Whatever the final outcome, Toronto software man- ufacturer i4i Inc.'s battle with Microsoft Inc. would make an entertaining movie-a computer-geek version of My Cousin Vinny. There's the quaint rural locale: Tyler, Texas, one of a handful of towns that have made the eastern part of the state the epicentre of American-and therefore global-technology patent law. And there's the climactic scene from the final day of the trial this past May: Judge Leonard Davis reading a note from the deliberating jury: "We need a whiteboard, two coloured markers and a calculator."
When those words were uttered, it was obvious that i4i had won. The jury, which had only been deliberating for a couple of hours, had clearly concluded that Microsoft had infringed on i4i's patents with some versions of its flagship Word software since the early 2000s. All that was left was to tote up the damages: $200 million (U.S.) for i4i, a 30-employee David to Microsoft's Goliath.
Unfortunately, real-life courtroom conflicts are rarely as quick and colourful as My Cousin Vinny. There are often several sequels-messy, grinding, expensive and inconclusive sequels. As of early September, i4i, which is mostly owned by chairman Loudon Owen's venture capital firm, McLean Watson, and i4i's founder and chief technology officer, Michel Vulpe, still hadn't collected a penny. But the company was on a roll. In August, Judge Davis increased the award to $290 million (U.S.). He also issued a permanent injunction-the first ever directed at Microsoft-ordering the company to, in effect, stop selling all current versions of its Word and Office software packages in the United States by Oct. 10. That's no small hit: Office generated $17 billion (U.S.) in worldwide sales for Microsoft last year.
Judge Davis's decision set the stage for what looked like a decisive showdown in late September. In August, Microsoft asked for relief from the U.S. Court of Appeals for the Federal Circuit in Washington. The court usually waits months to hear a case, but it ordered an expedited hearing for Sept. 23-two days before the publication date of this issue of Report on Business. The balance tipped toward Microsoft on Sept. 3, when it was granted a temporary stay against the injunction. Indeed, by the time you read this, several developments (about which more later) could have coloured i4i's victory. But the significance of the original verdicts for the tech industry will remain, according to patent lawyers and industry executives.
"The damages are breathtaking," says Harold Wegner, a partner at Boston-based Foley & Lardner, and an expert in patent law. "This case is a poster child for patent reform." Many legislators in Washington want to severely rein in the ability of plaintiffs to sue in any out-of-the-way jurisdiction they like, often winning eye-popping damages. Although i4i only won in May and August at the trial level, which Wegner calls "the bottom of the food chain," he says the case will be "paraded around Capitol Hill."
Demands for patent reform-long stalemated in Congress-point to the inability of the current process to keep up with innovation that, by nature, is much harder to pinpoint than in Thomas Edison's day. Accordingly, litigation has exploded-to the point where, for some companies, it's more crucial to the enterprise than the original reason it went into business.
Microsoft is not talking to the press about the case. Even if Microsoft ultimately prevails, i4i's victories in the early rounds may touch off a new wave of lawsuits against corporate giants by so-called patent trolls-venture capitalists, lawyers and others who comb through patent filings looking for software, formulas and other features similar to those in products made by big companies, and who then sue them for infringement. But if Microsoft executives ever assumed that Vulpe and Owen were trolls, or the sort of folks who would cave under relentless and expensive legal pressure, they now know they made a huge mistake.
At issue is U.S. Patent No. 5,787,449-"Method and system for manipulating the architecture and the content of a document separately from each other." That isn't a bad title. (The formal company name is pretty transparent too: Infrastructures for Information.) i4i's software allows users to customize the extensible markup language (XML) code embedded in documents-code that tags the information within, and which, with i4i's software, can be used to search through and alter a database without delving into each document.
