Microsoft Loses Battle of Word in Texas Court

Judge Leonard Davis of the U.S. District Court for Eastern Texas has issued an injunction against the sale of Microsoft Word after a jury found that Microsoft had infringed on a patent held by a Toronto-based company.

The plantiff, i4i, sued Microsoft in 2007, alleging that Microsoft Word unlawfully infringed on its patents based on XML, DOCX and DOCM file formats.

The injunction applies to versions of Microsoft Word — including some in the Microsoft Office 2007 suite — that open documents in those formats. The order is set to go into effect in 60 days.

The court also ordered Microsoft to pay US$240 million in damages.

Not the Final Word

Microsoft is appealing the verdict to a higher court, which could overturn the ruling.

Also, a reexamination of the original i4i award is already in process at the Patent and Trademark Office, and a preliminary finding has been made, said Janet B. Linn, a member of Eckert Seamans Cherin & Mellott.

“It is not final, but the agency has provisionally rejected the patent claims,” she told the E-Commerce Times.

The judge did not allow this information in the case because he said it would prejudicial, according to Linn.

A reexamination, though, would not necessarily offer a complete solution for Microsoft, as it is unclear what, if any, relevant elements of the patent might be nullified.

The appeals process could give Microsoft relief for the time being.

“Surely, Microsoft will file an immediate appeal to CAFC (Court of Appeals for the Federal Circuit) and a stay of the injunction pending the outcome of the appeal,” Doug Goldhush, a partner in Squire, Sanders & Dempsey, told the E-Commerce Times.

“Injunctions are harder to get — and keep — after the eBay case,” Goldhush noted. “Obviously, the [Eastern District] Court felt that the plaintiffs proved that at least one claim of their patent [was] valid and infringed.”

The Case for Settlement

Of course, resolving the issue out of court is another possibility.

“There is so much money involved, Microsoft may just negotiate a settlement — as RIM did a few years ago,” Goldhush said, referring to Research In Motion’s settlement to keep its BlackBerry handsets operating after its patent was successfully challenged.

Microsoft’s legal strategy in such challenges is to fight tooth and nail, observed Christopher M. Collins, a partner with Vanderpool, Frostick & Nishanian.

On the other hand, if the injunction were to stick, it would be an economic disaster for the company, and that could inspire it to negotiate even if it believed it would ultimately prevail in court.

“If nothing else, an injunction would be a PR disaster for Microsoft, which would have to contact its customers to say they must stop using the product,” Collins told the E-Commerce Times.

Microsoft could do that because its typical EUL (end user license) allows it to change the terms at will, he said.

The ruling strongly suggests that i4i has a valid claim, commented Alexander Poltorak, CEO and chairman of General Patent Corporation, who called the decision a good day for inventors.

Microsoft has no choice but to negotiate a settlement, he told the E-Commerce Times.

An appeal to stay the injunction must be filed within 30 days. The time frame — the injunction goes into effect in 60 days — gives Microsoft some leverage to negotiate a settlement.

“i4i will take less in order to avoid the possibility that the lower court decision will be reversed and remanded on appeal,” commented Maria Savio, a shareholder with Gottlieb Rackman & Reisman.

“Even a reversal on one little issue will delay the case,” Savio told the E-Commerce Times.

“Why take that risk? If Microsoft thinks there is serious reversible error,” she continued, “they may not use this window of time to settle. They should, in my view, as a predicted outcome through settlement is always better than leaving yourself open to a court determination, especially when willfulness is at stake.”

Also, a ruling of willfulness could open a Pandora’s box of issues — such as class action claims from investors — so Microsoft will likely cut its losses now.

“This case has gone too far for i4i’s claims to be meritless,” said Savio, “so the wise thing would be to settle after putting in the notice of appeal.”