i4i Prevails on Appeal

Today, the CAFC decided the i4i appeal in what appears to be a sweeping victory for i4i. "We affirm the issuance of the permanent injunction, though we modify its effective date to accord with the evidence. In all other respects, we affirm for the reasons set forth below."

My previous posts on this case are found here. There will certainly be more to say about this opinion, but one thing that jumps out at me immediately is the sharp criticisms of certain decisions made by trial counsel not to seek per-verdict JMOL on the amount of damages.  Failing to seek pre-verdict JMOL is unfortunately a common error, but in this case, the decision appears to have been a deliberate one for strategy reasons.  What strategy, I'm not sure; there is little doubt, however, that Microsoft has some of the most high-powered and talent lawyers, so I'm sure there are reasons.  This is from the opinion:

"Although Microsoft now objects to the size of the damages award, we cannot reach that question because Microsoft did not file a pre-verdict JMOL on damages. ... Had Microsoft filed a pre-verdict JMOL, it is true that the outcome might have been different. Given the opportunity to review the sufficiency of the evidence, we could have considered whether the $200 million damages award was 'grossly excessive or monstrous' in light of Word’s retail price and the licensing fees Microsoft paid for other patents. Cf. Lucent, 580 F.3d at 1325-32.  As this court did in Lucent, we could have analyzed the evidentiary basis for the Georgia-Pacific factors, and whether the benchmark (XMetaL) was sufficiently comparable. Id."

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

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

Microsoft Submits Opening Brief in i4i Appeal

Microsoft submitted its opening appeal brief on Tuesday and the CAFC set oral argument on its motion to stay Judge Davis' order enjoining further distribution of infringing copies of Microsoft's multi-Billion dollar WORD product. Oral argument on Microsoft's motion to stay and on Microsoft's motion for an expedited consideration of the appeal is set for September 23, 2009.

An East Texas jury found that WORD infringed i4i's patents covering the use of XML technology, Judge Davis granted i4i's motion for an injunction, stopping any further distribution of infringing copies of WORD. That order will take effect sometime in October unless the CAFC steps in to stay the injunction.

Microsoft's arguments on appeal are summarized by the below preliminary statement taken from its opening appeal brief. I only got through part of the preliminary statement. The rest will be saved for another post. One of the problems I have with this brief is that the preliminary statement is too long and the brief raises too many issues. But I know that writing an appeal brief is a lot harder than critiquing one. This brief would have been especially hard to write with so many lawyers weighing in.

"In patent cases, even more than most, the trial judge’s role as a gatekeeper is
crucial. As gatekeeper, the judge must define the metes and bounds of a patent
through claim construction and then ensure that the evidence presented by the
parties’ numerous experts is both reliable and rooted in the facts of the case at
hand. And after the jury has rendered its verdict, it is the judge who . . . must ensure that the verdict is adequately supported by the evidence and supportable under the law. ... [this] is especially important in patent cases because of the
delicate balance struck by patent law to achieve its objective of promoting, rather than stifling, innovation. That balance can be lost if the district court does not protect the process, and patent litigation then becomes a tax on innovation rather than its guardian."

This sounds like a "patent law is special" argument, which is particularly out of style right now. And if you don't believe me, just read that last four or five Supreme Court opinions. The better argument is the good old-fashioned "junk science" argument, that the verdict cannot be supported by expert testimony that is fundamentally flawed at its premise, and that in view of shaky, but arguably admissible expert testimony, the judge's role to scrutinize the evidence allegedly supporting the verdict is critically important.


"This case stands as a stark example of what can happen in a patent case
when a judge abdicates those gatekeeping functions."

The "gatekeeping function" language sounds like an evidentiary challenge. An uphill battle because the standard of review is abuse of discretion. I suggest leading with an argument where the reviewing court is not so constrained in their ability to find error.

"The district court’s errors in this case began when it accorded a critical claim
term no meaning whatsoever, effectively erasing it from the patent. That
impermissible claim construction, in turn, enabled the plaintiffs to present to the
jury a theory of infringement that contradicted not just the asserted patent’s
specification, but also its prosecution history, and, indeed, its very title."

OK, now we are getting somewhere. A claim construction argument. CAFC has plenary review. This should be front and center. Get rid of this "gatekeeping" stuff.

"The court’s failure to act as a gatekeeper extended to Microsoft’s validity
defenses as well. After Microsoft invoked the on-sale bar with the inventor’s prelitigation statements that showed his invention to have been “implemented” and
sold before the critical date, the inventor insisted that he had lied to investors about his pre-sale invention date and that the invention really came later, and that
Microsoft could not prove otherwise because he had “discarded” the source code
of that product. In the absence of corroboration, an inventor’s manifestly self interested testimony should be insufficient as a matter of law to save his patent. But the district court demurred and sent the question to the jury."

Even this slanted account raises a number of factual questions in my mind. This statement does not convince me that there was an absence of evidence supporting plaintiff's theory. Especially in view of Microsoft's elevated burden of proof to prove invalidity by clear and convincing evidence.

"By the time the plaintiffs presented their damages case, the district court had
abandoned even the semblance (really?) of gatekeeping. Plaintiffs sought to quantify instances of indirect infringement—their royalty base—through a survey of 988 businesses. That survey garnered just 46 individual respondents, who then were paid to guess how many other persons in their place of employment used Microsoft Word in a manner similar to the alleged infringing implementation. Of those 46 respondents, 19—less than half—were aware of any such use of Word. And even they supplied inconsistent or confused responses, so plaintiff’s expert simply changed the data—all according to so-called principles of “data imputation,” of course. When his manipulations were done, he testified that the 19 responses to his survey proved that 1.85 million Word users infringed plaintiffs’ patent—nearly 100,000 for every usable response."

Was i4i supposed to put all 1.85 million users on the stand? There has to be some recognition that a survey can be a reasonable way to quantify the level of inducement, especially in view of what I'm sure were piles of statements in instruction manuals and "help menus" from Microsoft explaining just how WORD can be used to infringe the patent.

"Plaintiffs then extrapolated that the 1.85 million infringing uses supposedly demonstrated by the survey had grown to 2.1 million in the six months before trial. When Microsoft challenged the survey as inherently unreliable, the district court offered the clearly erroneous response that fundamental admissibility considerations such as whether a survey respondent has personal knowledge of facts surveyed and whether the results were manipulated went only to the weight of the evidence."

Sounds like great cross examination. But the jury didn't buy it.

"If this survey passes muster, there are no limits to what “evidence” can be presented to lead juries astray, and patent law suffers."

Again, if Microsoft is right here, all law suffers, there is nothing special about patent law when it comes to the application of the FRE, or at least the Supreme Court is inclined to say that there is nothing special about patent law.

"A similar fate befell Microsoft’s challenge to plaintiffs’ Georgia-Pacific
analysis. Plaintiffs’ expert concluded that, in a hypothetical negotiation, Microsoft would have agreed to a royalty rate of $98—more than half of the current retail price of Word 2007. Wagner reached this conclusion by applying the much maligned “25 percent rule of thumb” to the hypothetical profit one might have
received if Microsoft’s profit margin applied to an unrelated third-party’s radically dissimilar product .... But the district court ... permitted the expert to testify that a “reasonable royalty” was $200,000,000."

Again, great cross material, but the appellate court is constrained by the standard of review. Also, Mike Wagner's testimony has been admitted in probably more than one hundred IP cases. Maybe he went wrong in this case, I don't know, but it would be a rare event to exclude his testimony.

OK, I'm getting tired here, and will deal with the rest of the preliminary statement in another post


i4imicrosoftappealbrief.pdf

Judge Davis Orders Microsoft to Stop Selling Word

As many of you undoubtedly already know, Judge Leonard Davis granted plaintiff i4i's motion for a permanent injunction following a jury verdict in the case for infringement of US Patent No. 5,787,499, which covers software controlling document architecture and content and enables individuals to manipulate electronic documents without using manually embedded command codes (i.e., A/K/A "XML"). (see my previous posts here)

I've read the order, and it does a pretty good job of setting forth factors justifying an injunction according to the Supreme Court's new standard in Ebay. This certainly sounds like the sort of case where an injunction is appropriate. Let's hear it for Judge Davis for putting some teeth back in our patent system! I don't think it is realistic to think that Microsoft will actually pull Word. Further, there are some things that Microsoft can do at the appellate court level to try and get the injunction lifted, they are no doubt in the process of filing papers with the CAFC seeking to stay enforcement of the injunction pending appeal. My money, however, is on settlement.

The order is attached below, and here is are some snippets:

"First, i4i has overwhelmingly shown that it has been irreparably injured by Microsoft’s continuing infringement of the ‘449 patent and could not be compensated with monetary damages. The fact that there is direct competition in a markplace [sic] weighs heavily in favor of a finding of irreparable injury."

"i4i’s damages expert also testified that Microsoft’s entry into the custom XML marketplace rendered i4i’s products obsolete in 80% of that market."

"In response to i4i’s claims of direct competition, Microsoft presents evidence that i4i’s current products are designed to be compatible with Microsoft’s infringing WORD products and that Microsoft’s entry into the market allowed such “add-on” products to succeed. . . . This argument entirely misses the point. The fact that i4i is capable of existing in a marketplace where Microsoft is infringing does not negate the injury incurred as a result of Microsoft’s infringement."

"The evidence shows that i4i lost a, perhaps irretrievable, opportunity in the early days of the custom XML market. See PX 172. This continuing loss of market share and brand recognition is the type of injury that is both incalculable and irreparable."i4iOrdergrtnginjuntion.pdf

Microsoft Seeks JMOL in i4i Patent Case

From Bloomberg.com

"[T]he world’s largest software maker asked a U.S. judge to throw out a $200 million verdict after a jury found that the company’s Word products violated a patented way to process electronic documents.

Microsoft is also seeking a ruling that it didn’t use a patent owned by closely held i4i LP. U.S. Judge Leonard Davis in Tyler, Texas, didn’t rule on the motion today.

'There is no evidence that Microsoft looked at the patent or knew about the content of the patent,' Matthew Powers, a Microsoft attorney, told Davis.

Microsoft yesterday asked a judge in Providence, Rhode Island, to throw out a separate $388 million verdict in favor of a Singapore company that accused Microsoft of infringing a patented invention used to deter software piracy. No ruling was made and the hearing is expected to continue next week.

The Tyler jury’s May verdict said Microsoft’s infringement was willful, allowing i4i to seek to have award increased. An attorney for i4i suggested $25 million would be a reasonable punishment for willfulness.

'The evidence amply supports the jury’s finding of willfulness,' said Douglas Cawley, an attorney representing i4i, told the court today. 'Microsoft knew of the patent, and chose to ignore it.'

Four of the top 10 biggest patent verdicts in U.S. history have gone against Microsoft, totaling more than $2.78 billion. The total includes a February 2007 verdict where the Redmond, Washington-based company was told to pay $1.5 billion to Alcatel-Lucent. The award was later thrown out."

Texas Jury Stings Microsoft for $200M

I guess the third trial's the charm for patent holders looking to collect big money from Microsoft for patent infringement. After winning one case on summary judgment on the eve of trial, and settling another one mid-way through, Microsoft decided to gamble on the jury yesterday and lost. Here is a snippet of today's article from IP 360:

"A federal jury on Wednesday found that Microsoft Corp. willfully infringed i4i Inc.’s patent covering document-formatting software and handed down a verdict awarding the small Canadian company $200 million.

Concluding an eight-day trial in the U.S. District Court for the Eastern District of Texas, a federal jury supported i4i’s claims that Microsoft incorporated its patented technology in a range of operating system products, including Word 2003 and Word 2007

The $200 million award includes compensation for lost profits and royalties.

Microsoft infringed U.S. Patent Number 5,787,499, which covers software controlling document architecture and content and enables individuals to manipulate electronic documents without using manually embedded command codes."

Microsoft had apparently defended the charges on inequitable conduct grounds. Arguing, the plaintiffs were "aware of the structure, storage, manipulation, creation, modification and maintenance of a document in versions of Microsoft Word that existed prior to the filing of the application leading to the ‘499 patent."

Them's fightin' words in Texas. Perhaps a more conciliatory approach would have shaved 8 or even 9 figures off of that damages number?