Beyond Binary

A federal court on Tuesday reversed an earlier ruling that Microsoft's product activation technology infringed on another company's patent, overturning a $388 million verdict in the case.

In a ruling on Tuesday, the court vacated the earlier decision and decided the case in Microsoft's favor.

"We are pleased that the court has vacated the jury verdict and entered judgment in favor of Microsoft," Microsoft spokesman Kevin Kutz said in a statement.

Tuesday's ruling is the latest twist in a case that has had plenty of them. Microsoft initially won a summary judgment ruling, which would have ended the case in its favor, but Uniloc appealed that ruling and a federal appeals court last year ruled that the case needed to go to trial with regard to two counts.

The victory in the Uniloc case comes as Microsoft is awaiting the result of an appeal in another patent case in which the custom XML feature in recent versions of Word was found to infringe on patents held by Canada's I4i. If it fails in its appeal bid, Microsoft faces damages of more than $200 million in that case as well as an injunction that would halt sales of word with the infringing feature.

Aiming to crack down on a growing problem, Microsoft said it filed five lawsuits Thursday against parties it suspects of posting online advertisements laden with malicious code.

Microsoft has tried to work with ad networks to thwart such "malvertising" in the past, but this is the first time it has gone to court.

"Our filings in King County Superior Court in Seattle outline how we believe the defendants operated, but in general, malvertising works by camouflaging malicious code as harmless online advertisements," Microsoft Associate General Counsel Tim Cranton said in a blog posting.

In each case, Microsoft is suing the unknown parties responsible for the ads.

"Although we don't yet know the names of the specific individuals behind these acts, we are filing these cases to help uncover the people responsible and prevent them from continuing their exploits," Cranton said.

In the past week, The New York Times' Web site was hit with a rogue advertisement that told readers that their computer may be infected with a virus and redirected them to a site that purports to offer antivirus software.

"Scareware is often distributed among criminals, which therefore results in many of the animations a user may see utilizing a common design and interface," a Microsoft told CNET News. "However, without additional information and specific details about the attacks, we cannot be certain that any of today's filings directly relate to the attacks on The New York Times' Web site."

Microsoft likened the latest lawsuits to prior legal action that it has taken against those suspected of click fraud or instant messaging spam.

"This work is vitally important because online advertising helps keep the Internet up and running," Cranton said. "It's the fuel that drives search technologies. It pays for free online services like Windows Live, Facebook, Yahoo, and MSN. Fraud and malicious abuse of online ad platforms are therefore a serious threat to the industry and for all consumers and businesses that rely on these free services."

Microsoft late Tuesday filed its formal appeal of a patent infringement ruling that threatens to halt sales of Word in its current form.

In May, a jury ordered Microsoft to pay $200 million for infringing on a patent held by Canada's I4i. Earlier this month, a federal judge increased that monetary award and also issued an injunction barring sales of Word that include the custom XML code found to infringe on I4i's patents.

"We believe the court erred in its interpretation and application of the law in this case and look forward to the September 23 hearing before the U.S. Court of Appeals," Microsoft spokesman Kevin Kutz said in a statement.

In its papers, Microsoft makes a number of arguments for overturning the infringement finding, saying that the judge made several procedural errors and failed to live up to his role as "gatekeeper."

"In patent cases, even more than most, the trial judge's role as a gatekeeper is crucial," Microsoft argued in its appeal. "As gatekeeper, the judge must define the metes and bounds of a patent through claim construction and then ensure that the evidence presented by the parties' numerous experts is both reliable and rooted in the facts of the case at hand. And after the jury has rendered its verdict, it is the judge who, before allowing that verdict to become an enforceable judgment, must ensure that the verdict is adequately supported by the evidence and supportable under the law...This case stands as a stark example of what can happen in a patent case when a judge abdicates those gatekeeping functions."

For its part, I4i has praised the ruling and said that it is not seeking to torpedo Word, but does want the infringing custom XML code removed.

"We're not seeking to stop Microsoft's business and we're not seeking to interfere with all the users of Word out there," I4i Chairman Loudon Owen told CNET News earlier this month.

In a statement on Wednesday, Owen called Microsoft's document "extraordinary."

"It captures the hostile attitude of Microsoft toward inventors who dare to enforce patents against them," Owen said. "It is also blatantly derogatory about the court system."

Owen said that the company is counting on the court system to help it prevail even in the face of Microsoft's massive legal firepower.

"We do not have the gargantuan financial resources of Microsoft, but i4i has the protection of fairness under the U.S. justice system. Microsoft is not above the law. It cannot privately expropriate I4i's patented invention."

Owen said that I4i's response brief is due to be filed by Sep. 7. "We firmly believe the decision of the jury and judge in the United States District Court for the Eastern District of Texas was correct on the facts and we shall prevail on appeal," Owen said.

Microsoft has already gotten the appeals court to set a September 23 hearing to weigh an appeal of the case and potentially hold off the injunction, which is slated to go into effect in October.

In addition to pursuing its appeal, Microsoft has other options including creating a technical workaround, removing the XML function, or reaching a settlement with I4i.

Microsoft on Tuesday asked an appeals court to halt an injunction that would force the company to stop selling Microsoft Word in its current form.

A judge last week issued an injunction that would force Microsoft to stop selling versions of Word with a custom XML function that a jury found infringes on a patent held by Canadian software maker I4i. The judge had ordered the injunction to go into effect 60 days after the ruling.

(Credit: Microsoft)

In its "emergency motion," made Tuesday, Microsoft asked an appeals court to halt that injunction and also to speedily hear the company's appeal, once it is filed.

Microsoft said that it is trying to remove the functionality found to infringe on I4i's patents, but unless it can do so, it would be forced to stop distributing Word in the U.S. market. "Already, Microsoft is expending enormous human and financial capital to make its best effort to comply with the district court's 60-day deadline," Microsoft said in the appeals court motion.

The software maker said the injunction could potentially keep Word and even Office off the shelves for months. "Unless Microsoft is able to redesign Word and push that redesigned version through its entire distribution network by October 10th...Microsoft and its distributors (which include retailers such as Best Buy and OEMs such as HP and Dell) face the imminent possibility of a massive disruption in their sales," Microsoft argues in the court papers.

Microsoft's motion is expected to be assigned to a three-judge panel that would consider the request. The software maker is also expected to file its full appeal shortly. On Friday, Microsoft made a motion to the trial judge in the case to allow the company to appeal the verdict without having to post a bond.

As noted in our earlier coverage, Microsoft has several options, including seeking remedy from the courts, creating a technical workaround that ensures Word is not infringing on I4i's patent, and settling with I4i.

In Tuesday's filing, Microsoft noted that, in the period since the jury's verdict, the U.S. Patent and Trademark office has provisionally rejected the patent in question upon a reexamination and said that the company meets the standard for staying the injunction because it is likely to win its appeal, will be irreparably harmed by the injunction, that i4i won't be harmed by the stay and that the public will "face hardship" if Word or Office is absent from the market for any period of time.

Earlier this year, in the same patent case, a federal jury also awarded I4i $200 million in damages in the case. That amount, in part, was reached by determining that a reasonable royalty for the XML feature was $98 per copy of Word, a figure that Microsoft noted in Tuesday's court filing is more than the retail price of some editions of Word.

For its part, I4i chairman Loudon Owen said last week that his company isn't seeking to crush Word, but rather just to get Microsoft to stop infringing on his company's patents. Owen declined to say what, if any, settlement talks have been taking place between the two companies.

Updates:
In a statement Tuesday, Owen added that the appeal was "fully expected given the significance of the case and the flagship status of Microsoft Word to the defendant. I4i will continue to vigorously enforce its patent," he added. "We firmly believe the jury verdict and judgment were both fair and correct and we have been vindicated through this process."

Microsoft spokesman Kevin Kutz added the following statement:

Today, Microsoft filed a motion with the Court of Appeals for the Federal Circuit to seek an expedited review of its appeal and to stay the permanent injunction while the appeal is pending. These filings are not unusual in patent cases. As we've maintained throughout this process, we believe the evidence clearly demonstrates that we do not infringe and that the i4i patent is invalid. We look forward to filing our appeal and to Court of Appeals review.

The news that a judge has slapped an injunction that could bar Microsoft from selling its flagship Word software is a big deal. But don't expect to see Redmond allow one of its key money makers to be pulled from the market--even for a day.

As part of a patent infringement case that also resulted in a huge monetary judgment back in May, a federal judge in Texas this week ordered Microsoft to stop selling any versions of Word that use a custom XML tagging technology. The ruling is set to go into effect in 60 days.

That gives Microsoft two months to pursue an appeal, craft a settlement, or implement a technical workaround that removes the technology found to be infringing.

The company is definitely appealing the case, as it said in a statement on Tuesday. The appellate court has the option of holding off on the injunction, but is not compelled to, as Microsoft makes its appeal.

In any case, the one thing I would be fairly certain of is that Microsoft will do whatever it has to to keep Word on the market.

For its part, Microsoft declined to comment beyond its statement.

"We are disappointed by the court's ruling," spokesman Kevin Kutz said. "We believe the evidence clearly demonstrated that we do not infringe and that the i4i patent is invalid. We will appeal the verdict."

I'd expect that Microsoft is working in Word right now to get that appeal ready.

Microsoft and the state of Mississippi said Thursday that they have reached a settlement in a class-action suit over the pricing of Windows and Office. Under the terms of the deal, Microsoft will pay $40 million to the state and up to $60 million in vouchers to consumers, businesses, schools, and local governments.

The deal is similar to the many settlements that Microsoft struck with states in years past.

Those in Mississippi who purchased Microsoft products or computers containing Microsoft products between January 1, 1996, and Thursday will be eligible to receive a voucher of $12 or $5, depending on which products were purchased. The vouchers can be used toward the purchase of any software or hardware product.

Products eligible for the $12 vouchers include three older Windows versions--Windows 95, Windows 98, and Windows ME. Among those that qualify for the $5 vouchers are Office (or components such as Word and Excel), MS-DOS, Windows 1.xx-3.xx Windows for Workgroups, Windows NT Workstation, Windows 2000 and Windows XP.

If not all the vouchers are claimed, Microsoft will pay up to an additional $8 million to the state.

"Microsoft is pleased to reach this resolution with the State of Mississippi and with our customers in Mississippi," said Steve Aeschbacher, Microsoft associate general counsel. "We look forward to working with the state on issues of mutual concern going forward."

A federal jury in Tyler, Texas, on Wednesday ordered Microsoft to pay $200 million in a patent infringement case.

The jury ruled that the custom XML tagging features of Word 2003 and Word 2007 infringed on a patent from Toronto-based I4i.

A Microsoft representative said the company was "disappointed" by the verdict and would seek to have it reversed.

"We believe the evidence clearly demonstrated that we do not infringe and that the I4i patent is invalid," Microsoft spokesman David Bowermaster said in a statement. "We believe this award of damages is legally and factually unsupported, so we will ask the court to overturn the verdict."

Last month, in a separate infringement case brought by Uniloc, Microsoft was hit with a $388 million verdict. The company said it would appeal that order.

A Linux advocacy group on Tuesday said it is publicly seeking invention data that could help overturn three Microsoft patents that the software maker has charged are infringed by some implementations of the Linux kernel.

The Open Invention Network said it is looking for examples of so-called prior art that could help invalidate three file management patents that Microsoft used in its suit against GPS maker TomTom. Although TomTom and Microsoft settled, the suit raised the specter that Microsoft might pursue other Linux-related companies.

OIN encouraged those with examples of earlier work in the areas covered by Microsoft's patents to submit them via the Web.

"The patent vetting activity offered by the Linux Defenders portal offers a unique opportunity to bring to bear the collective knowledge, passion and ingenuity of the Linux community to better explore the validity of the patents that were the subject of the recent action against TomTom," said Keith Bergelt, CEO of Open Invention Network, in a statement. "I encourage active participation from the entire Linux community so that other companies seeking to advance Linux strategies can be better informed about the quality of these patents."

In a statement, Microsoft deputy general counsel Horacio Gutierrez said that the three patents in question "represent valuable technology innovations that increase the efficiency and functionality of file management systems."

"They have been validated through licensing agreements and highly scrutinized for validity by patent offices," Gutierrez said, adding that two of the patents relating to the File Allocation Table naming methods have been affirmed twice by the federal Patent Office and have been licensed to more than 18 companies. The third patent, with relates to how file systems work better with flash memory, has also been licensed to other companies, Microsoft said.

Red Hat, meanwhile, praised the move to try to invalidate Microsoft's patents.

"Red Hat is pleased to endorse the growing movement within the free and open-source community of gathering prior art to undermine invalid software patents," Red Hat's legal team said in a blog posting. "We're particularly pleased that Open Invention Network's Linux Defenders has now invited scrutiny of the three patents that Microsoft used in the TomTom case to attack open source, as numerous public reports suggest weaknesses in these patents."

The blog notes that Microsoft said its suit was specific to TomTom, but also notes that when asked in a CNET interview, Gutierrez refused to rule out further legal actions against Linux-related companies.

"If Microsoft's objective was to build trust and confidence with the open-source community, it failed miserably," Red Hat said. "It is unfortunate when a technology company decides that, instead of simply competing on a level playing field in the marketplace, it will devote its entrepreneurial energy to the patent protection racket."

While reaction to Microsoft's settlement with TomTom was varied on Monday, there seemed to be a consensus that it will do little to settle the many questions related to whether Linux infringes on Microsoft's intellectual property.

Attorney James Gatto, the leader of the intellectual property section at Pillsbury Winthrop Shaw Pittman, said the quick settlement in the case may have as much to do with a pragmatic business decision by TomTom as it does with the legal merits of Microsoft's case. Complex litigation, such as the patent suit and countersuit in this case, could easily add up to $10 million to $15 million in costs, Gatto said.

"I don't think this answers any questions in terms of whether Microsoft's patents in any way cover Linux," Gatto said. Microsoft has long asserted that various implementations of Linux do infringe on its intellectual property and has struck a number of patent deals with companies that either distribute Linux or use it in their products.

The TomTom case, however, marked the first time that Microsoft had made those allegations in court papers.

Open-source pioneer Bruce Perens criticized the settlement, saying that it may instill fear in other companies that are using embedded Linux and thus have something of a chilling effect.

"What strikes me is the un-justice of it all," said Perens, who is the chief executive of open-source software development company Kiloboot. "Microsoft's patents (in the TomTom case) are not innovative, yet TomTom is forced to pay for the patents when a court would probably find them invalid. But rather than spend the money to prove the patents are invalid, because they probably can't afford to go to court and fight it, TomTom licenses the patents."

Gatto said that Microsoft's TomTom move doesn't necessarily mean the company is ready to go to war with Linux.