Politics and Law

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 has at times alleged patent infringement in its attempts to stifle certain Linux-based applications. But one group is hoping to fight back by using Microsoft's own former patents.

The Open Invention Network (OIN), a group made up of Microsoft competitors and Linux advocates,said it's close an agreement to buy 22 patents that Microsoft sold to another organization earlier this year. According to Tuesday's Wall Street Journal, the patents may relate to Linux.

The OIN believes that getting these patents is critical to protecting Linux developers from costly lawsuits, according to the Journal. The concern is that otherwise the patents could be grabbed by patent trolls, which will then try to make money from patent-infringement lawsuits.

The group that currently owns the patents, Allied Security Trust, buys them to protect its members from lawsuits. Composed of such companies as Google, Hewlett-Packard, Verizon Communications, and Cisco Systems, Allied Security Trust bought the patents in a private auction held by Microsoft. The Journal reports that Microsoft presented the patents to potential bidders as relating to Linux.

Microsoft has said that it holds more than 50,000 patents, according to the Journal, and that it believes 200 of those are violated by Linux applications.

Over the past few years, Microsoft has signed deals with several open-source companies in which they pay Microsoft money to protect themselves from intellectual property claims.

The OIN's goal is to promote and protect Linux by using patents that allow for free and open collaboration. The group says its patents are available to any company or individual that agrees not to assert those patents against Linux. The idea is to help developers use Linux without having to worry about violating existing patents.

The OIN is trying to use such cases as the recent lawsuit between Microsoft and GPS-maker Tom Tom to prevent similar actions against Linux-based apps. Although Tom Tom settled with Microsoft, the OIN is concerned that the case may establish a precedent.

Started in 2005, the OIN counts among its members IBM, Sony, and Red Hat. Over the years, other powerhouses have joined, including Oracle, Google, and most recently Tom Tom.

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 World Wide Web Consortium is opening the possibility of pushing back against an Apple patent on software updates that Apple had refused to license royalty-free for use in a proposed Web standard.

The W3C announced June 12 that it's seeking prior art relating to Apple's patent No. 5,764,992--in other words, examples of the patent's technology in use that predate the patent itself. The patent, which Apple applied for in 1995 and was granted in 1998, involves this scenario: "a software program running on a computer automatically replaces itself with a newer version in a completely automated fashion, without interruption of its primary function, and in a manner that is completely transparent to the user of the computer."

The consortium, which oversees standards including the HTML for Web page publishing and the Portable Network Graphics (PNG) image format, is working on a draft standard called Widgets 1.0: Updates that governs how Web-based applications can update themselves. Apple in March said it wasn't willing to include the patent's 30 claims in the royalty-free licensing requirements of W3C standards.

To deal with the patent matter while continuing with development of the standard, the consortium set up a patent advisory group (PAG).

"The PAG seeks information about software update systems available before June 1995 that offer a viable solution that may apply to the use of updates in Widgets," the W3C said about the prior-art search. "Such information could suggest ways to define a specification that can achieve the working group's goals without implementers infringing on the disclosed patent."

Finding prior art could help overturn the patent, but W3C spokesman Ian Jacobs said the consortium hasn't yet concluded what measures to take.

"There are lots of options once we have more information," Jacobs said. "One possible outcome, should we find prior art, is the patent might be re-evaluated. If it turns out there is prior art, that will be fodder for the next discussion."

Apple didn't immediately respond to a request for comment.

Work on the draft specification can continue while the advisory group deals with the patent, Jacobs said, but the patent does complicate matters. "Does it cast a shadow over the specification? The answer is yes, until we have a better sense over the scope of the patent."

Via Dion Almaer

Corrected at 5:15 p.m.: This story initially misstated which standards the W3C oversees. It oversees HTML, Portable Network Graphics, and others.

Sometimes overlooked in the Sturm und Drang about Google Book Search is any consideration of the mechanics of economically scanning the books in the first place, but a patent awarded to Google gives insight into how the search behemoth accomplishes the task.

In short, Google has come up with a system that uses two cameras and infrared light to automatically correct for the curvature of pages in a book. By constructing a 3D model of each page and then "de-warping" it afterward, Google can present flat-looking pages online without having to slice books up or mash them onto a flatbed scanner.

This diagram shows patented Google technology for correcting for curved pages while scanning books.

(Credit: Google)

A Senate panel on Thursday approved a patent reform bill that brings opposing parties from the technology, pharmaceutical, and other industries closer to a compromise on the contentious issue.

The Senate Judiciary Committee voted 15 to 4 to bring the Patent Reform Act before the full Senate, despite changes to the legislation opposed by one of its sponsors, Sen. Orrin Hatch (R-Utah). Along with Hatch, the three other senators who voted against the legislation in its current form are Sens. Russ Feingold (D-Wis.), Jon Kyl (R-Ariz.), and Tom Coburn (R-Okla.).

The committee approved a number of changes to the legislation, which were negotiated over the last week. Hatch opposed changes to the portion of the bill that limited the damages a patent holder could request for patent infringement. The new language, developed by Sens. Dianne Feinstein (D-Calif.) and Arlen Specter (R-Penn.), adds what is referred to as a "gatekeeper" provision, giving judges more authority to determine how to assess damages.

"Patent reform is urgently needed," said Committee Chairman Patrick Leahy (D-Vt.), one of the bill's co-sponsors. "The agreement this committee has reached to move forward with patent reform is the culmination of months of arduous negotiations and compromise. Senator Specter, Senator Feinstein, and so many others have lent important voices to this debate, and working together, we can make the necessary, long-overdue improvements our patent reform system requires."

Members of the committee have held dozens of meetings with various companies and industry representatives to hash out a resolution over patent infringement damages and other controversial provisions of the legislation. Many large companies have sought greater restrictions over damages, claiming they are subject to many frivolous patent infringements lawsuits.

The Coalition for Patent Fairness, which represents companies like Microsoft, Apple, and Google, pushed for damages limitations. The group said in a statement Thursday that the gatekeeper provision "begins to address the flaws in the patent litigation system that allow patent abusers, companies that do not produce or invent anything, to force our country's most innovative companies to divert billions of dollars away from innovation and job creation into litigation costs and hold-up settlements."

Horacio Gutierrez, corporate vice president and deputy general counsel for Microsoft, called the approved legislation "encouraging," even though the bill "may not address all the wishes of all of the parties involved, including those of Microsoft."

The Innovation Alliance, which represents patent holders like Qualcomm and Dolby Laboratories, said the change to the damages provision was an improvement but that it still takes issue with other portions of the bill, such as the provision allowing for post-grant review. That provision allows a patent to be challenged 12 months after it is issued.

"We are encouraged that the committee has expressed a desire to continue working to achieve a true consensus," said Brian Pomper, the Innovation Alliance's executive director. "This is welcome news, as we believe the post-grant review provisions approved threaten to diminish the value and enforceability of U.S. patent rights at a time when America's economic recovery and future job creation are dependent upon promoting U.S. innovation."

WASHINGTON--Democratic and Republican leaders in Congress on Tuesday introduced a patent reform bill (PDF) that aims to pick up where previous patent reform efforts left off.

The controversial provisions of the legislation will be subject to serious debate and may very well be altered before the bill is passed, the bill's co-sponsors said Tuesday. Nevertheless, they said, they are confident the legislation--some form of which has gone before Congress three times over the last five years--will finally pass this year.

"This is the Congress and this is the year bipartisan patent reform should be enacted," said Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.), one of the co-sponsors of the legislation. "If we're going to allow our innovators to flourish in the Information Age, we need new patent laws. It's about economic development, it's about jobs, it's about innovation. It's also about consumers."

Senator Patrick Leahy announces the introduction of the Patent Reform Act of 2009 while Senator Orrin Hatch looks on.

(Credit: Stephanie Condon/ CNET Networks)

Identical bills are being introduced in the Senate and House of Representatives. Senator Orrin Hatch (R-Utah) joins Leahy as a co-sponsor of the Senate bill, while House Judiciary Committee Chairman John Conyers (D-Mich.) and ranking minority member Lamar Smith (R-Texas) are co-sponsoring the House version.

"My prediction is this will be the most significant bill introduced this year that enjoys bicameral and bipartisan support," Smith said.

One of the most controversial provisions of the Patent Reform Act of 2007--limitations on damages for patent infringement--remains in the legislation.

"We kept the language the same because we want to start where we left off and give us something to work on," Leahy said.

The inequitable conduct provision added to the bill last Congress has been removed, though Leahy said he intends to continue working with Hatch on that issue.

The latest version of the bill also strikes the 18-month publication requirement previously included, since labor unions and small inventors expressed concern that patent applicants not seeking protection abroad would see their inventions used overseas without compensation. The new bill also adopts the language from the House version of the 2007 bill that would alter the post-grant review process.

Leahy said that recent court decisions on patent issues have had a positive impact on the patent system, and the Senate Judiciary Committee will discuss the court decisions at a hearing next week.

Industry representatives had mixed reactions to the legislation, noting that issues like damages limitations will need further review.

"We hope this legislation will get the attention and floor time it deserves," said Ed Black, president and CEO of the Computer and Communications Industry Association. "Leaving (the issue of damages) to the courts could have a chilling effect on innovation due to rulings that have been wildly disproportionate to the relative economic contribution of the intellectual property rights at issue."

Mike Holston, general counsel and executive vice president for Hewlett-Packard, said regulations were needed to protect businesses like HP.

"We are the constant target of patent lawsuits, many of which are frivolous," he said. "More than half have been filed from non-operating entities. Instead of having our inventors and lawyers developing new technology, time is diverted fending against these lawsuits."

Still, many in the innovation industry are opposed to the damages limitations. Brian Pomper, the executive director for the Innovation Alliance, called the bill "divisive."

"The U.S. patent system has been critical to the success of countless American entrepreneurs, large and small businesses, and workers for over two hundred years," he said. "At this time of grave economic uncertainty, Congress should not make changes recklessly, without compelling evidence that the proposed changes will positively strengthen the U.S. economy."

The co-sponsors of the bill said the current state of the economy only gave more reason to move forward with the legislation.

"Intellectual property has grown in significance beyond anybody's imagination," Smith said. "If there's any time to encourage industries that do generate jobs to prosper, now is the time to do that."

Even though divisions remain on damages limitations and some other issues, Leahy said the increasingly urgent need to reform the patent system will compel both sides to reach a compromise.

"We will work out the differences," Leahy said. "I know when you have something extremely important to get done, it does get done."