Oral argument audio available in i4i v. Microsoft

Audio files of today's merits argument in the i4i v. Microsoft appeal are available at the CAFC's website by following this link and this link.

Microsoft Files Reply in i4i Case

Microsoft filed its reply today to i4i's Brief in opposition to Microsoft's appeal. This brief does a good job trying to refocus attention to Microsoft's most winnable issues: (1) claim construction, (2) jury instructions, and (3) damages. The brief (correctly in my opinion) retreats from (abandons?) the "gatekeeper" theme that was so prevalent in Microsoft's opening brief.

From the brief:

i4i labors mightily to paint Microsoft pejoratively, portraying it as a once-close “business partner” that supposedly stabbed i4i in the back and “usurped” i4i’s patented invention. Yet that breathless tale is belied by i4i’s own allegations: i4i admitted there was no evidence Microsoft copied its technology and explicitly disclaimed making any such contention, and i4i never accused Microsoft of breach of contract, misappropriation, or other claims that are typical of a dispute between business “partners.” Rather, this suit reveals a different reality—it was filed not by the supposed “victim,” but by litigation investors, and then fully four years after i4i congratulated Microsoft on the release of its supposedly infringing product.


Unfortunately for i4i, the truth is both comparatively mundane and innocent: After a handful of unfruitful meetings, i4i and Microsoft went their separate ways and Microsoft later released the custom XML functionality for Word that it had told i4i it was developing. And when Microsoft released its custom XML functionality, i4i congratulated Microsoft because Microsoft’s custom XML development platform would increase the opportunities for i4i’s own products, which, to that point, had sold poorly.

But both stories, the truth and i4i’s creative retelling, are ultimately irrelevant to the proper disposition of this appeal. That is because the central issues before this Court are questions of law reviewed de novo.

This brief also dos a nice job of capitalizing on Microsoft's big win against Lucent last week, in a decision that represented a clear reject of that case's application of the total market value rule in patent infringement damages.

From the brief:

Wagner used an outlandishly unrealistic benchmark. As this Court has explained, for a “benchmark” to have any bearing on estimating the value of a patent, the expert must show how it “relates” to the patented technology—i.e., “whether the patented technology is essential to the [benchmark], or whether the patented invention is only a small component or feature of the [benchmark].” Lucent, 2009 WL 2902044, at *23.




i4iMSFTReplySept14.pdf

CAFC: Jury's $360 M Damages Award Against Microsoft, In Favor of Lucent, Not Supported by Evidence

In a decision affirming the jury's finding of Microsoft's liability for infringement of Lucent's U.S. Patent No. 4,763,356, the Court of Appeals for the Federal Circuit ("CAFC") reversed and remanded the damages award, which the jury had calculated to the penny, in the amount of $357,693,056.18. This decision represents a rejection of the the "entire market value" approach to patent damages, but not in the way that some might have hoped. Particularly, the opinion leaves the rule viable for application in other cases. Here is some relevant language from the opinion, authored by Chief Judge Michel:

Microsoft argues that the damages award must be reversed because the jury erroneously applied the entire market value rule. Despite the jury’s indication on the verdict form that it was awarding a lump-sum reasonable royalty, Microsoft believes that the only way the jury could have calculated a figure of $357,693,056.18 was by applying a royalty percentage to a total sales figure of the infringing software products. Indeed, it is difficult to understand how the jury could have chosen its lump-sum figure down to the penny unless it used a running royalty calculation.

***

Assuming that the jury did apply the entire market value rule, such application would amount to legal error for two reasons.

***

For the entire market value rule to apply, the patentee must prove that “the patent-related feature is the ‘basis for customer demand.’” Rite-Hite, 56 F.3d at 1549 (quoting State Indus., 883 F.2d at 1580); see also Bose Corp v. JBL, Inc., 274 F.3d 1354, 1361 (Fed. Cir. 2001); TWM Mfg., 789 F.2d at 901 (“The entire market value rule allows for the recovery of damages based on the value of an entire apparatus containing several features, when the feature patented constitutes the basis for customer demand.”).

***

Notwithstanding this obstacle, the objective of the Court’s concern has been two-fold: determining the correct (or at least approximately correct) value of the patented invention, when it is but one part or feature among many, and ascertaining what the parties would have agreed to in the context of a patent license negotiation.

***

The first flaw with any application of the entire market value rule in the present case is the lack of evidence demonstrating the patented method of the Day patent as the basis—or even a substantial basis—of the consumer demand for Outlook.

***

The second flaw with any application of the entire market value rule in this case lies in the approach adopted by Lucent’s licensing expert. He had first tried to apply the entire market value rule to the sale of the “infringing” computers loaded with the software, opining that Microsoft and Lucent would have agreed to a 1% royalty based on the entire price of the computer containing Outlook.

***

At trial,Lucent’s expert changed his opinion, contending that the royalty base should be the price of the software (and not the entire computer) but also that the royalty rate should be increased to 8% (from 1%). This opinion contrasted starkly to the rates he proposed for the other patents in suit, which were in the 1% range. In choosing 8%, he reasoned that, “in a typical situation, if one applied a royalty to a smaller patented portion in a computer as opposed to the entire computer using typically infringed patents, 8-percent . . . of the fair market value of the patented portion would equate to 1-percent of the fair market value of the entire computer.

MSFTLucentCAFC.pdf

i4i Files Response Brief at CAFC

Software maker and recently successful patent enforcer, i4i, filed its responsive brief yesterday in the appeal filed by Microsoft. In this high profile patent infringement case, Microsoft was found by a Texas jury to have infringed US Patent No. 5,787,449 on a method for reading XML, and ordered to pay over $280 M in damages for willful infringement. Microsoft was also ordered to stop selling its popular WORD product by October 10, 2009. Recently, the CAFC stayed enforcement of this injunction while the parties continue to battle it out on appeal.

i4i is represented by seasoned appellate counsel, Don Dunner, as well as a host of other very good lawyers from Finnegan Henderson. This brief is very well done. It does an especially good job of restating the [way too] many issues raised by Microsoft's opening appeal brief.

In a very smart tactical move, Finnegan's counter statement of the issues breaks up Microsoft's brief into several sub issues, essentially stating that the Software Giant claims that no fewer than 13 substantive errors were made by a very experienced and respected district court judge; an unlikely story and one that is used skillfully by Dunner and his team to erode the Appellant's credibility. In reality, there are probably an additional two or three more issues raised by Microsoft's appeal that weren't called out in Finnegan's counter statement.

Here is a snippet from Finnegan's preliminary statement:

Microsoft repeatedly attacks the district court’s performance as a
“gatekeeper.” But Judge Davis has a substantial track-record in patent cases, and
Microsoft’s criticism of him as unable (or unwilling) to fulfill his duties is nothing less than an unfair attempt to divert attention from what really happened. When it suited its purposes, Microsoft touted i4i as a “Microsoft Partner” able to provide software that Microsoft could not. But behind i4i’s back, Microsoft usurped i4i’s invention, destroying i4i’s ability to compete in the market that it had created.

i4iResponseBriefCAFCSept9.pdf

i4i v. Microsoft: Injunction Stayed

Hal Wegner just reported that the CAFC will stay an injunction entered last month by Judge Leonard Davis of the ED of Texas. The injunction was to take effect October 10, 2009 and it was to apply against all copies of MS WORD currently being sold. The stay will be in place during the CAFC's consideration of Microsoft's appeal. No reasons were given for the stay, other than that "the court determines based upon the motion papers submitted that Microsoft has met its burden to obtain a stay of the injunction." The order also says that it is being entered "[w]ithout prejudicing the ultimate determination of this case by the merits panel," indicating that the motion to stay was not decided by the panel, which is typical, but given the significance of this motion, I thought this motion might have been decided by the merits panel. i4iOrderSeptember3.pdf