A three judge panel of the Court of Appeals for the Federal Circuit recently upheld the injunction against Microsoft that goes into effect January 11, 2010. The panel also upheld the nearly $300 million in damages from the U.S. District Court for the Eastern District of Texas. The injunction will bar Microsoft from selling versions of Word that contain the ability to open documents with “custom XML.” The injunction does not affect any versions of Word sold before January 11, 2010, but does prevent Microsoft from “instructing or assisting new customers in the custom XML editor’s use.” Technical support can still be offered by Microsoft from versions of Word sold before January 11. Regardless, Microsoft has said that it is ready to remove the infringing feature from copies of Word and Office that will be sold after January 11. The upcoming 2010 versions of Word and Office should not have the infringing feature, and thus should be unaffected by the injunction.
The only changes to the injunction by the panel were a modification of the effective date of the injunction, from the original 60 days (stayed during appeal) to 5 months from the original issue date of the injunction. This was because the panel determined that the district court erred in setting a time frame of 60 days, when the only evidence concerning time to remove the infringing XML functions from Word was “at least” 5 months. As Microsoft has said, it initiated steps in August to remove the infringing feature, so the change in the effective date of the injunction should have little practical impact.
In regard to the damages, most significant is the $200 million damages for royalties. The panel even admitted that, “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.” The opinion makes it sound as if the panel, if able to review sufficiency, would have significantly reduced the royalty damages. This is because the baseline royalty rate used by i4i’s expert witness to calculate damages was $98, when certain Word products could sell for as low as $97. On a sufficiency review, it seems entirely possible that the baseline royalty used was grossly excessive and monstrous, since it could be greater than the entire selling price of a single copy of Word. Further, Microsoft told the court the typical license it paid to use a patent was in the $1 – $5 million range, something completely out of line with the i4i calculations of $200 million. But the panel stated it was unable to review the sufficiency of the evidence, as Microsoft had failed to file a pre-verdict judgment as a matter of law motion, restraining the panel’s review to the standard of a clear showing of excessiveness. The panel even seemed to question Microsoft’s failure to file a pre-verdict JMOL motion as to the sufficiency of the evidence for the damages, stating, “Had Microsoft filed a pre-verdict JMOL, it is true that the outcome might have been different” because then the panel could decide “whether there was a sufficient evidentiary basis for the jury’s damages award.” Given the panel’s statements, Microsoft might have blown its chance to have the damages significantly reduced on appeal by deciding not to file a JMOL motion for sufficiency of the evidence as to damages.
It also seems as if i4i’s decision to file in Texas has paid off, after gaining some measure of approval from the panel of the Court of Appeals for the Federal Circuit. I don’t know if I would go so far as to call the panel’s opinion “a complete and utter vindication of the judgment,” given the statements of the panel regarding the royalty calculation and the limited level of review available for the findings of the jury, but it does give some credence to the inability of an appeal to alter the jury verdict. While Microsoft’s loss on appeal may not make the district court’s decision completely right, it may well signal the verdict’s irreversibility. The Federal Circuit may well refuse a request for a full hearing, as the decision clearly sets out the limits of appellate review in this case.
The size of the verdict against Microsoft makes you wonder why they didn’t just license the patent from i4i back in 2000, when Microsoft was aware of i4i’s presence in the market, or even at the start of litigation in 2007. At this point, there appear to be very few reasons for i4i to consider talking with Microsoft about licenses or settlement, as i4i looks to have a winning case and a firm hold on nearly $300 million from Microsoft.