The Prior Art

Supreme Court Rules Against Microsoft in i4i Case

By Andrew Goldberg

In a unanimous decision that won't be well-received by tech industry heavyweights, the U.S. Supreme Court ruled this morning against Microsoft in the closely watched Microsoft v. i4i case, rejecting the software giant's argument to lower the evidentiary requirement to invalidate a patent.

The decision, which upholds the $290 million verdict against Microsoft won by the small Toronto-based i4i software company in the Eastern District of Texas, solidifies existing precedent and leaves intact the 28-year-old standard applied by the Federal Circuit in patent infringement cases.

"Congress specified the applicable standard of proof in 1952 when it codified the common-law presumption of patent validity," Justice Sonia Sotomayor wrote for the Court. "Since then, it has allowed the Federal Circuit's correct interpretation of §282 to stand. Any recalibration of the standard of proof remains in its hands." [ Download Microsoft v. i4i Supreme Court Decision]

Thomas  G. Hungar, a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher, argued the case for Microsoft.  Seth Waxman, a partner in the Washington, D.C. office of Wilmer Cutler Pickering Hale and Dorr represented i4i, which was represented at trial by McKool Smith and before the U.S. Court of Appeals for the Federal Circuit by Finnegan, Henderson, Farabow, Garrett & Dunner. Microsoft was represented at trial and before the Federal Circuit by Weil, Gotshal & Manges.

Microsoft, along with such heavy-hitting amici as Google, Apple, Verizon, and HP, had advocated for the adoption of the lower preponderance standard in patent cases, arguing that the heightened standard insulated "bad patents" from invalidity challenges and stifled innovation. The Obama administration backed i4i, which warned that a lower standard would too easily allow juries to overturn the wisdom of the experts at the PTO. Lower the standard for invalidating a patent, Microsoft and its allies argued, would level the playing field to give patent infringement defendants a fairer shake in litigation.

But the Supreme Court said it was up to Congress to weigh such considerations. "We find ourselves in no position to judge the comparative force of these policy arguments," wrote Sotomayor, adding, "Congress has amended the patent laws to account for concerns about 'bad' patents, including by expanding the reexamination process to provide for inter partes proceedings. Through it all the evidentiary standard adopted in §282 has gone untouched."

The legal battle between the world's largest software maker and i4i (which stands for "infrastructures for information") began in 2007 when i4i sued Microsoft for infringing its patented XML editing feature in Microsoft Word. Microsoft, the jury found, willfully infringed i4i's patent when it installed its own XML editing features in Word 2003. The six-day trial in Tyler, Texas resulted in a $290 million verdict for i4i, which, like the company's patent, was later upheld by the Federal Circuit.

Microsoft, which was also permanently enjoined by the district court from selling versions of Word that infringed i4i's patent, has since removed the disputed features from its software. Now, the software giant will have pay the damages.

 

 

 

 

 

 

Patent Litigation Weekly: Shutter Closing on Massive Photo-Sharing Patent Suit

FotoMedia is a patent-holding company that claims just about every photo-sharing website you can imagine infringes its three patents. Its lawsuits, covered by TPA last May and June, are notable not just for the audacity of the claims they make, but also because they target dozens of small- and medium-sized software companies that provide various types of photo-sharing services over the Internet.

In previous stories about the FotoMedia suits, TPA detailed the litigation’s effect on San Francisco-based Fotki.com, which has about 25 employees, and the three-man, Texas-based software company FotoTime.

As the new year starts, some of the FotoMedia defendants are breathing a sigh of relief—and the rest may be doing the same soon. That's because reexamination requests filed with the United States Patent and Trademark Office by Yahoo Inc. appear to have knocked out nearly all the patent claims at issue. FotoMedia's lawyers at McKool Smith have reacted to that development by offering to either stay the suits or have them dismissed without prejudice (leaving FotoMedia able refile the claims at a later date.)

Patent Litigation Weekly: So What Do E.D. Texas Jurors Really Think?

This week: The Prior Art returns after its winter blogging break. As Microsoft gets set to scrap software found to infringe a Canadian company's software, The Prior Art discusses the case with three of the eight jurors whose verdict helped put the software giant in this predicament.

As of Monday—thanks to a permanent injunction issued in August by Judge Leonard Davis of the Eastern District of Texas and upheld last month by the Federal Circuit Court of Appeals—Microsoft Inc. must stop selling any version of Microsoft Word 2007 or Microsoft Office 2007 that includes a custom XML editor found to infringe a patent held by a small Canadian software company called i4i, Inc.

It’s not every day that such a well-known product has to be modified—or possibly removed from store shelves—because of a patent dispute. Indeed, the U.S. Supreme Court made getting such an injunction in a patent case extremely difficult with its landmark eBay v. MercExchange ruling in 2006.

Microsoft isn’t giving up the court fight over the patent at issue just yet. On Friday, the company’s legal team, led by Matthew Powers of Weil, Gotshal & Manges, filed a petition with the Federal Circuit asking for a rehearing en banc. Powers didn't return calls for this story. Earlier coverage on i4i's trial win, post-trial action, and Federal Circuit win is available from the AmLaw Litigation Daily.

Are East Texas companies becoming pawns in the venue-shopping game?

Bedrock Computer Technologies is a patent-holding company owned by David Garrod, a former Goodwin Procter lawyer. Last month, I wrote about Bedrock's lawsuit against several of the biggest Internet companies—and CitiWare Technology Solutions, a tiny Longview, Texas software company.

Since the publication of that column, CitiWare's owner, Nate Neel-Smith, has taken down his old website and replaced it with a web page denouncing the lawyers who sued him. The lawsuit against him was a big mistake, says Neel-Smith, since he actually went out of business some time ago. "See how you might feel when your [sic] sent a BOGUS lawsuit on which you must waste time and money to defend!" writes Neel-Smith.

In my earlier column, I speculated that CitiWare's inclusion in the lawsuit was a strategy by Bedrock and its McKool Smith lawyers to maintain their preferred venue in the Eastern District of Texas.

The Recorder's Zusha Elinson has done some additional reporting that suggests that theory may be right. Elinson cites research by patent lawyer Yar Chaikovsky showing that since the Federal Circuit's TS Tech ruling in December, it's been easier for defendants to get out of East Texas when they want to—except when at least one local defendant is included in the suit. In those instances, the venue seems to stick. Elinson notes another example of a small East Texas company tangled up in venue politics: Plano-based Big Jump Media Inc., which runs Tangle.com, "a sort of Christian YouTube site that used to be called GodTube." McKool Smith is also lead counsel on the lawsuit involving Big Jump Media.

These small companies may have become "absurd pawns in the patent litigation venue-shopping game," writes Elinson. Read the full article.

Photo: J. Mullin, Longview, Texas

Patent Litigation Weekly — Photo-Sharing Patent Suit Threatens Immigrant's Dream

For a guy who feels his business is being cramped by bogus lawsuits, Igor Shoifot comes across as an irrepressible optimist. The 42-year-old Russian immigrant, who runs the photo-sharing site Fotki.com out of a nondescript office building near San Francisco's Fisherman's Wharf, laughs loudly and often at his predicament.

Still, Shoifot knows he’s in a serious bind. His business is at risk of paying heavy penalties—and possibly being shut down—because it relies on "metadata" technology that enables functions like tagging and commenting. FotoMedia Technologies, a patent-holding company with offices in New Hampshire and North Carolina, claims patents it owns give it exclusive control over certain uses of such features, and has asked a federal judge to shut down Fotki.com and 62 other photo-sharing services unless they pay unspecified licensing fees. TPA first covered these suits two weeks ago in the first installment of The Photo-Sharing Files. 

"My first reaction was that it was a joke," Shoifot says. One reason he felt that way: none of the patents-in-suit—U.S. Patents 6,542,936, 6,018,774 and 6,871,231—were issued until 2000, two years after Fotki.com began operations. "We had this business running in 1998. Not a concept, not an idea, not a 'wouldn't-it-be-cool to do that,' but an actual business in 1998."

Patent-Litigation Weekly: The Photo-Sharing Files

This week: A snapshot look at how the surge in infringement suits by patent-holding companies is causing big woes for small companies, and potentially affecting the ability of many people to engage in a popular pastime.

Creating and sharing images—drawings, paintings, photographs—are among the most ancient of human activities, and throughout history, technology that makes that sharing possible has been embraced as rapidly as it appears. Today, that technology takes the form of software applications for computers and cell phones.

That all helps explain why the collection of scrappy entrepreneurs who run small and medium-sized photo-sharing companies didn’t always think about patents as they built up their businesses.

But patents are certainly on their minds now that they’ve been sued for infringement by a company they've never heard of, in a place they've never thought about, in a case that illustrates how the surge in lawsuits by patent-holding companies isn’t just taking a bite out of big companies—it’s hitting small businesses too.

"You can't imagine the stress this caused, me thinking the company I put 10 years of effort into could have folded because of this," says Jeff Kelling, a partner in Texas-based software maker FotoTime.

Patent Litigation Weekly: E.D. Tex Unkind to Tech; PubPat's Other Suits

This week: A big win for a Canadian company in E.D. Tex, a smaller but significant win for Acacia Research; and the false marking suits that came before the big gene patent battle.

X-M-L Spells Extra Major Loss for Microsoft

i4i Limited Partnership v. Microsoft Corporation
07-cv-00113, E.D. Texas (Tyler), filed 3/8/2007.

The Eastern District of Texas has been operating at a breakneck pace over the last month: four patent trials have gone to a verdict, with three resulting in plaintiff wins; and the CSIRO cases settled mid-trial.

Of the four trials to play out recently, Texas-based McKool Smith was involved in three and won two.

The firm’s most recent victory, for i4i, a small software firm based in Toronto, Canada, came on Wednesday, and it was massive: a $200 million willfull infringement verdict against Microsoft, a favorite target of competing software makers (such as i4i) and patent trolls alike.

"I feel great," McKool Smith partner Doug Cawley, i4i’s lead trial lawyer, told The Prior Art. Cawley says that, prior to the verdict, i4i officials were "understandably nervous about whether an American jury would be willing to grant a verdict for a Canadian company." They got their answer when the jury—after deliberating for about three hours—came back with the answer they wanted.

I4i, which stands for "Infrastructures for Information," markets various software products geared toward pharmaceutical and health care companies, as well as a product called x4o, which enables an XML editing feature in Microsoft Word. That product, priced at $249 and covered by the patent-in-suit, No. 5,787,449, became a lot less valuable to i4i when Microsoft installed its own XML editing features in Word 2003.

The jury's award was at the low end of a high, yet narrow range—$200 million to $207 million—suggested by i4i's expert witness. That range was calculated by multiplying a rather high royalty rate of $98 times the small fraction of Microsoft Word users—just 1.8 million—that i4i estimated had used Word to edit XML.

While disputing that the software giant had infringed the Canadian company’s patent, Cawley says, Microsoft’s expert witnesses argued that the jury should award damages in the $2–$5 million range if it found that there had indeed been infringement. Microsoft plans to appeal the verdict, according to Bloomberg.

Cawley says that i4i demonstrated its product to Microsoft in 2001. Instead of buying it, i4i contended, Microsoft proceeded to simply incorporate a similar function of its own (i4i did not accuse Microsoft of copying its code or product).

What does Cawley think won the case for i4i? "Probably Microsoft's internal e-mails showing they knew about i4i's patent and chose to make i4i's product obsolete," he says.

Key witnesses for the plaintiffs included company founder and named inventor Michel J. M. G. Vulpe, as well as co-inventor Stephen P. Owens.

Microsoft was defended by Matt Powers of Weil, Gotshal and Manges. Powers didn't immediately respond to a request for comment from The Am Law Litigation Daily on Wednesday.

Jury: Yahoo Got Too Creative

Creative Internet Advertising Corporation v. Yahoo! Inc Et Al
07-cv-00354-JDL, E.D. Texas (Tyler), filed 7/26/2007.

Creative Internet Advertising is a subsidiary of Acacia Research Corp., a large publicly held patent-holding company based in Newport Beach, California. Over the past few years, Acacia has filed patent infringement suits on behalf of dozens of subsidiaries like Creative. (At last count, SEC filings showed more than 70 of these offspring; there may be more, but Acacia stopped listing its litigations last year.) Nearly all of the suits have ended in confidential settlements.

On May 15, a jury in Magistrate Judge John Love's Tyler courtroom ruled that Yahoo's messenger program with IMVironments had infringed Creative Internet Advertising patent No. 6,205,432. The jury awarded damages of $6,625,584; according to Michael Smith. That was the sum sought by the plaintiff, and represents a royalty on the product of about 20 percent.

The patent-in-suit describes a "background advertising system." (Acacia had also named America Online as a defendant in the suit; AOL settled last year.)

In the wake of the verdict, Yahoo may be feeling a little less confident about its prospects for taking infringement suits to trial: SEC documents show that on Monday, Yahoo quietly arranged a confidential settlement with another Acacia outfit, Performance Pricing Inc. That case was one of four additional trials the search company was scheduled to face this year. As previously reported by sibling publication The Recorder, the Creative suit was the first one Yahoo has taken to trial in four years.

Acacia CEO Paul Ryan declined to comment on the victory, and a call to Acacia's outside counsel at The Simon Law Firm (formerly Simon Passante) in St. Louis was not immediately returned. Acacia was represented locally by two E.D. Tex heavyweights: T. John "Johnny" Ward Jr. and Eric Albritton (the two lawyers who sued Troll Tracker blogger Rick Frenkel when he was unmasked in February 2008). Yahoo was represented by San Francisco-based Howrey partner Henry Bunsow, and locally by Otis Carroll of Ireland Carroll & Kelley.

This case is the second TPA is aware of that Acacia has taken to trial in E.D. Texas. In the first, in November 2007, Weil, Gotshal's Powers knocked Acacia's patents out of commission on behalf of Microsoft (a more successful outcome than Powers achieved for Microsoft in the i4i litigation). That case delivered a serious blow to Acacia's business model. The company's stock dropped about 70 percent in the wake of the trial, and has never fully recovered. The stock price jumped about 20 percent to $5.48 per share shortly after it announced its victory. By Friday, it was down to $5.11.

Not So Sweet?

Public Patent Foundation, Inc v. Cumberland Packing Corp, 09-cv-04360. S.D.N.Y., filed 5/6/2009.

Public Patent Foundation, Inc v. Iovate Health Science Research Inc et al, 09-cv-04361. S.D.N.Y., filed 5/6/2009.

Last week, TPA reported on a major lawsuit brought by the ACLU and the Public Patent Foundation (PubPat). The suit, it turns out, was just the third that the six-year-old PubPat has ever filed. The first two, filed a week earlier, on May 6, are interesting in their own right.

Those suits allege "false marking" against Cumberland Packing Corp., which manufactures Sweet’N Low sweetener, and against Iovate Health Science Research, a dietary supplement company that recently ran afoul of the Food and Drug Administration.

The lawsuit against Cumberland includes the remarkable note that the company has continued to stamp a patent number on the Sweet’N Low’s iconic pink packets—even though that patent expired more than 20 years ago. The suit against Iovate claims the company promoted its products as protected by patents ("patented triple-action technology!"), even though those patents read on compositions with high levels of caffeine—compositions that have nothing to do with the products actually marketed by Iovate.

The statute that allows false marking suits is similar to law governing "qui tam" whistleblower suits, in that a victorious plaintiff is required to split any damage award with the government. The statute allows for $500 in damages "per offense," but does not clearly define what qualifies as an “offense,” according to Fish & Richardson partner Brett Johnson. Some judges have interpreted the false marking of an entire product line to constitute a single offense, says Johnson, who recently won a false marking suit against software maker McAfee.

No surprisingly, Dan Ravicher, of PubPat, thinks it's "pretty clear” that the damages should be applied to every packet of Sweet’N  Low sold since the patent expired, although he acknowledges that it's within the judge's discretion to decide whether or not $500 is the proper amount. Depending on the outcome, the case could produce a pretty sweet payday for the public interest law group. Ravicher says, though, that the suit isn't about money—it's about protecting the public against misleading patent claims.
 
"False marking is a harmful thing," says Ravicher. "That's not what I think, that's what Congress thinks. But they don’t have the manpower to enforce it themselves."

Photos: W. Pate / S. Isaacs / Flickr

 

Patent Litigation Weekly: The Lone Star Edition

This week: a low-profile Texas doctor is looking for a piece of the growing medical software market; a holding company controlled by a former Townsend partner files more lawsuits; and last week's one and only lawsuit filed in the Eastern District of Texas.

Texas Doc Has Eyes on a Prize

• Prompt Medical Systems v. iMedica Corp. 09-cv-01286, S.D. Texas, filed 4/28/09.

The Obama administration has made the switch to electronic medical records a key part of its economic stimulus plan, and is set to give health care providers $17 billion in federal funds to help make it happen. Much of the work will be done by medical technology companies hired by hospitals to implement the new records.

Eager to get some of that stimulus cash, medical technology companies are rolling out new products to help with the switch—and patent lawyers and their inventor clients are rolling out new lawsuits in response.

Medical software provider iMedica launched a new version of its Patient Relationship Manager software at the end of March. Last week, iMedica joined a growing club: companies that have discovered they will have to pay off a low-profile South Texas opthalmologist and his attorneys—or risk being shut down. 

Patent Litigation Weekly: Upstairs, Downstairs in Marshall

This week: Both floors of the best little courthouse in Texas have been busy—producing very different results.

Taking A Big Bite Out of Apple

OPTi, Inc. v. Apple, Inc.
07-cv-00021, E.D. Texas (Marshall), filed 1/17/2007.

OPTi Inc. is a Palo Alto company that used to manufacture chipsets for computers. In 2002, after Intel decided to stop using OPTi’s chipsets, the company shuttered its operations and moved into the patent-licensing business. Since then, as OPTi said in its SEC filings, the company has been “engaged in perfecting its intellectual property position" by investigating the unlicensed use of its technology, and filing lawsuits against alleged infringers. As of now, OPTi—still a public company, although it's not traded on any major exchange—has only one full-time employee: CEO Bernard Marren. (The OPTi we discuss here should not be confused with OPTI Canada, an operating energy company.)

Last week, OPTi wrapped up the first jury trial of its new incarnation—and wound up a winner. In ruling for OPTi and against Apple, a Marshall jury awarded the former more than $19 million for willfull infringement. It's a remarkable victory, in part because the jury gave the plaintiff exactly what it had asked for and accepted its testimony on damages wholesale. OPTi's lawyers interviewed by TPA said Apple’s expert witnesses suggested that—if the computer maker had infringed—it only owed OPTi about $300,000.

Troll Tracker defamation update: Cisco wants to see tax returns, evidence of 'mental anguish'

Next week, I'll be in Dallas at an IP law conference sponsored by the Center for American and International Law. After that, I'll have my first chance to visit the Eastern District of Texas. There are a couple patent trials going on in Marshall next week and I anticipate at least dropping in on both of them.

Before departing, I took some time to study up on some of my most-followed cases there. As regular readers know, former Patent Troll Tracker blogger Rick Frenkel was sued by two East Texas patent lawyers after his identity was revealed.

Not much has changed in these lawsuits. The parties in Ward v. Cisco are still fighting over venue, and in Albritton v. Cisco they're fighting discovery battles, but since I checked up on them anyhow I'll take a minute to update both cases.

I've covered the Patent Troll Tracker litigations several times before: see coverage from March 11, March 12, April, May, and August. Justia.com has dockets and documents for both cases: Ward v. Cisco Systems, et al. and Albritton v. Cisco Systems, et al. The cases are also summarized on the Citizen Media Law Project, a project affiliated with Harvard Law School. (Albritton, Ward)

Ward, Jr. v. Cisco Systems et al.

The plaintiff in this case is T. John Ward, Jr., son of the well-known federal judge T. John Ward. (at right) Ward Jr. is represented by Nicholas Patton, a Texarkana lawyer who has enforced the patents of WilmerHale patent lawyer Irah Donner, among many others.

Ward sued both Cisco and Rick Frenkel personally, agreed to drop Frenkel from the lawsuit, then asked the judge to go back on that after Frenkel asked for attorney's fees. On August 28, the judge dropped Frenkel from the lawsuit. Cisco Systems, Inc. is now the sole defendant.

The lawsuit is still pending in an Arkansas federal court. Cisco had asked to move this case to federal court in Tyler, Texas, where the Albritton lawsuit is pending, but the court denied that motion on Sept. 30.  [Order via Justia]

But now, Nick Patton is representing Eric Albritton (below) as well as John Ward Jr. In light of that change, Cisco has asked the judge to reconsider its motion to transfer to Tyler. Since both plaintiffs now have the same lawyer, Tyler is "clearly a more convenient forum," writes Cisco's lawyer. Discovery in the two cases will be "essentially identical" and keeping the Ward Jr. lawsuit in Texarkana "will subject witnesses and court resources to duplication."

"This is Cisco's third bite at the transfer apple," responded Ward Jr. this week. The interests of justice would not be served by a transfer to ED Tex, where Ward Jr.'s father is a sitting district court judge, notes Ward Jr., so moving the case there would be problematic: "Nothing about Mr. Patton's participation in the Albritton case alters the unique circumstances presented in this case." [Response, Nov. 3, via Justia]

Of the two, the Albritton case in Tyler is moving along much faster; discovery in that case is scheduled to close in just two weeks, which Ward Jr. argues is one more reason not to move the case. More on Albritton v. Cisco Systems, et al., below.

Albritton v. Cisco Systems et al.

In Tyler, discovery battles rage. In addition to Cisco, Rick Frenkel is still a named defendant, along with Cisco's chief patent counsel Mallun Yen and ex-PR guy John Noh. This case is moving along rapidly and is currently scheduled to go to trial in February.

Cisco has demanded that Albritton produce documents that would evidence the "mental anguish" he has claimed the Patent Troll Tracker caused him, including his medical records; and documents showing his damages, including balance sheets, income statements, and tax returns for 2002 through the present. Albritton says that's invasive and unnecessary; the judge has yet to rule.

In September, Cisco's lawyer made some not-surprising deposition requests, sending subpoenas to: someone who works in Albritton's law office, my soon-to-be co-panelist ED Tex lawyer-blogger Michael Smith, and witnesses who appear to be various court personnel in both Texarkana and Tyler. (Both Albritton and Ward allege that two October 2007 PTT posts related to the ESN v. Cisco Systems patent lawsuit were defamatory.)

In October, Albritton asked to depose four IP lawyers from Baker Botts' Dallas office, along with a paralegal in the same office. It's not clear to me what the connection of these lawyers to this case is; they're not involved with ESN v. Cisco. The subpoenaed Dallas lawyers are Steve Schortgen, Bart Showalter, Kurt Pankratz, and Kevin Meeks. Earlier, Albritton sent a subpoena to Dennis Crouch at Patently-O.

Cisco Systems asked to depose a few big players in the ED Tex patent litigation scene, most prominently, Sam Baxter of McKool Smith. (Baxter represents Cisco in the ESN lawsuit.) Also deposed were Michael Smith (again, I presume in his capacity as a blogger), Elizabeth DeRieux of Capshaw DeRieux (from Longview), Otis Carroll (Tyler), Danny Williams of Williams, Morgan & Amerson (Houston), and Louis Brucceleri, a lawyer based in Houston.

I would be interested in knowing the role of these folks in the case.

SAP settles E.D. Texas patent lawsuit for $83.3 million

It's not a jury verdict, but it is eight digits long and comes from East Texas. On Friday, it was announced that German software company SAP agreed to pay $83.3 million to settle patent infringement claims brought against it by supply-chain consultants i2 Technologies Inc.

Dallas-based i2 filed this case in the Eastern District of Texas (Marshall) in September 2006, asserting seven patents were infringed by SAP. In August 2007, SAP hit back, firing off its own patent suit against i2 in Northern California (Oakland). Doesn't look like that case went too far, and it has also been stayed pending this settlement.

i2 Technologies' revenues have steadily declined over the last several years. For 2007, i2 Technologies reported a $17.7 million net profit on $260 million of revenue.  The company has about 1,300 employees. [10-K] The much larger SAP reported a €1.94 billion net profit on €10.25 billion in revenue. [6-K]

The case was i2 Technologies US, Inc. et al v. SAP AG et al., 06-cv-00352, E.D. Texas. It was slated to go to a jury in November of this year, in Judge T. John Ward's court.

i2 Technologies was represented by McKool Smith in this litigation; SAP hired Finnegan Henderson.

This settlement is clearly no fun, but the more worrisome litigation for SAP is surely not a patent lawsuit but competitor Oracle's allegations of "corporate theft on a grand scale." Oracle says its damages in that case are likely to be $1 billion, reports MarketWatch.