Microsoft's Stuggles With The Little "x" In "docx"

I don’t know about the rest of you, but when I first saw the headline just before the holidays that Microsoft Word sales were prohibited as of January 11, 2010, I was more concerned about what this would mean for me than I was about what it would mean for Microsoft. After all, like millions of other Americans, I have been using Word for years, whether to draft papers, or blogs, or most importantly these days, to take class notes. My fourth semester of law school was starting on January 11, and now I needed to worry about how I would take notes in my Legislative and Administrative Law course?

Alas, my worries were unfounded.

Microsoft Word’s troubles began on March 8, 2007, when a small Canadian software company, i4i, L.P. (“i4i”), filed a patent infringement suit in the Eastern District of Texas. i4i Ltd. P’ship v. Microsoft Corp., No. 6:07CV113, 2009 U.S. Dist. LEXIS 70104, at *7 (E.D. Tex. Aug. 11, 2009), aff’d, No. 2009-1504, 2009 U.S. App. LEXIS 28131 (Fed. Cir. Dec. 22, 2009). That district is known for being a haven for patent litigation. In its complaint, i4i alleged that Microsoft infringed its 1998 patent entitled “Method and System for Manipulating the Architecture and the Content of a Document Separately from Each Other” (U.S. Patent No. 5,787,449). This claim resulted from the 2003 and 2007 versions of Word, which allowed XML editing capabilities. Moreover, the complaint alleged that Microsoft’s infringement of the patent was willful.

At the trial, which began on May 11, 2009, i4i argued that certain Word 2003 versions and all Word 2007 versions with custom XML elements willfully infringed the patent. Microsoft responded to i4i’s claims by arguing that the Word products in question did not infringe the patent and further that the patent was invalid. The jury was unconvinced by Microsoft’s arguments and returned a verdict in favor of i4i, finding both that the patent was valid and that Microsoft willfully infringed it.

As a result of these findings, the jury awarded i4i $200 million in damages. Judge Leonard Davis then granted i4i’s motions for enhanced damages, attorney’s fees, and a permanent injunction. The jury found that Microsoft willfully infringed i4i’s patent, so the court had the discretion to triple the amount of damages as a punitive measure. It could have awarded i4i damages up to $600 million. The District Court considered nine factors when determining whether to grant i4i’s motion for enhanced damages. These factors include:

“(1) [W]hether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, when he knew of the other’s patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed; (3) the infringer’s behavior as a party to the litigation; . . . (4) the defendant’s size and financial condition; (5) closeness of the case; (6) duration of the defendant’s misconduct; (7) remedial action by the defendant; (8) the defendant’s motivation for harm; (9) whether the defendant attempted to conceal its misconduct.”

Read Corp. v. Portec, Inc., 970 F.2d 816, 827 (Fed. Cir. 1992), abrogated by Markham v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995). Of these nine factors, the District Court found that factors 2, 4, 6, 7, and 8 supported enhanced damages while factors 1 and 9 did not. As a result of this analysis, the District Court determined that enhanced damages of $40 million were warranted under the circumstances, but not the maximum of $600 million. Thus, Microsoft faced total damages of $240 million. On appeal, the award of $40 million in enhanced damages was affirmed. i4i Limited Partnership v. Microsoft Corp., 2009 U.S. App. LEXIS 28131 (Fed. Cir. 2009). The Court of Appeals for the Federal Circuit, in its December 22, 2009 decision, found that the District Court properly applied the Read factors to the circumstances and did not abuse its discretion when awarding the additional $40 million.

As for the injunction, the District Court narrowly constructed the scope so current users of Word would remain unaffected. Specifically, copies of Word that were sold or licensed prior to the injunction effective date are not impacted by the injunction. After that date, Microsoft is prohibited from “selling, offering to sell, importing, or using copies of Word with the infringing custom XML editor. Microsoft is also prohibited from instructing or assisting new customers in the custom XML editor’s use.” To determine whether a permanent injunction is properly issued in patent cases, the District Court looked to the four factor test provided for in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006). Under this test, a party is only entitled to a permanent injunction if:

“(1) [the party] has suffered an irreparable injury; (2) that remedies at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the parties, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.”

The District Court found that all four factors favored i4i, issued the permanent injunction, and gave Microsoft sixty days in which to comply. Some media reports expressed doubt that an injunction prohibiting the sale of Microsoft Word would be deemed in the public interest since Word is widely used, by both private and government entities. See e.g., Gregg Keizer, How Microsoft Can Solve its Word Patent Problem, PCWORLD (Aug. 15, 2009).

Nonetheless, the permanent injunction was affirmed on appeal. The Court of Appeals determined that any negative impacts on the public were substantially mitigated by the injunction’s narrow scope, especially since users who purchased or licensed Word prior to the injunction effective date were excluded from its scope. However, the Court of Appeals additionally found that the District Court should have given Microsoft five months in which to comply with the injunction, based on evidence from a Microsoft witness at trial estimating it would take Microsoft at least five months to implement any injunction.

As a result, the new effective date of the permanent injunction was January 11, 2010. Microsoft has complied by releasing software patches to bring Microsoft Word 2003 and Microsoft Word 2007 into compliance with the injunction, in time to meet the January 11, 2010 deadline set by the Court of Appeals. It remains to be seen whether Microsoft will pursue further appeals. In its press release, Microsoft indicated that it was considering a request for a rehearing en banc by the Court of Appeals for the Federal Circuit or a request for a writ of certiorari from the United States Supreme Court.

So what does this permanent injunction mean for average daily users of Word, like you and me? Nothing, really. Those of us who purchased or licensed Word before January 11, 2010 can go right on using it, just as before. And for those would-be users who still need to purchase their copy? As noted above, Microsoft already released the necessary software patches to bring Word into compliance with the injunction. Aside from that, it’s unlikely any of us regular users will even notice something is different.