Alcatel-Lucent v. Microsoft: A Reason to Delay Congressional Patent Reform?

The damages issue has been hotly debated among those supportive of congressional patent reform, including so-called "damages apportionment" and damages keyed to the "whole market value" of a device.

According to noted patent commentator, Hal Wegner, the case brought by Alcatel-Lucent against Microsoft embodies these damages "reform" issues and provides an opportunity for the Federal Circuit (and perhaps even the Supreme Court) to judicially consider these issues. Says Hal, "[b]ecause the matter will be pending for quite some time, this case will be perhaps more important as the EE/IT coalition’s poster child for arguments on Capitol Hill for damages reforms, making this perhaps the most important pending patent appeal."

Indeed, on March 3, 2009, Senator Spector wrote to Chairman Leahy of the Judiciary Committee asking for a postponement of patent reform hearings "until late May [2009] after the [ ] Federal Circuit has the opportunity to hear argument in Lucent Technologies, Inc. v. Gateway, Inc. The court may consider issues related to the damages debate; specifically the scope of the ‘entire market value’ rule when assessing damages."

Hal responded to Senator Spectors comments, explaining "[t]he prediction by Senator Spector is odd: The Federal Circuit has now posted its argument calendar through the end of May and does not list this case. Unless the case is taken out of turn, it is expected that the argument will be scheduled for the time frame June-August 2009."

For those unfamiliar with the history of this case, it has been called one of the most important legal battles of the modern era.

The early patent dispute involved audio coding patents. Alcatel-Lucent claimed that Microsoft's Windows Media Player infringed these patents by virtue of its MP3 capabilities. On February 22, 2007, a San Diego jury found for Alcatel-Lucent and against Microsoft. Alcatel-Lucent was awarded a record-breaking $1.52 billion in damages. On August 6, 2007, U.S. District Judge Rudi Brewster, granted Microsoft's motions for Judgment and for new trial, saying that the jury's decision was not supported by the evidence. The Judge's Order found that there was insufficient evidence both for Microsoft's liability and for the damages model used by Alcatel-Lucent. Alcatel-Lucent appealed and the Court of Appeals for the Federal Circuit heard oral arguments in July 2007. On September 25, 2008, upholding the dismissal of the case by Judge Brewster on two grounds, the CAFC that there was a joint developer and thus co-owner of one patent, which made Lucent lack standing to sue. The other patent was not infringed because Lucent failed to show that the accused algorithm was ever used.

A week after the first jury verdict, on March 2, Judge Brewster ruled in the second part of the case that Microsoft had not violated Alcatel-Lucent's patents relating to speech recognition and the case was therefore dismissed before going to trial. Alcatel-Lucent stated that it intends to appeal.

The trial in the third part of the San Diego case involved four patents. In April 2008, US jury awarded Alcatel-Lucent $367.4 million in damages after finding that Microsoft had violated two patents related to the user interface in its software. In June 2008, the trial judge upheld the jury's verdict and increased the damage award against Microsoft to $512 million to account for interest.

Jury Hits Microsoft with Patent Infringement Verdict of $367 million

A San Diego, CA jury returned a verdict last Friday against Microsoft in its patent infringement suit with Alcatel-Lucent. The amount: $367 million. Check out my previous post on this case to get some more background. The patents at issue all involve video coding technology as well as patents related to a form entry system, algorithms for gesture recognition and commands to select video display modes. They are U.S. Patent Numbers 4,958,226; 4,383,272; 4,763,356; 5,347,295; and 4,439,759.

Todd Bishop's Microsoft blog correctly describes this as a partial victory for Microsoft. Alcatel-Lucent was seeking almost $2 billion in damages. Judge Huff had previously granted a motion by Microsoft, dismissing Alcatel-Lucent's claim for willful infringement. That claim, if left in the case, could have tripled the amount awarded by the jury.

So, as Judge Huff put it, "It's kind of a mixed verdict -- everybody wins,'' she said, according to a Bloomberg news report. "There's something for everybody.''

Microsoft Lawyers Disqualified for Violations of Ethics Rules

This blog is beginning to morph into a Microsoft patent litigation blog. I apologize for that, but there is just too much to talk about when it comes to Microsoft and patent law. The latest news comes from the District of Delaware, where the Redmond-based software behemoth finds itself in an unusual role: patent infringement plaintiff. The Microsoft-owned patents-in-suit are 6421439, 6430289, 6263064, 6728357. The '439 patent is entitled "System and Method for User Affiliation in a Telephone Network." In the most basic summary, this technology combines telephone and internet technology to establish user lists for use in making rules for managing incoming phone calls, enhancing caller ID functions. I heard about this case from the very good Delaware IP Law Blog, where co-author, Chad Stover, reports about a recent Order granting Alcatel-Lucent's motion in part to sanction and disqualify certain Microsoft lawyers for violating state ethics rules relating to professional conduct. According to the Order, these lawyers purchased, on the open market, an Alcatel Communications System that contained certain features at issue in the patent litigation. The system was installed at the attorneys’ Washington D.C. offices, and one of the technicians working on the installation identified himself as an employee of Alcatel-Lucent, one of the originally-named defendants in the case. The employee helped install the system, trained the attorneys on how to use the system, and engaged in ongoing conversations with the attorneys about the administration, use, and configuration of the system. The Court noted that the employee was one of only a limited number of engineers at Alcatel with the experience and training to install the system. The Order concludes that this conduct violated Rule 4.2 which prohibits direct attorney communication with a party represented by counsel. The court finds that "[i]n the case of a corporation such as Alcatel, an employee is "represented" if, for example, his or her statement may bind the organization regarding the subject of the litigation, or where the employee is capable of making an admission on behalf of the corporation."

As a sanction, the Court ordered that the specific attorneys involved could not be involved in the litigation, and that the evidence gathered could not be used in the case, including the expert testimony from Microsoft's expert, because he apparently relied on the "fruits of [the lawyer's] conduct." The order is attached below.


MicrosoftRule4FRDQ.pdf

Trial set for February in Microsoft/Dell/Gateway case against Alcatel-Lucent

Judge Marilyn L. Huff of the Southern District of California refused to stay an upcoming trial set for February 20, 2008. The case involved allegations of patent infringement made by Alcatel-Lucent against Microsoft, Gateway, and Dell. Plaintiff Alcatel-Lucent is represented by Kirkland & Ellis LLP, while Microsoft is represented by Fish and Richardson. Gateway is represented by Howery, Dewey & Lebouf and Setlzer Caplan McMahjon Vitek. Dell is represented by Arnold & PorterLLP. Now that is a lot of lawyers. Overall, I counted 56 separate attorney appearances in this case. Should make for an interesting trial.

The patents at issue all involve video coding technology as well as patents related to a form entry system, algorithms for gesture recognition and commands to select video display modes. They are U.S. Patent Numbers 4,958,226; 4,383,272; 4,763,356; 5,347,295; and 4,439,759.

Microsoft was successful in dismissing Alcatel's claims for willful infringement of these patents, relying on the new standard for willful infringement enunciated by the Federal Circuit in Seagate.

IP 360 reports that "Lucent, which merged with Alcatel in 2006, originally sued Gateway and Dell over 12 different patents in 2003, but Microsoft stepped into the case on their behalf to file a motion for declaratory action. Lucent claimed that many of the computers made by Gateway and Dell infringed on its patents by using Microsoft programs such as Outlook and Quicken, and by applying certain types of digital display and interfacing technologies."

I'm attaching the Judge's order granting Microsoft's motion for partial summary judgment on the issue of willfulness because I think it is a good example of the current application of the new Seagate standard.
AlcatelOrderMPSJNoWillful.htm