The SCOTUS case was set up because the CAFC held to its long-standing clear-and-convincing standard despite Microsoft urging.

As Seth P. Waxman for i4i observed in today's oral arguments:

The long-settled, clear and convincing evidence standard is correct, one, as a matter of statutory interpretation, two, as a matter of stare decisis in a field in which stability is particularly important, and, three, as a matter of first principles.

Microsoft argued that:

As this Court suggested in KSR, it makes no sense to have a heightened standard of proof when the relevant prior art evidence was never even considered by PTO.

Give it to Microsoft's SCOTUS monkey, Thomas G. Hunger - it takes chutzpah to be in front of the Supreme Court telling them what they suggested when they suggested no such thing. Judge Scalia confronted Microsoft with its Janus-like position:

Well, you can't keep shifting horses, now. Are you going to argue for all the time, in which case, you can appeal to the general rule that we always apply, or are you going to say, oh, yes, we won't apply it normally but only when the prior art hadn't been considered? I mean, you -- you can't ride both horses. They're going in different directions.

Microsoft replied that "preponderance, the default standard, applies."

The justices hammered Microsoft misinterpretation of case law. So Microsoft switched the subject to Congressional intent in 1952, when major patent legislation got passed. Justice Kagan turned that on its head:

Well, Mr. Hungar, it seems to me that RCA would matter, even under your view of the world, because if you think that Congress did not codify the existing state of the law as to the standard of proof and you think that section 282 was essentially silent as to the standard of proof, then the question is, what do we do? And one answer to that question is we go with our prior precedent, which is RCA.

Justice Ginsburg stared at stare decisis some more: that the CAFC has been consistent on the "clear and convincing " standard since its inception (1984). That was a setup:

Because the the Federal Circuit has consistently taken this position, one would have expected that there would have been bills proposed to change it. Were there any?

Mr. Hunger: "No." Microsoft then went on to fantasize that Congressional intent "was not an across-the-board heightened standard." That got no rise at the moment.

Instead, Justice Sotomayer retorted:

Having 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 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?

Ignoring the pointed question, until prompted again, Microsoft confessed: "we didn't ask..." that the jury consider that prior art presented at trial was not before the PTO. In other words, and this is perhaps the most astonishing point of this case, Microsoft got all the way to the Supreme Court without even bothering to preserve error. Money talks in this country, even if it only vacuously. However nuanced, this case just being here is corruption, toadying to corporate power by the Supreme Court.

In his blabber, Mr. Hunger revealed Microsoft's true motive, playing for time as it plies the river of denial using rummy prior art as a paddle: "the unmodified clear and convincing evidence instruction would justify a new trial here."

Justice Breyer cut to the chase, and where the Supreme Court may end up:

I have one question here I would like to get your view on. I'll assume that the language is open enough in the history so that we could make what would be a change, I think it would be a change. The reasons as I get from the brief for doing that are because there are two types of errors: It's a bad thing not to give protection to an invention that deserves it; and it is just as bad a thing to give protection to an invention that doesn't deserve it. Both can seriously harm the economy.

And you are also saying that the Patent Office is out of control, not through its own fault, but there are too few people and too many inventions. And therefore type two error is a real risk.

I'm turning you to and say: Well, what should we do about it? I know your proposal. But we have also seen in these briefs the following proposal: One, somebody who thinks there is a type two 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.

Microsoft then proceeded to pooh-pooh reexam, concluding with this:

I don't think it addresses the problem because the fundamental problem is imposing this heightened standard on the jury that has no moorings in the statute and no moorings in common sense.

Never mind stare decisis is Microsoft's position.

Microsoft thrice tried to muddle the issue between presumption and burden shifting versus the burden of proof. Justice Kennedy, as a follow-on to Justice Ginsburg on the 1952 patent act, pointed asked: "burden of going forward or burden of persuasion?"

I think certainly they were talking about the burden of persuasion and presumably also the burden of going forward. But I don't think -- I don't recall that they speak to that level of specificity.

Microsoft takes the fifth on arguing its case, feigning no-recall.

Justice Alito:

If the challenger has the burden of persuasion, wouldn't it almost go without saying that the challenger would also have the burden of production on the issue of invalidity? So what would be added then by -- what role is played then by that sentence, a patent shall be presumed valid?

Microsoft's Hunger:

I think that's unclear, Your Honor.

A few sentences later it became clear to Hunger:

And so again, Congress wanted to be clear; it was saying there is a presumption which shifts the burden of going forward under this Court's precedence, and there is a burden of proof on the defendant, and that's all it did... So I think the law was clear.

In response, i4i's Waxman whipped the Supremes to a funny froth.

Waxman:

For the past 28 years Congress has actively acquiesced in the Federal Circuit's consistent holding expressly drawn from RCA that the standard is "clear and convincing."

Justice Ginsburg:

How actively do we acquiesce?

Justice Scalia:

Yes, I would like that notion of active acquiescence.

Waxman:

I thought that might get a rise out of you. (Laughter.) I hope I'll get a chance to go to first principles, but having made that provocative statement, the point is -­

Justice Scalia:

It's like passive activity, right?

Waxman:

I may want to submit a supplemental brief on that point. (Laughter.)

What I mean to say is that this is not a statute that Congress enacted and then forgot about. This is a statute in which beginning in 1980, even before the Federal Circuit was created, Congress started amending the law to address the problem of low-quality patents, with the first re-examination procedure in 1980, any number of amendments, including to section 282, the creation of inter-partes re-examination in 1999, and the current consideration of a post-grant review process.

So Congress has been very, very active in this field, and what I mean by active acquiescence is it has been very active in this field, it is 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.

Justice Alito:

If Congress wanted to impose a clear and convincing burden, why in the world would they not have said that expressly in that sentence?

Waxman:

When Congress enacted section 282 in 1952, the revisers note the House ommittee report, the Senate committee report said that they were, quote, "codifying the existing presumption of patent validity," and this Court had unanimously said -­ and this is language from RCA that Microsoft does not address -- on page 2 of its opinion says, quote, "even for the purpose of a controversy of -- with strangers there is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence."

There is not one opinion, there is not one sentence, there is not one phrase in any of this Court's line of decisions that supports that proposition... there somehow is some other standard of proof that applies with respect to evidence that assertedly was not before the Patent Office.

That was true of most of this Court's cases decided before RCA, and for that matter after RCA.

There is no case from this Court, to my knowledge, in Anglo-American jurisprudence, that creates or sanctions a regime in which there are different standards of proof with respect to a particular issue that a jury has to decide.

Talk swirled around jury instructions versus simply stating the fact to a jury that a prior art reference hadn't been considered by the PTO. Waxman laid a bottom line.

The statistics bear out the common sense, which is that juries are, in fact, very influenced by the fact that there was art going to or questioning validity that was not considered by the PTO.

In other words, the instruction, whether the instruction is necessary or not, juries get it, and juries apply it. What they're not required to do is apply two different standards of proof following all sorts of predicate determinations that they would have to make.

Justice Ginsburg set up Waxman to address the quintessential issue:

What is the justification for continuing to have the clear and convincing standard?

Waxman:

There are four independent principles that justify the clear and convincing evidence standard across the board regardless of what the jury considered.

Number one, an infringer's validity challenge is a collateral attack on a government decision that has already been made, quite unlike Grogan and Huddleston, that bestows property rights by written instrument.

Number two, the harm from an erroneous determination is hugely asymmetrical. A single holding of invalidity by a single lay jury vitiates for all time the patent and all of the reliance interest by the inventor and the investors and the licensees who have relied upon that ex ante.

Third, this grant of property rights not only induces reliance, which lack, like the land patent cases induce reliance, this is a grant of a property right that under the Constitution is specifically designed to induce reliance in exchange for the inventor's honoring her half of the patent bargain, that is public disclosure of her intellectual property for the public benefit, and the commitment of capital by investors and licensees that's necessary to bring into fruition for the public benefit.

Justice Kagan:

Isn't there a limited amount of reliance that any patent holder can have, given the re-exam system?

Waxman:

Yes, and the fact -- yes, the re-examine system -- I think your point actually, I wish I had thought to make this point myself. Re-examine is often invoked by the patent holder. That is, because re-exam is done by the expert agency and allows the patent -- allows the agency not to have a binary choice of yes, the patent's fine or no, it's invalid for all time, but can narrow the scope of the patent in re-exam, many re-exams are requested by the patent holder.

Malcolm L. Stewart's arguments on behalf of the U.S. government, on board with i4i, whirled around reexam, perhaps to the Justices' edification, but hardly news to patent practitioners.

In rebuttal, Microsoft Hunger got to run out the oral argument clock, dancing around reexam, trying to give it a voodoo hex as being insignificant to the need for a preponderance standard, but sidestepping Justice Breyer's salient thrust : if we're going to make a change, how does it improve the situation?

What we're trying to do is we're trying to get a better tool, if possible, to separate the sheep from the goats. That's what we're after, I think, and so what is that better tool?

The preponderance of argument made Microsoft a sheep for not getting the goat of "clear and convincing." But the most disturbing facet is that the Supreme Court took the case in the first place, with an eye favorably inclined to ignoring stare decisis and creating new law, getting a "goat" separator if it could, knowing that the legislature would cede to the power grab. That's how the dysfunctional U.S. system works: Congress haphazardly passes laws and the Courts clean up the mess to their liking. In other words, the Court's role, by its own initiative since Marbury v. Madison in 1803, exceeds interpreting existing law into changing the law according to the Supreme Court's perceptions and biases.

Seth Waxman was masterful, a stark contrast to Tom Hunger's hooker-with-a-heart-of-brass performance.

Chief Justice Roberts recused himself, apparently because of some self-interest vested favorably towards Microsoft. Microsoft needs a five vote majority on its side to win. A 4-4 tie would be a nonprecedential affirmance of the "clear and convincing" standard.