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Appeals court revisits Eolas decision

update Microsoft claims victory in high-profile Web browser patent dispute; $565 million verdict may fall.

update A federal appeals court partially reversed a lower-court decision that had exposed Microsoft to $565 million in damages.

The patent infringement case, brought by the University of California and its Eolas Technologies spinoff, had riled the Web over potential ripple effects that could have forced changes in millions of Web pages that use plug-in applications like Macromedia Flash and Adobe Acrobat that run inside the browser.

Both sides claimed victory in the mixed ruling, which reversed part of the lower-court ruling, affirmed other parts of it, vacated the decision as a whole and sent it back for a new trial.

"We cleared most of the serious issues, so I would consider this a victory for the university," UC spokesman Trey Davis said. "On the issues that would have mattered most to Microsoft, they lost."

Microsoft said that, on the contrary, the company had won on the most important points, particularly its claim that UC's patent was predated by similar technology by artist and software engineer Perry Pei-Yuan Wei.

"It's a huge victory," said Andy Culbert, Microsoft's associate general counsel for patent litigation. "The essence of our defense was that this patent was invalid, based on the good work done by Pei Wei, and the court of appeals has completely vindicated our assertions. We are looking forward to establishing the invalidity and unenforceability of this patent when the case is remanded."

The appeals court said the lower court had incorrectly kept Microsoft from showing the jury the Viola browser. That browser was written by Wei in 1993, a year before the filing date of the UC patent, when he was a student at the University of California at Berkeley.

According to Microsoft, Viola constituted "prior art," or technology both older than the patent and similar to what it claims. A finding of prior art can invalidate a patent.

But the jury in the lower court didn't hear about Viola because district court Judge James Zagel ruled that Wei had "abandoned, suppressed or concealed" his browser, therefore invalidating it as prior art.

The appeals court on Wednesday ruled that because he showed the browser to a group of Sun Microsystems engineers, Wei couldn't be said to have suppressed or concealed his work. The appeals court also said Wei's posting of a new version of Viola did not constitute "abandonment," as the district court had ruled.

The appeals court reversed the lower court's decision that Viola didn't anticipate the UC patent, sounding a testy note in sending the issue back for a jury's consideration.

"This court hesitates to disturb the district court's role in assessing evidence, but anticipation is a question of fact," the decision said. "Accordingly, this particular determination lay within the province of the jury."

In another win for Microsoft, the appeals court ruled that the lower court had erred in dismissing the company's claim of inequitable conduct against Eolas inventor and former UC researcher Mike Doyle.

At the district court proceedings, the company had claimed that Doyle, when he filed the patent application originally, had misled the U.S. Patent and Trademark Office by withholding information about the Viola browser. The lower court had thrown out the charge based on its finding that Viola didn't constitute prior art.

By reversing that decision, the appeals court opened another avenue for Microsoft to prevail in the new trial. Attorneys familiar with the case said that if Doyle is found to have deceived the patent office, the patent will be rendered unenforceable.

The World Wide Web Consortium (W3C), which successfully urged the patent office to reconsider the UC patent in an ongoing re-examination, hailed Wednesday's ruling as a step in the right direction.

"This is very good news," said Daniel Weitzner, the W3C's technology and society domain leader. "It's one more step toward certainty that this patent is not going to threaten interoperability on the Web. It doesn't close the matter either for Microsoft or for UC, and it has no particular impact in the PTO re-examination. But it decreases the risk to the Web that much more."

Microsoft lost on two key points. The first was a dispute over whether or not the patent applied to programs that couldn't be run independently, such as spellchecking components and other DLLs, or dynamic link libraries. The district court had ruled that the patent did apply to those kinds of programs, giving the UC patent much broader application, and the appeals court upheld it on that point.

Microsoft also lost on the issue of whether or not copies of IE distributed abroad after being copied in a foreign country from a "golden master" disk were subject to U.S. patents.

The appeals court upheld the lower court's determination that those copies are indeed subject to the patent. Foreign distribution accounted for about two-thirds of UC's now vacated $565 million judgment.

One patent attorney not involved in the case said that while the decision was on the whole a win for Microsoft, the company's options would be significantly narrower the second time around at the district court.

"I think that the decision is a reprieve for Microsoft, rather than a full victory," said Steven Glassman, a patent attorney with Kaye Scholer in New York City. "While Microsoft can obviously prevail at a new trial, the outcome is uncertain. Microsoft would start with a significant disadvantage before a jury, since the appeals court affirmed the finding of infringement."

This time, Glassman said, Microsoft will only be able to argue that the patent is invalid.