Microsoft Strikes Out With The Patent Office

Microsoft has once again been stymied in its long-running patent infringement battle with tiny Toronto-based i4i, a struggle that may cost the software giant nearly $300 million.

The case has long since ceased to have any potential impact on Microsoft customers. Microsoft (NASDAQ: MSFT) removed the infringing code last year via patches issued to its customers.

The latest blow to Microsoft came from the U.S. Patent and Trademark Office (USPTO), which ruled that i4i's patent on Custom XML (eXtensible Markup Language) is valid after Microsoft had requested the patent be declared invalid. The smaller firm filed its suit for infringement in March 2007 after attempts to negotiate a settlement failed.

Microsoft was found to be culpable of "willfully" infringing i4i's patent, which dates back to 1994, by a U.S. District Court jury last spring. In August, the court levied penalties, fines, and interest of some $290 million.

Additionally, Microsoft was enjoined from selling any copies of Word or Office, which contains Word, that included its own Custom XML editor. That meant Word 2003 and 2007. Microsoft pulled the offending packages from the market and, in the cases of Word 2007 and Office 2007, replaced them with versions that do not contain the patented code.

Office 2010, which is being formally launched on Wednesday, does not contain the infringing code.

That leaves Microsoft with few options -- none of which will impact the IT world soon beyond the changes that have already been ordered by the courts. However, the case could ultimately affect how patent cases are handled and could help to jump start software patent reform long term.

"We are disappointed, but there still remain important matters of patent law at stake, and we are considering our options to get them addressed, including a petition to the Supreme Court," Kevin Kutz, Microsoft director of public affairs, said in an e-mailed statement. Of course, Microsoft could decide to drop its appeals, but that doesn't seem likely at this point.

In the meantime, i4i is savoring another victory in its battle with Microsoft.

"The patent office did a very exhaustive review ... [and] clearly this is a welcome decision," Loudon Owen, chairman of i4i told InternetNews.com. The USPTO sent i4i a Notice of Intent to Issue [an] Ex Parte Reexamination Certificate on April 28, and a Reexamination Certificate is pending, Owen said.

After the initial loss in district court, Microsoft filed an appeal, which it lost. It then asked the entire appeals court to hear its appeal "en banc" -- meaning by all the judges in that appeals court circuit instead of just the original panel of three judges.

The appeals court denied Microsoft's petition for an en banc rehearing in early April.

Now, Microsoft's flanking move to try to have the patent itself declared invalid has also been stymied.

That leaves the possibilities of settlement negotiations or a petition to the U.S. Supreme Court. Currently, the latter appears to be more likely than the former.