Microsoft's Struggle With i4i Sheds Light On Software Patent Process


Microsoft's recent trials and tribulations with its Word software patent illustrates the difficulty in granting -- and defending -- software patents. This fall, Microsoft was briefly barred from selling Word because of a dispute over XML code that i4i claimed infringed on one of the Toronto, Ontario-based company's patents. That trial is ongoing. While some observers questioned why Microsoft didn't resolve the dispute early on, others are interested to see how the dispute will play out and how patent rights will be determined. recently spoke to Bill Venema, a partner at Epstein Becker Green Wickliff & Hall, a strategic counselor on business and legal issues to software development companies, and asked him to explain the ins and outs of software patent law.

In general, what is the value and purpose of software patents? Many people seem to think they are frivolous, while others contend they protect and encourage innovation.

[Patents] are essentially contracts between the inventor and the government. In exchange for disclosing how to practice the invention, the inventor obtains the right -- backed up by the government -- to exclude others from practicing it. The right usually lasts for 20 years from the filing date. To be patentable, an invention must be "new," "useful," and "non-obvious." Before applying for a patent, there are at least three questions an inventor should answer:

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-- Will having exclusive rights to the underlying invention be of value?

-- Is the invention of a type that the patent law considers to be "patentable subject matter"?

-- Is either trade-secret or copyright protection a better means to protect the intellectual property?

In exchange for getting the patent, the inventor must disclose the invention. The disclosure must reveal the overall functionality of the software, so that a programmer with ordinary skill could create the program without undue experimentation. Some inventors view such disclosure as "infringement operating instructions."

While the patent is pending, competitors can copy the ideas it embodies and build on them or around them to achieve the same result. By the time the inventor's patent is granted, competitors can be far ahead of the inventor, leaving the inventor with the expensive prospect of an infringement lawsuit that might be difficult to win.

Are there other way companies can protect themselves?

Alternatively, the inventor could rely on trade-secret law to protect the software. If trade secret (as opposed to patent) protection is used to protect the software, then the inventor must have appropriate safeguards in place, so that the software will, in fact, be classified as a trade secret by a court. Trade secrets only have value as long as they are kept secret. Moreover, if someone else develops the same software independently, then the trade-secret protection would be lost. The result is different with patents. If someone else independently develops software that is covered by a patent, then the patent protection would not be lost, and the person could be held to have infringed the software patent.

What is at the crux of the matter with the Microsoft Word - i4i complaint?

The patent concerns processing XML, a markup language that allows users to customize the underlying format of text documents. The lawsuit filed by i4i alleged that Microsoft violated that patent in its recent versions of its "Word" software. The court issued a permanent injunction that barred Microsoft from selling recent versions of "Word" and awarded i4i $290 million in damages. On September 3, 2009, the U.S. Court of Appeals for the Federal Circuit granted Microsoft a stay of the injunction, noting simply, "[T]he court determines based upon the motion papers submitted that Microsoft has met its burden to obtain a stay of the injunction." On September 23, the court heard arguments on the appeal, but has not yet decided the case.

This seems like something Microsoft could have settled long ago. In your view, why didn't they make a financial agreement and move on?

One can only guess why Microsoft did not settle this lawsuit. Alternatively, why didn't Microsoft license the technology from i4i? During the oral argument on appeal, i4i said that Microsoft had approached them in 2000. The two companies made presentations to each other concerning the possibility that Microsoft might license i4i's XML technology, but they never consummated a licensing agreement. Microsoft's lawyers claim that there is no evidence that anyone at Microsoft had even read i4i's patent. During oral argument on the appeal, at least one of the judges challenged that conclusion, stating, "I find it hard to believe that Microsoft didn't read the patent."

An interesting backdrop to i4i's appeal is another case that the Federal Circuit Court heard previously regarding patents: In re Bilski. [Oral arguments began Nov. 9.]

The Bilski case could provide the Supreme Court with an opportunity to resolve the ongoing debate over the wisdom of having software patents in the first place. At issue is whether a "process" must be tied to a particular machine or apparatus or transform a particular condition into a different state to be considered as patent-eligible subject matter.