Microsoft and Proclarity Settle Patent Suit with Timeline

One day before a scheduled jury trial in its long-running patent dispute with Timeline, Inc, Microsoft and its Subsidiary, ProClarity Corporation entered into a binding settlement agreement. The following is from Timeline's form 8-K filed today with the SEC.

"Pursuant to the Settlement Agreement, the parties agreed to dismiss, with prejudice, their respective claims and counterclaims against each other asserted in the Actions. The parties further agreed to release and discharge each other from any claims existing as of the effective date with respect to the Actions or related to the facts and circumstances asserted in the Actions. In addition, Timeline agreed to release and discharge customers of Microsoft and ProClarity for liability for patent infringement, to the extent set forth in the Patent License Agreement. The Settlement Agreement is not an admission of liability by any party with respect to the Actions.
Under the Settlement Agreement, Microsoft agreed to pay Timeline a one-time payment of $5 million within 14 days as consideration for entering into the Settlement Agreement and the Patent License Agreement. The net proceeds to Timeline from this amount will be reduced by payment of its 45% contingent attorneys' fees and other expenses of the litigation."

As explained in Timeline's SEC filing, Microsoft was granted a worldwide license to Timeline's patents that were the subject of the Actions (including U.S. Patent Nos. 5,802,511, 6,023,694, 6,026,392, 6,625,617 and 6,631,382) "for use in connection with Microsoft's products and services."

Microsoft Subsidiary Tries to Keep Invalidity Defense At Issue in Local Patent Dispute

In a case set for trial in Seattle on October 16, 2007 (C05-1013), Microsoft subsidiary Proclarity, Inc. hopes to keep evidence of obviousness in the case despite an earlier ruling that the defense fails as a matter of law. The maker of business intelligence software is accused of violating five patents owned by Timeline, Inc. The patents at issue cover an invention that "automatically obtain[s] information about the logical organization of a data source without the need for a human user to examine and analyze that data source." ProClarity argued that the invention was obvious in view of prior art, including Microsoft's own software products in use and on sale before the earliest possible priority date. U.S. District Judge James L. Robart disagreed, granting summary judgment in favor of Timeline. Claiming the defense has continued relevance notwithstanding Judge Robart's summary judgment order, ProClarity cites the Federal Circuit's recent en banc decision In re Seagate Technology, 2007 U.S. App. LEXIS 19768 (Fed. Cir. August 20, 2007) and argues that the evidence establishes an "objectively reasonable defense" to infringement. As a consequence, ProClarty claims that evidence relating to obviousness should be considered by the jury in response to Timeline's willful infringement allegations. To be sure, the argument is a novel one but not entirely without merit. The Federal Circuit's Seagate decision fundamentally changed the law of willful infringement by requiring an objective inquiry into the conduct of the accused infringer, asking whether the patentee can show by clear and convincing evidence that the infringer "acted despite an objectively high likelihood that its action constituted infringement of a valid patent." The problem ProClarity faces in its efforts to keep obviousness in this case appears to be one of timing. According to Timeline, ProClarity never developed an obviousness defense prior to initiation of the litigation. This fact, according to Timeline, makes the defense of obviousness irrelevant because "the starting point of any wilfullness analysis is what the infringer actually did when confronted with the patents." Timeline appears correct in its identification of the relevant "starting point" for assessing whether someone's infringement is willful, however, this begs the question of when (if ever) is it appropriate to examine new defenses that arise after the initiation of litigation. Because infringement is often an on-going, continuous injury, would not evidence showing a reasonable defense post-complaint be relevant to any claim of willful infringement arising after the complaint was filed?