Eolas, Microsoft make their case--again

Microsoft will argue that similar technologies, or "prior art," were demonstrated before Eolas filed its patent application--and the software giant may find friendly ears on a key portion of its argument with the three-judge panel selected to hear its appeal.

"We respectfully contend that the district court committed multiple errors, and we've requested the court to reverse the judgment and remand the case for a new trial," said Microsoft spokesman Jim Desler in advance of Thursday's brief oral presentation before the court of appeals. "Microsoft has maintained throughout these proceedings that the Eolas patent is neither valid nor infringed, and we believe the lower court ruling should be reversed."

Eolas referred questions to its attorneys, who did not return calls. UC spokesman Trey Davis said, "We're happy to wait for the court to rule on this," and declined to comment further.

UC and its Eolas spinoff won a $521 million judgment--later upped to $565 million--against Microsoft last year when a U.S. District Court in Chicago ruled that Microsoft's Internet Explorer browser infringed on an Eolas patent for opening third-party applications, or "plug-ins," within a browser.

With their win at the district court, UC and Eolas set off alarm bells throughout the online community as Web developers faced the prospect of Microsoft's altering IE in such a way that would break millions of Web pages. The suit also heightened a long-running debate within the software industry over the role of patents and the whole notion of intellectual property on the Web.

In January, the district court reaffirmed its judgment against Microsoft. In June, Microsoft appealed.

Microsoft's appeal rests on three arguments.

The first is the company's contention that the district court wrongly excluded from the jury's consideration certain evidence of prior art. While several technologies have been bandied about as potential prior art in the Eolas case, the technology Microsoft tried and failed to show the jury is an early Web browser called Viola created by a computer programmer and artist named Pei Wei.

Microsoft also will argue that the District Court improperly construed the claims of the patent. Microsoft contends that the patent examiner granted the Eolas patent only as the plug-in system related to standalone executable applications, and that only dependent programs are responsible for invoking plug-ins in IE.

"It is undisputed that ActiveX controls, applets and plug-ins are components and not standalone applications," Microsoft wrote in its brief to the appeals court. "This court--applying a proper construction of the claims--should therefore hold as a matter of law that the accused products do not infringe."

The last of Microsoft's three arguments may be well received by the court of appeals. The company will argue that the district court

Should the appeals court uphold the lower court on the first two of Microsoft's arguments, a victory for the software giant on this third point would slash its damages to between $100 million and $200 million, according to the company.

The issue of considering foreign sales in U.S. patent infringement awards has seen significant attention by the courts since the district court handed down its ruling. Most agree that Microsoft's position will benefit from both a recent ruling and the track records of the three judges assigned to hear the appeal.

Eolas and UC "face an uphill battle," Hal Wegner, a Foley & Lardner attorney and George Washington University Law School adjunct professor, wrote in a recent note on "Patent Infringement Extraterritoriality." He added: "Folks in Washington clearly must be smiling based upon having dodged a bullet on panel composition."

The precedent that may have Microsoft's lawyers smiling is Pellegrini v. Analog Devices, a July decision in which the court of appeals ruled that in order for offshore distribution of American products to be subject to domestic patents, components of the products in question have to be physically present in the United States and then shipped overseas.

The court is unlikely to apply that description to Microsoft's distribution of Windows and Internet Explorer, according to Wegner. That's because Microsoft ships a so-called golden master copy of the software to its overseas offices and produces the product there by making copies from it.

A second decision on extraterritoriality, NTP Inc. v. Research in Motion Ltd., could be handed down at any time by the federal circuit.

The three-judge panel selected to hear Microsoft's appeal will be presided over by Judge Randall Rader--an appointee of former president George Bush--who not only joined the Pellegrini opinion but served the U.S. Senate as counsel for the Subcommittee on the Constitution and the Subcommittee on Patents, Trademarks and Copyrights while the extraterritoriality law invoked in Pellegrini was drafted.

Another judge on the panel, Judge S. Jay Plager, has joined Rader on other decisions that limited the applicability and reach of U.S. patents. The third judge, Judge Daniel Friedman, also has ruled strictly on patent cases.

Even if Microsoft wipes out on all its arguments at the court of appeals, it could still dodge the UC-Eolas bullet in one of two ways.

The first, more difficult, avenue is an appeal to the U.S. Supreme Court.

The second way around Eolas and UC is the re-examination of the patent initiated 13 months ago by the director of the U.S. Patent and Trademark Office.

In that process, Microsoft has already won two rounds after the patent office recognized the validity of a different example of potential prior art. Eolas and UC have another chance to argue their case in this round of the re-exam, and could appeal an unfavorable decision.