United States: Underscoring Necessity Of Filing Pre-Verdict JMOL Motions, Federal Circuit Upholds Permanent Injunction, $240 Million Damages Award Against Microsoft

The pivotal rulings by the Federal Circuit relate to validity and damage issues.

On December 22, 2009, the U.S. Court of Appeals for the Federal Circuit upheld a permanent injunction and a $240 million damages award against Microsoft for patent infringement in connection with certain versions of MS Word software that offer XML editing functionality. i4i Ltd. v. Microsoft Corp., Case No. 09-1504 (Fed. Cir. Dec. 22, 2009) (Prost, J.) The Federal Circuit held that by failing to file certain pre-verdict judgment as a matter of law motions, Microsoft waived two pivotal issues for appeal.

Earlier this year, the district court (Eastern District of Texas) entered an injunction against Microsoft, ordering it to stop selling versions of MS Word that included an infringing editing function. Almost immediately, the Federal Circuit stayed that injunction pending appeal. In its decision on the merits, the Federal Circuit affirmed the district court findings on validity and willful infringement as well as its award of permanent injunctive relief and enhanced damages. The pivotal rulings by the Federal Circuit relate to the validity and damage issues.

Validity

Microsoft's pre-verdict JMOL motion on invalidity only included arguments for anticipation based on the on-sale bar, but did not include arguments regarding obviousness and other prior art references. In its decision, the Federal Circuit reminds us that "a party must file a pre-verdict motion on all theories, and with respect to all prior art references, that it wishes to challenge with a post-verdict JMOL." Because Microsoft waived its right to challenge the factual findings underlying the obviousness verdict, the appellate court presumed all the underlying factual disputes—none of which were explicitly enumerated in the jury verdict form—were resolved by the jury in i4i's favor, and affirmed the district court's ruling on the validity of i4i's patent.

Damages

Microsoft also waived its right to appeal the damages amount, which was based on the i4i expert's claimed royalty rate of $98 per sale of MS Word. The Federal Circuit explained that in terms of evidentiary review, its hands were tied. "Had Microsoft filed a pre-verdict JMOL, it is true that the outcome might have been different. Given the opportunity to review the sufficiency of the evidence, we could have considered whether the $200 million damages award was 'grossly excessive or monstrous' in light of MS Word's retail price and the licensing fees Microsoft paid for other patents." However, because of the waiver, the Federal Circuit could not scrutinize or modify the damage award as it did recently in Lucent Technologies, Inc. v. Gateway, Inc.

The Federal Circuit also upheld $40 million in willfulness damages, raising the value of i4i's total award to $240 million. In regard to the enhanced damages, the Federal Circuit noted that since the jury had found willfulness, the district court had the authority to award as much as treble damages, and that the decision to enhance damages by $40 million was within its discretion. As those who followed the case may recall, in awarding enhanced damages, the district court (Judge Davis) had unkind things to say about Microsoft trial counsel's argument to the jury, comparing i4i to a bank seeking a bailout.

Injunction

After analyzing the eBay factors, the Federal Circuit affirmed the permanent injunction set the injunction to become effective January 11, 2010. At that time Microsoft must stop instructing how to use and stop selling infringing versions of MS Word, i.e., versions that include i4i's XML editing technology. However, those who purchased MS Word prior to the injunction may still use all of the features in MS Word as purchased and receive technical support.

According to Microsoft's December 22, 2009, press release, the "little-used feature" has already been removed from the beta version of Office 2010, and it is updating Office 2007 to comply with the deadline.

Click here (www.cafc.uscourts.gov/opinions/09-1504.pdf) to download the opinion.

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