i4i 1 - Microsoft 1

You certainly don’t hear many stories about Microsoft having the proverbial stuffing kicked out of it, but in this case, little-known (until now) Toronto-based i4i Inc. went the distance and sued Microsoft Corp. in Texas for infringing its 5,787,449 patent (the ’449 patent).

On Aug. 11, 2009, i4i won. And what a win it was. i4i didn’t just get monetary damages, it was also awarded the rare prize of a permanent injunction restraining Microsoft from being able to perform certain actions with its Microsoft Word 2003, Microsoft Word 2007, and similar products during the term of the ’449 patent.

Strategically speaking, i4i may have chosen to litigate in the U.S. for a number of reasons. One of which may have been that unlike Canada, in the U.S. a plaintiff in a commercial matter, including a patent dispute, can demand a jury trial, which is what i4i did.

Notwithstanding that i4i is a Canadian company, and that asking a jury to decide a patent matter can be a risky move because of the complexity of such cases, damage awards in Canada are typically far less than in the U.S. and juries in the U.S. have been known to be very generous.

In this case, the damage award, which included US$200 million for infringement, enhanced damages of $40 million for willful infringement, daily post-verdict damages (up to the date of the final judgment), and pre and post-verdict interest, added up to nearly $300 million.

Does it matter that financing for i4i’s lawsuit against Microsoft appears to have been provided by litigation investor NW Patent Funding Corp.? Why should it? How many options does a comparatively small company like i4i have to come up with the money necessary to go up against a company the size of Microsoft.

And if i4i prevails? Companies like NW Patent Funding just might be worth investing in if patent owners see an opportunity to successfully throw down the gauntlet and protect what is legally theirs.

The injunction issued by District Court Judge Leonard Davis was to be in effect Oct. 11, 60 days from the date of the order for the permanent injunction, and Microsoft certainly did not sit idly by. But then, who expected they would. On Aug. 18, Microsoft filed an emergency motion to stay the injunction, pending a Court of Appeals for the Federal Circuit review of its appeal of the lower court’s decision.

On Sept. 3, the U.S. Court of Appeals granted Microsoft’s request to stay the permanent injunction that would prevent it from selling the infringing Word products. It also granted Microsoft’s request for an expedited review of the appeal. i4i submitted its responding brief on Sept. 3, and arguments are to be heard by the Court of Appeals on Sept. 23.

At this point, the case appears to have only dealt a temporary, though potentially substantial, blow to the software giant and to its partners like Hewlett-Packard Co. and Dell Inc., who have since added themselves into the mix in support of Microsoft. However, the fact is, there are still rules with respect to doing business, and they happen to include respecting the legal rights of others — no matter how big a player you are.

If the ruling of the lower court is overturned on appeal, one has to wonder whether i4i and its litigation investor will have the appetite (and the resources) to continue to fight in the U.S. I also wonder whether i4i will decide to proceed with a similar action in Canada to enforce its Canadian patent (2,150,765).

On principle alone, one can only hope that they will continue to try and enforce their rights — if only because a win might mean that the playing field is leveled, if only a little, and competition in the marketplace really exists.

The optics in this case, politically and practically speaking, are intriguing — though hopefully not persuasive. If i4i fails it its attempt to enforce its ’449 patent, it will be interesting to see whether the message that is sent out and received is one of ‘might is right’ or that the law was clearly on the side of the prevailing party.

If the U.S. Court of Appeals rules against Microsoft, more than likely the company will appeal. Indeed, it might very well have to.

If the damages awarded by the lower court are any indication of the value of the ’449 patent, consider the royalties/licence fees that Microsoft might have to pay to i4i through the lifetime of the ’449 patent, which was issued on July 28, 1998.

One can only speculate as to whether i4i would be open to being acquired by Microsoft, or of selling the ’449 patent (assuming such deals don’t run afoul of the law) in the alternative to a licence agreement. Imagine the message that either of these alternatives, if accepted, would send.

So what does this case mean for licensees of Microsoft’s Word products? If this case is ultimately decided against Microsoft, software agreements with Microsoft, and indeed other software licensors who typically refuse to negotiate terms that relate to warranties and indemnification, might end up, rightfully, being open to (re-)negotiation.

Regardless of the outcome, the lesson in this case should be that the proverbial sandbox is certainly big enough for everyone — and no one likes a bully.

Sarah Dale-Harris is a lawyer in the intellectual property, technology & interactive entertainment groups at Davis LLP. Her practice focuses on the creation, development, management, commercialization, and enforcement of technology and life sciences-based portfolios and related intellectual property rights. Sarah can be reached at 416-365-3522 or at [email protected].

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