Microsoft's Patent Dust-Ups

Posted by: Aaron Ricadela on August 19, 2009

For the past half dozen years, Microsoft has been busily getting its patent house in order. In a bid to protect itself against lawsuits alleging that it has infringed on other companies’ patents, Microsoft has issued more patents on its inventions and carefully set up licensing agreements with other companies to keep itself out of court. But two recent cases show that the software giant is still susceptible to allegations of infringement.

The latest involves a tiny Toronto software company called i4i in a case that threatens Microsoft’s ability to sell its word processing software Word. On Aug. 18, Microsoft asked a federal appeals court in Washington, D.C. to refrain from abiding by an Aug. 11 U.S. District Court ruling that said Microsoft couldn’t sell its word processing software in the U.S. as of October. The ruling, by a federal judge in the Eastern District of Texas, stems from a 2007 lawsuit by i4i that says Microsoft infringed on one of its patents in newer versions of Word and other products.

In addition to the injunction against selling one of its most popular products, the court ordered Microsoft to pay $290 million in damages to i4i, including a fine of $40 million after the judge ruled that Microsoft’s lead lawyer in the case made misleading statements to the jury.

While a ban on Word sales is unlikely any time soon —appeals in patent suits can stretch out for years—the ruling against Microsoft has garnered attention because Microsoft usually wins infringement cases filed against it by small companies. “It’s this kind of company against which the Microsoft patent portfolio defense should work,” says Rob Enderle, president of consulting company the Enderle Group.

In a statement e-mailed to BusinessWeek.com, Microsoft spokesman Kevin Kutz said the evidence in the case “clearly demonstrates that we do not infringe and that the i4i patent is invalid.” Microsoft is seeking an expedited review of its appeal, and an immediate stay of the injunction against Word.

The Texas dust-up over Word isn’t Microsoft’s only recent legal setback. in April, Microsoft lost a patent infringement case against computer security company Uniloc, when a federal court in Rhode Island ordered Microsoft to pay Uniloc $388 million in damages. Uniloc CEO Brad Davis told my colleague Peter Burrows recently that Microsoft was interested in buying Uniloc in the mid-‘90s, but that the price was too high. Uniloc is on track for about $25 million in sales this year, Davis says.

Microsoft has a long history of fending off patent lawsuits from startups that claim Redmond nicked their best ideas. Starting in 2003, Microsoft has taken steps to fortify its intellectual property protection. It hired Marshall Phelps, a former IBM executive, as Corporate Vice President for IP Policy and Strategy. Microsoft has increased the number of patents it uses, and stepped up so-called “cross-licensing” agreements that let tech vendors gain access to one another’s patent portfolios.

To be sure, negative judgments in patent cases are a cost of doing business in the tech industry, which is marked by complex products that incorporate ideas sometimes incubated elsewhere. “Regardless of how careful you are, from time to time, you’ll find yourself in a situation where, despite your best efforts, you’ve infringed,” says Michael Cherry, an analyst at the consulting firm Directions on Microsoft.

Microsoft has long had patent infringement safeguards that went so far as tying the hands of its engineering rank and file. When Cherry left Microsoft in 2000, the open source Linux operating system was seen as a threat to Windows. “A lot of us on the Windows team were told we shouldn’t go poking around [in Linux] because we didn’t want to get any ideas from it,” he says.

Yet i4i’s chairman says the company held detailed discussions with Microsoft about its technology. Chairman Loudon Owen told Burrows in a recent interview that the company once wrote a letter to Microsoft chairman Bill Gates explaining its software. “They knew we had a patent and knew that patent number, but used the technology in their product nonetheless,” he says.

i4i’s suit, filed in March 2007, revolves around what’s known as the “’449 patent,” which allows Word to open PC files that contain custom types of XML code. The XML language lets companies create invisible “tags” in documents that describe their contents, and i4i sells software add-ons to Word that let pharmaceutical companies and others create and edit XML documents using Word. Drug companies need to manipulate XML data for submitting information to the Food and Drug Administration.

Starting in 2003, Microsoft enabled Word to read these custom XML codes that users created. i4i has said Microsoft infringed the ‘449 patent in Word 2003 and 2007, its .Net Framework software for programmers, and in its Windows Vista operating system.

In its Aug. 18 motion, Microsoft said i4i wouldn’t be harmed by a stay of the Word injunction order, and that “the public will face hardship” if Word and the Office suite aren’t available for any length of time.

Yet even the fact that Word’s fate is up to an uncertain appeal process is evidence that Microsoft’s tactics went awry in this case, Enderle says. For a company that's taken such careful steps to amass a defensive portfolio of patents, Microsoft perhaps should have never let things go this far.

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Reader Comments

Mark

August 19, 2009 10:36 PM

MS having a big patent portfolio has nothing to help in patent suits from small firms. A large patent portfolio only helps with other firms with large portfolios. In that case, both companies probably have violated each others patents and a cross license agreement is best way for both parties to keep all their patents and not lose the lawsuit. For small companies, they have no need to license the other patents from MS, so no value in MS portfolio. Since many granted patents are of questionable originality, it is usually easier for a big company to spend the money needed to prove that patent in question is invalid. Since small companies often rely on patent license income, they would rather settle with MS, then have their patent invalidated.
This all justs points to the problem with the current patent approach when it comes to software patents.

H

August 20, 2009 12:29 AM

The last time I checked, XML was an OPEN STANDARD. XML is essentially plain-text, just as any other code, so why would this be patent-infringement? These people are just pissed-off because Microsoft added a feature that this company happened to be selling, and now they have to change their software or add features to make it worth purchasing.

If this is how things are now, Microsoft should sue Apple for selling an Operating System, as Microsoft's Windows Operating System performs some of the same purposes. It's stupid, and this judge should not have been the one taking this case. This should have been taken by someone who is experienced in IP legal matters, and not a judge who is more focused on traditional legal matters.

mystic

August 20, 2009 02:59 AM

For once people do the right thing. microsoft usally wins these patents problems. What is wrong with you stockholders. Do you have no honour!!! They blatantly put out protected software cause they are so big they will win in time. Money is everything to you. Wow ! Do you forget the "vista capable" problem xbox 360 RROD They are so big they can put out crap and you stockholders say whatever i made x amount of money. Umm thats kind of like how the mafia works.

Vojin Katic

August 20, 2009 03:24 AM

Texas judge can ban for entire US?

spartan2276

August 20, 2009 07:16 AM

@H
You need to brush up on your history. If we are going to go by what you say then Apple should sue Microsoft since apple was the one whom develop the OS first with its GUI. Also the reason why i4i is suing is not because of the XML syntax but because of a function within Word. And due to the current set of LAWS i4i has every right to sue Microsoft in fact they should wipe the floor with them. Microsoft has so many shady practices and has ZERO ethics when it comes to their business. The problem with this company is that is thinking that they are the only ones whom have the right to complaint,cheat and steel. People are waking up to what they do and this is very very good for us the consumers. I love how the EU is kicking their asses.

craig101

August 20, 2009 07:33 AM

"The last time I checked, XML was an OPEN STANDARD. XML is essentially plain-text, just as any other code, so why would this be patent-infringement?"

you must be joking, or your understanding of how patents work is extremely meagre.

An algorithm can be patented. If you implement this algorithm (with any language or technology) then you have violated the patent. If an open standard incorporates an algorithm that is patented, then it is in violation of the patent (good news for the patent parasites!) Most patents have never been tested in court, so using an open standard or any software for that matter does not somehow automatically protect you. As soon as the patent holders start getting dollar signs in their eyes, you're going to have all the sales of your products frozen while you wait for years to determine if you have violated something or not, basically you're doomed.

The patents are often for ideas that are obvious and have been developed a hundred times in a hundred different ways, but because the clerks at the USPTO don't really have a clue, the entire software industry can hardly develop even the most obvious software programs without stepping on a slew of patents.

Both IBM and Microsoft have patents for things as basic as a tree view.

The things that are patented in the software world are so inane it boggles the mind.

Apple has a patent on the iPhone GUI, I'm not sure of all the details but for example the pinching motion of the hand to zoom out or something. I mean, this is not hard to think up. Why should they be granted a patent on it? Or moving your finger to turn the page, I mean, isn't that what you do with a real piece of paper? Why would it be patentable on a 'virtual' piece of paper?

The industry is going to be held hostage by these creeps.

Ryan Southard

August 20, 2009 08:52 AM

"In its Aug. 18 motion, Microsoft said i4i wouldn’t be harmed by a stay of the Word injunction order, and that “the public will face hardship” if Word and the Office suite aren’t available for any length of time."

Maybe they are not familiar with Sun Microsystem's Open Office? It is a feature rich office suite that rivals Office by Microsoft. Best of all it is completely FREE! I for one hope that the injunction sticks. It would be great for the public to see that there are alternatives available.

keeper

August 20, 2009 08:52 AM

Problem with this lawsuite is out of 14 claims only 1 held in court, and its a super vague one where i4i says its patent is based on concept of separating the text from the xml tags and being able to alter both separately without having to utilize the other. Only problem with this is there are other older patents for this concept. IE html also a few other firms who have used custom mark up before IE adobe and many others have the same concept patented already. Now as far as patenting a general concept in the software industry there needs to be a balance. If I come up with a great piece of software, sure patent it, if I come up with saying well if you add 2 + 2 - 2 you get 2 which is the original number. I shouldn't get millions of bucks from microsoft cause their calculator will do math, but some of the patents out there are just like that. Also i4i cracks me up when they use the claim that they wrote custom code for word to be able to manipulate xml code. So.... they use a MS product and improve it, then cry when MS puts the improvement in their own product. Sorta like saying hey I patent the idea of adding a 12 channel radio to my Nissan and charge people to install it in their Nissan, then suing Nissan for infringement when they make it a standard in their car.

Steve

August 20, 2009 09:02 AM

Spartan and H,

It was Xerox that created the first GUI Operating System. Both Apple and MS copied it.

Scott

August 20, 2009 09:16 AM

H. - XML is open... i4i's patent is a customization to XML which is not open. Example... Linux is open source and free, but you can add your own custom apps to it and sell it.

Vojin Katic - this is a Federal Judge. Yes he is in Texas but rules at a federal level, not state.

Steve Wildstrom

August 20, 2009 09:19 AM

@Vojin Katic--Because it is a federal judge, and injunction would apply nationally. But since this is a patent case, that injunction will almost certainly be stayed, that is, delayed from taking effect, perhaps for years. And this particular court, in Tyler, Tex., is notorious for findings for plaintiffs in patent cases that fail to stand up on appeal.

Sri

August 20, 2009 09:53 AM

Yes Steve, you are correct, it's Xerox who first created GUI Operating System, I believe Apple bought it from them [not sure] & later was copied by MS [debatable, so no comments]

Steve Wildstrom

August 20, 2009 10:22 AM

@Sri--

This is wandering off-topic, but I can clear up this history. Back i9n the mid-1980s, when all this happened, no one thought you could patent a user interface, so patents didn't come into it. Apple borrowed heavily from the design of the Xerox Altos for the UI of the Lisa and later the Mac. They licensed Microsoft to use elements of the design in early versions of Windows. When Windows 3 became a success, Apple sued Microsoft claiming the license didn't cover the new version. The litigation, along with a bunch of other disputes between Apple and Microsoft, was settled in 1996 when Microsoft invested $150 million in a nearly broke Apple and the two companies agreed to cross-license an assortment of technologies.


pete

August 20, 2009 10:24 AM

Software should not be patentable, it should be protected by copyright laws.

wilson

August 20, 2009 10:58 AM

I'm a small MS shareholder, but they should never take advantage of their clout to bully small fry. MS should be punished !

S

August 20, 2009 01:18 PM

It seems to me that stopping the sale of Word (when your software is sold as an add-on to Word) would be counter productive to i4i's continuing business...

staff

August 20, 2009 01:23 PM

'“Regardless of how careful you are, from time to time, you’ll find yourself in a situation where, despite your best efforts, you’ve infringed,” says Michael Cherry, an analyst at the consulting firm Directions on Microsoft.'

But when you study these cases you find many of these instances were willful. MS knew they were infringing and did it anyway. Serves them right.

Data recovery software

August 21, 2009 06:59 AM

Microsoft this morning announced a patent cross-licensing agreement with Lexmark International, the printing and imaging company. Given the dust-up over the Redmond company's recent patent lawsuit against TomTom, the natural question is whether the new patent agreement covers any open-source technologies Lexmark might be using. But Microsoft won't say.

The terms of the licensing agreement are confidential, a representative of the Redmond company explained via email in response to my inquiry this morning: "As with all patent cross-licensing agreements, the specific terms and conditions of each deal are different, and the parties involved determine what elements they choose to discuss publicly based on the deal negotiated by both parties."
Thanks & Regards
Jimmy
Senior Manager
http://www.recoverybull.com

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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