Eye for an eye – Toronto firm triumphs as U.S. court orders Microsoft to stop selling Word

Toronto-based i4i Inc. won’t rule out taking further legal action against Microsoft Corp. in Canada after a Texas judge ordered the software giant to stop selling Microsoft Word.

i4i makes software for document management and collaborative authoring purposes.

i4i claims that Microsoft infringes its U.S. patents that relate to the creation of custom XML documents. Now a judge has agreed with that assessment and gave Microsoft 60 days from Aug. 11 to comply with an injunction that would prevent it from selling Microsoft Word products.

That includes both Office 2003 and Office 2007, and any new versions that include the same XML features. The verdict has gone even further than i4i expected, says the firm’s chairman, Loudon Owen.

“We’re not trying to stop Microsoft from selling Word, that’s an unfortunate interpretation,” he says. “They can sell it, just not with our invention inside.”

Despite being Toronto-based, many i4i customers are in the U.S. and Microsoft’s headquarters are located there. So it made sense to file the lawsuit south of the border, Owen explains.

“If you look at the scope at what we achieved in the States, that was the starting point, the most important location,” he says. “Once we catch our breath, we’ll look at what we can do in other markets.”

The U.S. District Court for the Eastern District of Texas issued the injunction and has given Microsoft 60 days to comply. In addition to barring Microsoft from selling its Microsoft Word products, Judge Leonard Davis heaped on another $77 million in fines – $40 million for willful patent infringement and $37 million in “prejudgment interest”.

That brings the total damages Microsoft has been asked to pay by court order to i4i to $290 million. Another Texas jury had ordered Microsoft to pay $200 million earlier this year.

But i4i hasn’t seen one red cent to date.

“We’re not staying up at night waiting,” Owen says. “We received the original verdict back in May,” Owen says.

He believes the court decisions aren’t necessarily restricted to the U.S. market.

But the verdict doesn’t affect Microsoft directly in Canada, according to patent lawyers. But it could sway the company to reach a settlement before a similar lawsuit is raised here.

i4i does have similar patents on XML technology filed in Canada, according to Donald MacOdrum, partner with Lang Michener LLP in Toronto.

“The claims of the Canadian patent are very similar to the U.S. patent and slightly broader,” he says. “It doesn’t apply directly to Canada, but if Word is manufactured in the U.S., I don’t know how they can carry on business.”

The Canadian patent held by i4i is for the “method and operating system for separately manipulating the architecture and content of a document.” It was issued July 25, 2000.

If i4i wanted to pursue similar legal action in Canada, it would have to start from scratch, agrees Neil Milton, a partner with Ottawa-based Milton’s IP LLP. But after receiving a favorable judgment from a U.S. judge, Microsoft would need some reason to believe a court case in Canada would go differently.

“Microsoft gambled and they lost, and now i4i has the high cards,” Milton says. “Microsoft will have to decide if they want to negotiate an outcome.”

Microsoft’s defence — claims that the patent isn’t valid and it hasn’t been violated anyway — probably works most of the time, the lawyer adds. As a large software company, it is probably used to dealing with many similar claims.

But as a result of fighting i4i for so long, it might actually incur a stiffer penalty if it goes to court in Canada.

“The damages would probably go up because they’re aware of the patent infringement now,” Milton says.  

Legal experts also drew parallels between the case and Research in Motion’s (RIM) patent dispute with Redwood, Calif.-based Visto Corp. The BlackBerry manufacturer reached a $267.5 million settlement after years of court battles around the world. That long drawn-out battle also included a threat of a court injunction that would stop the sales of BlackBerrys in the U.S. before RIM settled with Visto parent company NTP Inc.

So far i4i hasn’t discussed, or heard about a settlement from Microsoft. Nor does the company appear interested in being bought out.

“We think there’s an extraordinary opportunity for our company going forward and want to continue to build a great Canadian company,” Owen says.

i4i founder Michel Vulpe hinted that Microsoft may be able to buy its way out of the legal mess yet.

“i4i is not for sale at the moment, although everything has a price,” he says. “We’re more interested in a licencing proposal if one were to come out of this.”

Microsoft was not giving interviews on the matter yesterday, instead choosing to issue a canned statement to the press.

“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. We will appeal the verdict,” reads the written statement from Microsoft spokesperson Kevin Kutz.

An appeal could be based around the pre-hearing claim construction phase of the court case, MacOdrum says. The procedure in the U.S. is to have the judge determine what the patent claims at issue will mean before a jury hears arguments.

“That can be an important issue in determining whether something infringes, or the patent is invalid,” he says.

Other Canadians should take a cue from i4i and recognize the importance of intellectual property claims, Milton says. Canadians are notorious for not filing for such protections, registering only half as many patents per capita when compared to the U.S. and only one-fifth of the trademarks that Sweden does.

“Innovating without patents is like fish farming without nets,” he says. “It good for the seals down the bay, but you’re not going to get rich.”

i4i will continue to make sure its patent is enforced, Owen says. The goal is to sell its invention to customers who need to create customized XML documents. 

“We’re ready to service customers around the world,” he says. “We own the intellectual property and we enforce our rights.”

No comment on whether further legal action is planned, he adds.

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