Patent Lawsuits Crowd Microsofts Horizon

By Matthew Hicks | Posted 2004-04-12

Patent Lawsuits Crowd Microsofts Horizon

While Microsoft Corp. has reached a $440 million settlement with InterTrust Technologies Corp. around digital rights management patents, it is far from clearing the slate of patent-infringement claims against it.

Microsoft, the worlds largest software maker, remains a major patent target. It is battling between 30 and 35 ongoing patent cases that cover everything from the automatic starting of an application in Windows to the sending of Web alerts. And it is facing more patent claims against it than in the past. Just 18 months ago, it had 20-some patent cases against it, company spokesman Jim Desler said.

"Theres been an increase for Microsoft but also an industrywide increase," Desler said. "We think part of that is the phenomenon that many companies that did not survive the burst of the dot-com bubble were left with nothing but a portfolio of patents" from which to make money.

While fighting claims that it views as frivolous or invalid, Microsoft also has followed a strategy of settling claims when it believes the patent is valid or that the litigation is hurting its moves into a new market, said Matt Rosoff, an analyst at Directions on Microsoft in Kirkland, Wash.

InterTrust is the most recent example: The settlement made sense for Microsoft because the company wants to aggressively expand its DRM offerings and DRM features in Windows, Rosoff said.

"InterTrust was the biggest one," he said of the patent-infringement cases. "Its in a very important area and an increasingly important one to Microsoft. … When Microsoft announces a new digital rights management initiative, it wants to make sure that all the uncertainty is taken away."

Microsofts willingness to settle also points to its increasing focus on turning once-bitter rivals into partners, Rosoff said. Take the companys $1.6 billion antitrust and patent settlement with Sun Microsystems Inc., which both companies said would allow the two competitors to collaborate and cross-license each others patents.

Microsoft also has focused more closely on patent issues in recent years. Last year, it hired former IBM executive Marshall Phelps as its corporate vice president and deputy general counsel for intellectual property. Rosoff said he expects the company to increasingly try to make money by licensing its intellectual property, as it did in December with its file allocation table (FAT) file system and ClearType font-rendering technologies.

But the Redmond, Wash., software maker will remain in the courtroom over patent issues. Among the 30-some cases pending are a $521 million verdict against it in a Web browser patent case as well as at least two cases headed to trials.

"We believe many of the cases against us are without merit," Desler said. "In the case of InterTrust, this was an issue where we understood the broadness of the patent portfolio, understood the importance it played in the future of digital rights management and understood the uncertainty it was creating for ourselves and our customers. So, we felt it was appropriate to settle the case and take an IP license to show that we stand behind our products."

Next Page: Four cases that could be high priorities for Microsoft.

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Desler declined to name those patent-infringement cases that are Microsofts highest priorities. But these four are undoubtedly in the running:

Chicago-based Eolas Technologies Inc., which holds a license to a patent from the University of California, won a jury verdict last year against Microsoft. The outcome of the high-profile verdict, now being appealed, could impact core Web browser technology beyond Microsofts Internet Explorer. The patent covers the embedding and invoking of interactive applications, such as plug-ins and applets, in browsers.

A federal judge in January upheld the jury verdict but put on hold an injunction against the sale of Internet Explorer with the patented technology pending the outcome of an appeal, which Microsoft filed in February. At the same time, the verdict led an outcry from the World Wide Web Consortium.

That helped to persuade the U.S. Patent and Trademark Office to reconsider the original patent. An initial review by the office found the patent to be invalid, though no final decision has been reached. The patent offices review is separate from the court case, but legal observers say its decision could be used in the appeals process.

TV Interactive Data Corp. of Los Gatos, Calif., sued Microsoft in May 2002, alleging that the autoplay feature in Windows infringes on its patent. Microsoft noted the case in its latest quarterly filing with the Securities and Exchange Commission. A September trial has been set in the case, but the two companies also have held a series of court-ordered settlement conferences, with the most recent one held April 1.

A 2001 lawsuit by Research Corporation Technologies of Tucson, Ariz., over a patent involving the displaying and printing of images also appears headed to a trial. A federal judge in January granted RCTs request for a summary judgment, which opened the way for a jury trial.

Teknowledge Corp. of Palo Alto, Calif., filed a patent-infringement suit against Microsoft in July 2003 concerning its patents for delivering alerts to about changes to Web pages or the availability of software updates. Most recently, Microsoft filed a counterclaim in February alleging that Teknowledge is infringing on its patents on electronic bill payments and information aggregation.

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