant to defend its property rights."

Business leaders had lined up on opposing sides of the case. Drug makers like Teva Pharmaceuticals and retail manufacturers like Johnson & Johnson said changing the current proof standards would stifle innovation and hurt companies big and small. But many tech firms like Apple and Google lined up with Microsoft, worried that making it easier to bring such third-party patent claims would leave them vulnerable in the ever-shifting, rapidly evolving tech sector.

For its part, the Redmond, Washington, based Microsoft said it was disappointed in the outcome. Chief Justice John Roberts did not participate in the case because he owns shares in the company.

The case was Microsoft Corp. v. i4i Limited Partnership (10-290)

In the other case decided Thursday, the court ruled big telephone companies must provide competitors discounted access to disputed parts of their network.

The 8-0 decision was a victory for Talk America Inc., which had sued to get entry into the larger AT&T's existing transmission facilities. The decision affirms the position taken by the Federal Communications Commission, which regulates the industry, and had initially ruled for Talk America.

Writing for the high court, Justice Clarence Thomas concluded, "The commission's interpretation of its regulations is neither plainly erroneous nor inconsistent with the regulatory text." He said AT&T has to charge at-cost fees -- not higher, competitive rates -- for the privilege of leasing access to these so-called telecom "entrance facilities."

The court relied on a 1996 federal law designed to open up competition in the local telephone business, saying long-established "incumbent local exchange carriers" like AT&T have to share their lines, with the goal of providing market entry for new competitors, through a mutual exchange of phone traffic.

Bigger, established firms like AT&T own the physical equipment, the local exchange networks, which receive, properly route and deliver phone calls among customers, who may use a variety of telephone companies for their service.

A sharing or resources is required to make such arrangements work. Incumbent carriers lease certain network facilities to new competitors on an unbundled or "a la carte" basis. This benefits new companies that seek to get into the market without having to install or build vital technical infrastructure from scratch. The Telecommunications Act of 1996 also mandates customers on a competitor's network be able to phone someone the incumbent's network, and vice versa.

The ruling is victory for a variety of start-up telecoms, which have long sought easier, less expensive access to wires and cables controlled at one time by what they label the virtual monopolies of AT&T and a few other phone giants.

Justice Elena Kagan did not rule on these appeals, since she had helped prepare the government's legal position while working as the Justice Department's solicitor general last year, before being elevated to the court.

The consolidated case is Talk America, Inc. v. Michigan Bell Telephone Co (10-313); Isiogu v. Michigan Bell Telephone Co. (10-329).