Microsoft’s Patent Dust-Ups

For the past half dozen years, Microsoft has been busily getting its patent house in order. In a bid to protect itself against lawsuits alleging that it has infringed on other companies’ patents, Microsoft has issued more patents on its inventions and carefully set up licensing agreements with other companies to keep itself out of court. But two recent cases show that the software giant is still susceptible to allegations of infringement.

The latest involves a tiny Toronto software company called i4i in a case that threatens Microsoft’s ability to sell its word processing software Word. On Aug. 18, Microsoft asked a federal appeals court in Washington, D.C. to refrain from abiding by an Aug. 11 U.S. District Court ruling that said Microsoft couldn’t sell its word processing software in the U.S. as of October. The ruling, by a federal judge in the Eastern District of Texas, stems from a 2007 lawsuit by i4i that says Microsoft infringed on one of its patents in newer versions of Word and other products.

In addition to the injunction against selling one of its most popular products, the court ordered Microsoft to pay $290 million in damages to i4i, including a fine of $40 million after the judge ruled that Microsoft’s lead lawyer in the case made misleading statements to the jury.

While a ban on Word sales is unlikely any time soon —appeals in patent suits can stretch out for years—the ruling against Microsoft has garnered attention because Microsoft usually wins infringement cases filed against it by small companies. “It’s this kind of company against which the Microsoft patent portfolio defense should work,” says Rob Enderle, president of consulting company the Enderle Group.

In a statement e-mailed to BusinessWeek.com, Microsoft spokesman Kevin Kutz said the evidence in the case “clearly demonstrates that we do not infringe and that the i4i patent is invalid.” Microsoft is seeking an expedited review of its appeal, and an immediate stay of the injunction against Word.

The Texas dust-up over Word isn’t Microsoft’s only recent legal setback. in April, Microsoft lost a patent infringement case against computer security company Uniloc, when a federal court in Rhode Island ordered Microsoft to pay Uniloc $388 million in damages. Uniloc CEO Brad Davis told my colleague Peter Burrows recently that Microsoft was interested in buying Uniloc in the mid-‘90s, but that the price was too high. Uniloc is on track for about $25 million in sales this year, Davis says.