Patent Injunction: Microsoft Ordered to Stop Selling Word

Yesterday, Leonard Davis, a United States District Court Judge in the Eastern District of Texas, ordered Microsoft Corporation to stop selling Word, an order that becomes effective in 59 days (i.e., 60 days from yesterday).  The permanent injunction issued after the conclusion of a patent infringement lawsuit brought by i4i Limited Partnership, a litigation where Microsoft was found to infringe U.S. Patent No. 5,787,449, which is titled Method and system for manipulating the architecture and the content of a document separately from each other.  This permanent injunction follows a $200 million verdict against Microsoft, a verdict which issued in late May 2009.  Shortly after the verdict was announced, Michel Vulpe, founder of i4i and inventor of the patent, said: “We are very pleased with the verdict. The jury heard extensive testimony and evidence and concluded that Microsoft had indeed infringed our patent. We feel vindicated with this result.”  Not surprisingly, According to USA Today, Microsoft plans to appeal.  A spokesman for Microsoft said: “We are disappointed by the court’s ruling.  We believe the evidence clearly demonstrated that we do not infringe and that the i4i patent is invalid.”

The permanent injunction ordered by Judge Davis states (in part):

Microsoft Corporation is hereby permanently enjoined from performing the following actions with Microsoft Word 2003, Microsoft Word 2007, and Microsoft Word products not more than colorably different from Microsoft Word 2003 or Microsoft Word 2007 (collectively “Infringing and Future Word Products”) during the term of U.S. Patent No. 5,787,449:

1. selling, offering to sell, and/or importing in or into the United States any Infringing and Future Word Products that have the capability of opening a .XML, .DOCX, or .DOCM file (“an XML file”) containing custom XML;

2. using any Infringing and Future Word Products to open an XML file containing custom XML;

3. instructing or encouraging anyone to use any Infringing and Future Word Products to open an XML file containing custom XML;

4. providing support or assistance to anyone that describes how to use any infringing and Future Word Products to open an XML file containing custom XML; and

5. testing, demonstrating, or marketing the ability of the Infringing and Future Word Products to open an XML file containing custom XML.

Those unfamiliar with Microsoft litigations of the past may find it peculiar that Judge Davis spoke of “products not more than colorably different from Microsoft Word 2003 or Microsoft Word 2007.”  Remember if you will one of the arguments made in the late 1990s by Microsoft during its antitrust saga with the Department of Justice.  The Department of Justice had been looking into whether Windows 95 was an illegal monopoly and achieved a consent order with Microsoft in which Microsoft agreed not to engage in certain specified activities with respect to Windows 95.  Shortly thereafter, Microsoft released Windows 98.  The DOJ became apoplectic over the fact that Microsoft took the position that the consent order ending the previous antitrust inquiry was not applicable to Windows 98.  They likely became even more red-faced when the Judge agreed with Microsoft.  That was one of the most shrewd pieces of business and lawyering I have ever seen, perhaps third most shrewd, behind only Bill Gates selling the original Microsoft operating system to IBM before he owned it (number 2 on the shrewd list) and Bill Gates then convincing IBM he really didn’t want to sell it after all, only license it (number 1 on the all-time shrewd list).  So, mention of future and only colorably different products has to fall into the “catch me once, shame on you, catch me twice, shame on me” category.

In any event, the permanent injunction does not apply to Infringing or Future Word Products that:

• open an XML file as plain text;
• upon opening an XML file, applies a custom transformation that removes all custom XML elements;
• providing support or assistance to anyone that describes how to use any of the infringing products to open an XML file containing custom XML if that product was licensed or sold before the date of the permanent injunction, which was August 11, 2009.

The Final Judgment entered by Judge Davis pursuant to Rule 58 of the Federal Rules of Civil Procedure, which was accompanied by a 65 page Memorandum, explains:

• Microsoft willfully infringed U.S. Patent No. 5,787,449
• The ‘449 patent is valid and enforceable
• Vulpe did not commit inequitable conduct with respect to the ‘449 patent
• damages are not barred by laches
• The plaintiff is awarded $200 million in damages
• The plaintiff is awarded $40 million in enhanced damages
• The plaintiff is awarded $144,060 in post-verdict damages
• The plaintiff is awarded $37.097 million in pre-judgment interest, and $21,102 in interest between verdict and Final Judgment
• The plaintiff is entitled to post-judgment interest pursuant to 28 USC 1961 for the time period between Final Judgment and payment by Microsoft
• Pending motions not previously resolved are denied

We shall see what Microsoft does from here, and while Microsoft says they will appeal history demonstrates that Microsoft typically does not take an appeal all the way through to a decision by the Federal Circuit, even if an appeal is filed.  So I would anticipate that at some point Microsoft will cut a deal and settle the case, likely after filing the necessary paperwork to appeal the decision and at least raising enough questions for the plaintiff for them to prefer to accept cash in hand rather than continue to roll the dice on appeal.

In the meantime, do not look for any major changes to Word 2003 or Word 2007.  Many pundits are already opining that Microsoft should be able to modify Word easily enough within the next 59 days to allow it to be sold, and that is assuming that Microsoft is not capable of obtaining a stay of Davis’ order pending appeal.  Nevertheless, Microsoft has lost a pretty significant amount of money, even for them, and the prospects of needing a work-around within 59 days are real enough to cause some sleepless nights in Redmond.