Beyond Binary

A federal appeals court on Wednesday heard arguments over whether to uphold an injunction that would ban sales of Microsoft Word in its current form.

Microsoft is appealing a jury's ruling that a custom XML feature in recent versions of Word infringes on a patent held by I4i, a Canadian software company. The jury ordered Microsoft to pay $200 million, while a judge raised that amount and also issued the injunction, although it has been temporarily put on hold while Microsoft's appeal is being heard.

The hearing before a three-judge panel in Washington, D.C., lasted about 90 minutes, with lawyers from both sides making their case.

"At today's hearing we emphasized three points for why a reverse judgment or retrial is warranted: courts need to construct claims properly, the patent is not valid and we do not infringe it, and common sense can't be abandoned when it comes to damages calculation," Microsoft spokesman Kevin Kutz said in an e-mailed statement. "We are pleased with how the hearing proceeded and we look forward to the Court's ruling.

For its part, I4i said Microsoft's arguments are the same ones that have been unsuccessful in prior hearings.

"The good thing is there was nothing surprising," I4i Chairman Loudon Owen said in a telephone interview on Wednesday. "It was the same thing that failed at trial."

A ruling from the appeals court is expected soon, but no specific time frame was given by the court on Wednesday. I4i executives expressed hope that the ruling will come soon, but such decisions can often take two to four months, or even longer in some cases.

Should Microsoft lose its appeal, the software maker could also pursue a technical workaround that allows the custom XML function to work in a different way that doesn't infringe on I4i's patent, remove that feature from Word, or pursue a settlement.

Although XML technology may seem arcane, Owen said it is important technology and he said I4i is suffering each day that there is no injunction because the market is growing so quickly.

"It's not a 'would-like-to-have' (technology)," Owen said. "We believe it is a must-have going forward. This is infrastructure so that commerce and government can function and solves some of the problems that are seemingly insurmountable in managing data today."

Microsoft will have its day in court on Wednesday.

OK, so the software maker still spends lots of days in court, even if it has settled many of the antitrust cases that once filled its Outlook calendar. Wednesday, though, it will make its case to an appeals court for why it shouldn't face an injunction banning sales of Word that contain a custom XML feature.

Earlier this year, a federal jury found that recent versions of Word infringe on a patent held by I4i and ordered Microsoft to pay the Canadian company $200 million. Last month, a federal judge hiked the damage award and also ordered the injunction.

Both sides have made their arguments (and counter arguments, and counter-counter arguments abundantly clear), so now it will be up to the federal appeals court to weigh those positions. The hearing is set for 10 a.m. EDT/7 a.m. PDT, and we'll try to post an update after the hearing is done.

For its part, I4i has said it isn't seeking to have Word pushed off the shelves entirely. It just wants the offending code removed.

If it loses its appeal, Microsoft could try to offer an XML feature that behaves differently, pull the custom XML feature from Word, or pursue some sort of settlement.

A pro-open-source group said on Tuesday that it has acquired 22 patents recently sold by Microsoft--patents that the group said could have been used against Linux.

The Open Invention Network said that the patents were purchased from Microsoft by an entity known as the Allied Security Trust. OIN said it has now acquired the patents from AST, although it wouldn't say how much it paid.

"Today's announcement evidences OIN's continued commitment to acquire patents that may be relevant to Linux," OIN CEO Keith Bergelt said in a statement. "The prospect of these patents being placed in the hands of non-practicing entities was a threat that has been averted with these purchases, irrespective of patent quality and whether or not the patents truly read on Linux."

Allied Security Trust said it was pleased that OIN had bought the patents. "OIN's purchase ensures that these important patents will not be used by patent trolls or others seeking to disrupt Linux and the many companies and individuals advancing this important technology," AST Chief Executive Dan McCurdy said in a statement.

The Wall Street Journal reported on Monday that OIN was close to acquiring the former Microsoft patents.

In an interview, Bergelt said that his organization was not invited by Microsoft to directly participate in the bidding for the patents, raising the specter that Microsoft was more interested in selling to someone that might have targeted Linux as opposed to just maximizing the sales price for the patents.

"We were not offered an opportunity to participate in the bidding for this portfolio that Microsoft was selling," Bergelt said.

For its part, Microsoft confirmed that it sold the patents to AST in July, but declined to comment on the terms of the deal. Microsoft said that the patents were indeed ones that it had acquired several years ago in a deal with SGI.

"These patents were deemed to be non-core to our business and non-essential for our IP portfolio," Microsoft spokesman Michael Marinello said in a statement. "When an interested buyer for this technology was identified, after discussing it both internally and with the potential buyer, we felt this was the right direction to go in relating to these specific patents."

OIN began in 2005 and includes IBM, Sony, Red Hat and Google among its members. TomTom joined OIN earlier this year, during its now-settled patent spat with Microsoft.

Microsoft has long asserted that various implementations of Linux infringe on a number of its patents, however, until its suit against TomTom, Microsoft had never litigated any of those contentions. Linux-related claims were part of Microsoft's suit against TomTom.

Bergelt said OIN acquired the patents to try to help Linux-based companies avoid becoming targets for more legal action. "In this case it's not that we saw these patents as so fundamental that Linux was at risk," Bergelt said. "Our goal is to reduce the potential challenges that are associated with patents."

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.

A federal appeals court has scheduled a hearing next month to decide whether to uphold a ruling that would force Microsoft to stop selling Word in its current form.

A district court judge last week issued an injunction that would halt sales of any version of Word that includes a custom XML function that was found by a jury to infringe on a patent from Canada's I4i. In May, that jury also dinged Microsoft with $200 million in damages, an amount that the judge hiked to more than $290 million at the same time he ordered the injunction, which he scheduled to go into effect 60 days after the Aug. 11 ruling.

In a statement, I4i said that Microsoft's appeal will be heard on Sept. 23. Microsoft had asked for an expedited hearing on the matter.

"We firmly believe that the U. S. District Court made the right decision on the merits of the case," I4i Chairman Loudon Owen said in a statement. "We are confident that we will prevail on the appeal."

Owen said that I4i welcomes the speedy hearing. "This is a vital case for inventors and entrepreneurial companies who, like i4i, are damaged by the willful infringement of their patents by competitors; particularly competitors as large and powerful as Microsoft."

In addition to the appeal, Microsoft could also pursue a technical workaround that allows the custom XML function to work in a different way that doesn't infringe on I4i's patent, remove that feature from word, or pursue a settlement.

For its part, Owen told CNET News last week that I4i isn't seeking to see Word pulled from the market, but rather just to get Microsoft to stop infringing on his company's patents.

Microsoft was not immediately available for comment.

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 chairman of the company that has won a landmark injunction against Microsoft says his goal is not to see Microsoft Word pulled from store shelves.

In fact, I4i Chairman Loudon Owen said he is one of the hundreds of millions of people who uses Word and the other Microsoft Office tools every day.

I4i Chairman Loudon Owen

(Credit: McLean Watson)

"We're not seeking to stop Microsoft's business and we're not seeking to interfere with all the users of Word out there," Owen said in a telephone interview on Wednesday. He added that this week's ruling orders an injunction only against Word shipping in a form that uses I4i's custom XML technology.

As noted earlier, Microsoft has several options, including legal appeals, pursuing a settlement, or recrafting Word in a way so that it doesn't infringe on I4i's technology.

Although he couldn't comment on such a technical workaround, Owen said he would be happy to see Microsoft come out with a version of Word that removes the infringing technology.

"The injunction is not saying there is no more Word for the world," Owen said. "That is not our intention and that would not be a sensible remedy."

The judge's ruling, in addition to upholding a $200 million monetary award from May, does issue an injunction against Microsoft that would bar Word in its current form, though. The ruling would go into effect in 60 days, unless Microsoft wins a stay as part of an appeal, which is currently in the works.

As for the size of the monetary verdict in the Word case, Owen wouldn't say how it compares to the company's annual revenue, but noted it is a big deal.

"It's obviously a material verdict by US patent verdict (standards), but we think it is fair," he said.

But Owen said I4i's focus is on its products, not on the courts. Owen said I4i's mission is trying to make database-ready all of the world's unstructured information. Only about 10 percent of data today is structured, but XML can change that.

The company, which has about 30 employees and has been running since 1993, has products in use by a number of large companies, including many large pharmaceutical names such as Amgen, Bayer and Biogen.

Interestingly, though, one of the company's biggest projects was its 2001 overhaul of the US Patent and Trademark Office's own Web site for patent submissions. The patent involved in its suit against Microsoft, though, was filed in 1994 and granted in 1998.

Owen said he couldn't comment on whether there have been any recent settlement talks. Asked whether there might be room for some sort of partnership between the two companies, Owen quipped: "Microsoft is too big for us to buy at this point."

He then added that the company's goal is to help structure the world's information and it will do whatever it takes to reach that goal. "We are always ready willing and able to partner with any good partner, whoever that is."

Owen, who is co-founder of the Mclean Watson venture capital firm that backs i4i, does have some experience negotiating with Microsoft. According to his bio on that firm's Web site, he helped finance and advice 3D animation firm Softimage, which was sold to Microsoft in 1994.

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.

Group messaging company Paltalk said on Thursday that it has reached a deal with Microsoft to settle a patent dispute.

As part of the deal, Microsoft has taken a license to Paltalk's patents and is paying an undisclosed amount of money, Paltalk said in a press release.

"After litigating with Microsoft for over two years to protect our intellectual property, it is gratifying to resolve this matter with Microsoft taking a license to Paltalk's patents," said Jason Katz, founder and CEO of Paltalk.

Paltalk filed its suit against Microsoft in September 2006, alleging that Halo 2 and Halo 3 running on Xbox Live violated Paltalk's patents. Paltalk said the case involved two patents that were originally filed in 1996 by MPath Interactive and acquired by Paltalk in 2001.

The case against Microsoft went to trial in March, Paltalk said, with a settlement reached on the fourth day of the case.

Microsoft declined to comment on the settlement. However, a source close to the company said the settlement was approved by the court last month.