The decision is a serious blow to Microsoft Corp.s hopes of avoiding paying millions in damages to Eolas Technologies Inc. and being forced to redesign its flagship Web browser.
On Tuesday, the PTO issued a "Notice of Intent to Issue a Reexam Certificate" to Eolas, a one-person company spun off from the University of California, on U.S. Patent No. 5,838,906—known as the 906 patent.
The notice means the PTO has decided to uphold the patents validity, with an official certificate to follow later this year.
The 906 patent, received in 1998 by the University and licensed exclusively to Eolas, describes ways that a Web browser can use external applications.
Eolas claims it covers the way Microsoft Internet Explorer uses plug-ins, and in 2003 won a $521 million judgement after a federal jury agreed IE infringed on the patent.
The notice is the best possible outcome of the reexamination for Eolas, according to Dennis Crouch, patent attorney at McDonnell Boehnen Hulbert & Berghoff LLP, who reported the decision on his patent law Weblog Patently-O.
"From the standpoint of the PTO, the reexamination certificate is essentially a stamp of approval from the PTO that the prior art submitted does not invalidate the patent," Crouch told eWEEK.
Eolas and the University of California said the decision was a victory for innovation. "This decision ensures that the patent rights of the public institution that developed this technology, a significant innovation with wide-reaching public benefits and use, will be protected," James E. Holst, the universitys general counsel, said in a statement.
A Microsoft spokesperson admitted the decision was not promising. "This is disappointing news, but we are committed to seeing this case through to a successful resolution," she said.
Following this judgement, Microsoft said it would redesign the browser to get around Eolas patents, potentially breaking large numbers of Web pages in the process. In October of 2003, the W3C (World Wide Web Consortium) urged the PTO to reconsider the patents validity in light of prior art—inventions covering the same ground that predate the patent claim.
On its initial reexamination, the PTO rejected the 906 patent, apparently a good sign for Microsoft. But this is the outcome of nearly all initial reexaminations, according to Crouch. The revalidation of the patent is based on further input from Eolas, he said.
The decision may also weaken Microsofts battle against Eolas on other fronts. In March, the U.S. District Court of Appeals granted Microsoft a retrial on a key aspect of the 2003 jury decision. The court agreed with Microsoft that the trial court should have allowed Microsoft to argue that Eolas patent was invalid on the basis of prior art.
In the retrial Microsoft is arguing, in particular, that the patented technology was in fact invented earlier by Pei-yuan Wei and his colleagues at OReilly & Associates Inc. in a browser called Viola.
In its "Reasons for Patentability/Confirmation" notice, however, the PTO specifically said the Viola technology doesnt constitute prior art. The lengthy document examines several claims for the Viola browser, and on page 65 concludes: "The ... Viola files, when considered as prior art publication for purposes of reexamination, do not teach or fairly suggest the instant 906 invention, as claimed."
Microsofts court trial isnt bound by the decision of the PTO, and could come to a different conclusion, though "such cases are rare," Crouch said.
However, Microsofts argument isnt limited to technicalities as the PTOs reexamination is. Part of Microsofts argument is that Eolas knowingly withheld information about the Viola browser from the PTO when it first applied for the patent.
"Microsoft still has a colorable argument that Eolas erred by failing to submit the reference to the PTO in the first place," Crouch said.
Microsoft is currently petitioning the Supreme Court on another aspect of the 2003 decision, involving the companys liability for providing IE code to overseas manufacturers.