Politics and Law

New York Attorney General Andrew M. Cuomo filed a federal antitrust lawsuit Wednesday against Intel that accuses it of paying computer makers rebates to illegally maintain its monopoly power, the newest among several such attacks that have dogged the chipmaker in recent years.

"Intel has engaged in a systematic worldwide campaign of illegal, exclusionary conduct to maintain its monopoly power and prices in the market for x86 microprocessors," the suit asserts. "By exacting exclusive or near-exclusive agreements from large computer makers in exchange for payments totaling billions of dollars, and threatening retaliation against any company that did not heed its wishes, Intel robbed its competitors of the opportunity to challenge Intel's dominance in key segments of the market. This illegal behavior was highly detrimental to consumers, competition, and innovation."

The suit "seeks to bar further anticompetitive acts by Intel, restore lost competition, recover monetary damages suffered by New York governmental entities and consumers, and collect penalties," Cuomo said in a statement.

The suit (click for PDF) makes the state the newest party to go after the dominant chipmaker. Intel also is in the midst of an antitrust suit brought by top rival AMD in 2005 and appealing a massive $1.5 billion fine from the European Commission from a later case in the European Union.

New York Attorney General Andrew M. Cuomo

(Credit: New York Office of the Attorney General)

Intel will defend itself, Intel spokesman Chuck Mulloy said in response to the New York suit.

"We disagree with the New York attorney general. Neither consumers--who have consistently benefited from lower prices and increased innovation--nor justice are being served by the decision to file this case now," Mulloy said.

Of e-mails the attorney general quoted as evidence Intel abused its position, all already emerged in earlier cases, he added. "It is the AMD case filed 4.5 years ago. It's the same case the EU brought. There's nothing significant or new here that hasn't been discovered," Mulloy said.

According to the suit, computer makers "frequently decided, when faced with the array of incentives and threats which Intel brought to bear, to collaborate with Intel in restricting their purchases from AMD."

"In a February 27, 2003 internal Dell document, for example, it was assumed that 'aggressive' purchases by Dell from AMD could result in '(r)etaliatory (rebate) reductions (by Intel that) could be severe and prolonged with impact to all LOBs (lines of business),'" the suit said. "Another Dell document from March 2003 concluded that '(a)nticipated Intel response wipes out all potential opinc (operating income) upside from going with AMD.'"

And an unnamed IBM executive said in a 2005 e-mail that balancing business interests against Intel's response was hard. From the suit:

I understand the point about the accounts wanting a full AMD portfolio. The question is can we afford to accept the wrath of Intel if we do the AMD full portfolio? It is a very hard question to deal with. On the one hand, having Intel help us has been one element of why we are doing better in the market. If they start to sell against us again I am afraid that we would be in a very difficult spot. On the other hand, if we leave Sun and HP an opening with AMD we will (be) very exposed on that side of things.

Cuomo's office said it began investigating the case in January 2008, "reviewed millions of pages of documents and e-mails and took testimony from several dozen witnesses."

Updated 9:43 a.m. PST with further details from the lawsuit.

A Silicon Valley start-up said it sued Barnes & Noble on Monday, claiming that the bookseller misappropriated trade secrets in creating the Nook e-reader.

Cupertino, Calif-based Spring Design said it had a nondisclosure agreement with Barnes & Noble and had been discussing its e-reader plans with the bookseller since early this year.

"Since the beginning of 2009 Spring and Barnes & Noble worked within a non-disclosure agreement, including many meetings, emails and conference calls with executives ranging up to the president of BarnesandNoble.com, discussing confidential information regarding the features, functionality and capabilities of Alex," Spring Design said in a statement. "Throughout, Barnes & Noble's marketing and technical executives extolled Alex's 'innovative' features, never mentioning their use of those features until the public disclosure of the Nook."

The press release from Spring Design did not say in what court the suit was filed, or mention what damages were being sought.

Spring Design announced its Alex e-reader just days before Barnes & Noble formally unveiled the Nook. Both e-readers use the Android operating system and combine an e-ink screen with a color touch screen.

Eric Kmiec, Spring Design's vice president of sales and marketing, said that the company has been working on the Alex since 2006.

"Spring Design unfortunately had to take the appropriate action to protect its intellectual property rights," Kmiec said in a statement. "We showed the Alex e-book design to Barnes & Noble in good faith with the intention of working together to provide a superior dual screen e-book to the market."

A Barnes & Noble representative was not immediately available to comment. (Update, 9:30 a.m. Nov. 3: A Barnes & Noble representative said that the company does not comment on litigation.)

Barnes & Noble's Nook, which competes head-on with Amazon's Kindle, is due to go on sale later this month for $259.

Here's a look at the Alex:

(Credit: Spring Design)

as compared to the Nook:

(Credit: Barnes & Noble)

Note: This story originally misstated the day that the lawsuit was filed. It was filed on Monday.

Eolas Technologies, a company that ground through a years-long patent infringement lawsuit against Microsoft, now has sued a large swath of corporate powers for infringement of that same patent and another related patent concerning interactive programs on Web sites.

The list of defendants includes many high-profile companies inside and outside the tech world: Adobe Systems, Amazon, Apple, Blockbuster, Citigroup, eBay, Frito-Lay, Go Daddy, Google, J.C. Penney, JPMorgan Chase, Office Depot, Perot Systems, Playboy Enterprises, Staples, Sun Microsystems, Texas Instruments, Yahoo, and YouTube.

Eolas' suit is not to be taken lightly. Although the earlier Microsoft case took many years to resolve, and Eolas by no means won a complete victory, the patent involved did overall withstand heavy legal challenges despite many on the Web rallying to Microsoft's aid. Microsoft and Eolas won't describe terms of their 2007 settlement of the patent case, but Eolas did say it expected to pay its shareholders a 2007 dividend afterward.

"What distinguishes this case from most patent suits is that so many established companies named as defendants are infringing a patent that has been ruled valid by the Patent Office on three occasions," said Mike McKool, head of the national law firm McKool Smith and Eolas' lead attorney.

This diagram shows one example of the newly granted Eolas patent 7,599,985 in use.

(Credit: Eolas)

The U.S. District Court suit, filed in the eastern district of Texas, seeks preliminary and permanent injunctions prohibiting the plaintiffs from using the patented technology; payment for damages from infringement, including treble damages because the alleged infringement was willful; attorney's fees; and a jury trial.

Eolas conducts research and development but also has a separate licensing department. "Eolas seeks to return value to its shareholders by commercializing these technologies through strategic alliances, licensing and spin-offs," the company says of itself.

The earlier Microsoft case involved U.S. patent 5,838,906, "Distributed hypermedia method for automatically invoking external application providing interaction and display of embedded objects within a hypermedia document," which involved browsers launching a helper application such as Adobe Flash.

In the new case, that patent is joined by a newer one granted Tuesday, No., 7,599,985, with a very similar title: "Distributed hypermedia method and system for automatically invoking external application providing interaction and display of embedded objects within a hypermedia document."

"The '985 Patent is a continuation of the '906 patent, and allows Web sites to add fully-interactive embedded applications to their online offerings through the use of plug-in and Ajax (asynchronous JavaScript and XML) Web development techniques," Eolas said in a statement about the lawsuit.

Ajax caught on midway through the decade as a way to endow Web pages with interactive features based in part on the JavaScript programming language. Ajax is used in many Web sites including Google Maps and Yahoo Mail.

The '985 patent, originally filed Aug. 9, 2002, involves a program embedded in a Web page--or "hypermedia document," as the patent language calls it more generally. Here's an excerpt from the patent abstract's description of the technology:

A system allowing user of a browser program on a computer connected to an open distributed hypermedia to access and execute an embedded programming object. The program object is embedded into a hypermedia document much like data objects.

The user may select the program object from the screen. Once selected the program executes on the user's (client's) computer or may execute on a remote server or additional remote computers in a distributed processing arrangement.

After launching the program object, the user is able to interact with the object as the invention provides for ongoing interprocess communication between the application object (program) and the browser program.

And later, in a bit more detail:

The present invention allows a user at a client computer connected to a network to locate, retrieve, and manipulate objects in an interactive way. The invention not only allows the user to use a hypermedia format to locate and retrieve program objects, but also allows the user to interact with an application program located at a remote computer.

Interprocess communication between the hypermedia browser and the embedded application program is ongoing after the program object has been launched. The use is able to use a vast amount of computing power beyond that which is contained in the user's client computer.

Apple, Google, Yahoo, Texas Instruments, and Office Depot each declined to comment on the suit. Staples, Playboy, Sun, Blockbuster, Citigroup, eBay, Frito-Lay, J.C. Penney, JPMorgan Chase, Adobe, and Perot Systems didn't immediately respond to requests for comment.

Elizabeth Driscoll, vice president of public relations for Go Daddy, said in a statement, "We have not seen the lawsuit and, therefore, cannot comment on it. However, we are unaware of the basis for any such claims and we will defend the case vigorously."

Updated 1:26 p.m., 2:09 p.m., 2:35 p.m., and 4:08 p.m. PDT with comment from companies.

A federal appeals court on Friday affirmed a lower court ruling that Microsoft infringed on a patent owned by Alcatel-Lucent, but said the jury award of $358 million in damages was excessive.

The U.S. Court of Appeals for the Federal Circuit in Washington, D.C., upheld a ruling that the patent at issue was valid and had been infringed on, but said there was not sufficient evidence to support the calculation of damages. The question of damages was sent back to the district court.

The patent, whose application was originally filed by engineers at AT&T, covers a method of entering information into fields on a computer screen without using a keyboard. Lucent initially sued computer maker Gateway for the patent infringement in 2002 and Microsoft subsequently intervened. Dell is listed as a third defendant in the case.

The trial court found that the "date-picker" calendar tool in Microsoft Outlook, and similar features in Microsoft Money and Windows Mobile, infringe on what the court refers to as the "Day patent." However, for damages purposes, the court said there was no evidence of widespread use of the infringing tool by customers and questioned the calculation of damages.

Alcatel-Lucent argued that it was owed damages representing 8 percent of the revenue of Microsoft's sales. The jury apparently arrived at its sum based on that percentage of Microsoft's sales or the entire market value of the software products that contain the feature, the opinion said. Microsoft, meanwhile, had suggested a sum of $6.5 million. The appeals court did not suggest a method for calculating the damages, but said the amount chosen by the jury was out of proportion to the potential for infringing use.

The infringing feature is a tiny piece of a large software program, and thus "the portion of the profit that can be credited to the infringing use of the date-picker tool is exceedingly small," the ruling said.

"In short, Outlook is an enormously complex software program comprising hundreds, if not thousands or even more, features. We find it inconceivable to conclude, based on the present record, that the use of one small feature, the date-picker, constitutes a substantial portion of the value of Outlook," the court said.

Representatives from both Microsoft and Alcatel-Lucent said they were pleased with the ruling.

"We are pleased that the court vacated the damages award, and we look forward to taking the next step in the judicial process," Microsoft spokesman Kevin Kutz said in a statement.

"We are very pleased with this decision by the U.S. Court of Appeals for the Federal Circuit affirming the jury's decision that Microsoft infringed the Alcatel-Lucent Day patent and that the Day patent is a valid patent," Alcatel-Lucent spokeswoman Mary Ward said in a statement.

"While we are disappointed that the court did not affirm the jury's decision on damages, we look forward to an upcoming proceeding to determine the compensation to which Alcatel-Lucent is entitled based on the court's finding that Microsoft did use our patented invention, which Microsoft included in each of the infringing products, presumably because they recognized that it added real value for their customers," she said.

The case is just one of a number of patent infringement cases the two companies have filed against each other over the years including cases involving the MP3 format, as well as communications technology, and digital speech compression.

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.

SCO Group, whose 6-year-old legal case arguing Linux infringes its Unix copyright hasn't been enough to keep it from bankruptcy court, nevertheless won an important victory in its case Monday.

A skeptical federal judge earlier had ruled that Novell had retained Unix copyrights when it sold its Unix business to the Santa Cruz Operation, a company whose Unix assets SCO Group later acquired. But the appeals court overturned that decision, based in part on a close reading of the Unix asset purchase agreement, sending the matter to trial for a decision. The appeals court did uphold a ruling that SCO owed Novell royalty payments, though, according to a 55-page filing.

SCO Group Chief Executive Darl McBride, who's been demonized by the Linux faithful, was happy with the decision. "Today is not the end of the war but it certainly is a key battle that we've won," he said in a statement in the Salt Lake Tribune. "Now it's time to move on to the next series of battles with our victory in hand."

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 Justice Department is examining antitrust issues regarding a proposed settlement of Google Book Search lawsuits with the search giant, according to reports in the Wall Street Journal and New York Times on Tuesday, citing unnamed sources.

It's unclear what might come of the reported talks, but the Justice Department is not to be treated lightly. The department leads enforcement of antitrust law, and Google backed down from its threatened antitrust lawsuit against it in 2008 regarding a search-ad partnership with Yahoo.

The proposed settlement with the Authors Guild and the Association of American Publishers, announced in October, would among other things give Google the right to show content from books online that are still in copyright but that are no longer in print. In addition, those copyright holders could be paid for online sales of their books.

Authors and publishers may opt out of the proposed settlement, but if they do nothing, they're considered part of it. That includes authors who can't be located.

Google has book-search agreements in place with numerous publishers, but the company hopes that the settlement will permit it to bring many more books to into its service. But in a tactical victory on Tuesday for settlement opponents, a judge gave authors four more months to decide whether to participate.

Antitrust issues have arisen in the Book Search case. One notable voice is Harvard University's head librarian, Robert Darnton, who in a February article in the New York Review of Books worried about the control Google would get through the settlement.

"The class-action character of the settlement makes Google invulnerable to competition," he said. "Most book authors and publishers who own U.S. copyrights are automatically covered by the settlement. They can opt out of it; but whatever they do, no new digitizing enterprise can get off the ground without winning their assent one by one, a practical impossibility, or without becoming mired down in another class action suit. If approved by the court--a process that could take as much as two years--the settlement will give Google control over the digitizing of virtually all books covered by copyright in the United States."

However, Paul Courant, though, dean of libraries at the University of Michigan--a Google Book Search Partner and fan of the proposed settlement--objected to Darnton's view. "His view of the world that will likely emerge as a result of Google's scanning of copyrighted works is a dystopian fantasy," Courant said.

Google and the Justice Department didn't immediately comment on the report.

This post was updated at 5:53 p.m. PDT with details about an extension request of the May 5 deadline filed by seven authors.

Google said Monday it's seeking 60 more days to find authors and persuade them of what it believes are the merits of a settlement involving its online Book Search service.

The proposed settlement of the 2005 case filed by the Authors Guild and the American Association of Publishers involves Google's right to show information from books online--in particular "orphan" works that are still covered in copyright but that are in limbo, for example being out of print or written by authors who can't be located. Currently, authors must respond by a May 5 deadline to opt out, otherwise authors will be included in the settlement.

"The settlement is highly detailed, and we want to make sure rightsholders everywhere have enough time to think about it and make sure it's right for them. That's why we've asked the court for permission to extend the opt-out deadline for an extra 60 days," said Alexander Macgillivray, Google's associate general counsel for products and intellectual property, in a blog post Monday.

"It's pretty easy for credit card companies to contact their cardholders--they send bills to them all the time. The world's authors, publishers and their heirs are much more difficult to find," Macgillivray said. "So, as the New York Times recently reported, the plaintiffs hired notice campaign specialists Kinsella Media Group to tell them about this exciting settlement, and Google has devoted millions of dollars to fund this notice campaign. Kinsella started by launching a website for authors and publishers and a direct-mail effort. Beginning in January, Kinsella published ads in newspapers and other publications all over the world from Fiji to the Cook Islands to Greenland. And of course, they also placed ads right here at home in the U.S., in publications as diverse as Writer's Digest and USA Today."

Google is facing resistance to the settlement.

Seven authors last week requested a four-month extension (PDF) of the May 5 deadline due to the complexity of the proposed settlement, among other reasons.

"First, two months' time is insufficient to understand the implications of a settlement of this scope," the appeal letter reads. "Second, substantial defects in notice of the settlement undermine authors' ability to assess their rights; and third, more time is required simply to understand the complex terms of the agreement."