The justices unanimously upheld a U.S. appeals court ruling that went against the world's largest software company in its legal battle with Toronto-based i4i.
The high court rejected Microsoft's argument that the court should back a lower standard to replace the long-standing requirement that a defendant in a patent infringement case prove by clear and convincing evidence that a plaintiff's patent is invalid.
Redmond, Washington-based Microsoft had argued that a lower standard of proof involving a "preponderance of the evidence" would make some "bad" patents easier to invalidate while promoting innovation and competition.
Justice Sonia Sotomayor, who wrote the opinion, said the court rejected Microsoft's contention that a defendant need only persuade a jury of a patent's invalidity by a preponderance of the evidence.
When Congress has prescribed the governing standard of proof, its choice generally controls, she said in the 20-page opinion.
The Obama administration and i4i opposed Microsoft's position and said Congress had accepted the standard in effect for at least the past 28 years, that it was correct, and that it should be upheld by the Supreme Court.
I4i said Microsoft sought a radical change in patent law and that any change should come from Congress, which has been considering patent legislation.
The legal battle began in 2007 when i4i sued Microsoft. A federal jury awarded $290 million to i4i after finding that Microsoft, in 2003 and 2007 versions of Word, its word processing application, had infringed i4i's patent relating to text manipulation software.
A U.S. appeals court upheld the award, and the U.S. Patent and Trademark Office upheld the validity of the i4i patent.
Microsoft continued to dispute those decisions, but removed the contested features from its current software.
In appealing to the Supreme Court, Microsoft said it wanted a new trial. But the justices ruled that the appeals court was correct.
The case is not entirely over, however, since Microsoft also has a challenge to the patent pending at the patent office and may have to pay other potential licensing fees, said Michel Vulpe, founder and chief technology officer of i4i.
"We're very pleased that the court did the right thing," and that the decision was unanimous, he told Reuters.
Microsoft has said it is the largest patent infringement verdict ever affirmed on appeal. It has also said it set the money aside so it was not material to their earnings.
"While the outcome is not what we had hoped for, we will continue to advocate for changes to the law that will prevent abuse of the patent system and protect inventors who hold patents representing true innovation," Microsoft spokesman Kevin Kutz said in an email statement.
UP TO CONGRESS TO CHANGE STANDARD OF PROOF
Microsoft's share price dipped when the decision was announced but quickly recovered and was little changed at $12.91 in midday trade.
Sotomayor wrote that any decision to change the standard would have to come from Congress. She noted that the standard of clear and convincing evidence was almost 30 years old and had been left untouched during previous congressional patent system reforms.
Google Inc, Yahoo Inc and trade groups such as the Computer & Communications Industry Association supported Microsoft, while Bayer AG, 3M Co and groups representing biotechnology companies and pharmaceutical manufacturers backed i4i.
The case was decided by eight of the nine Supreme Court members. Chief Justice John Roberts, who owns Microsoft stock, recused himself from the case.
The Supreme Court case is Microsoft Corp v. i4i Limited Partnership and Infrastructures for Information Inc, No. 10-290. (Additional reporting by Diane Bartz; Editing by Gerald E. McCormick, Ted Kerr and John Wallace)