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Court Revives Uniloc Vs. Microsoft Patent Dispute

A three-judge federal circuit court issued an opinion today that will like renew a legal skirmish between Uniloc and Microsoft over patented software product activation technology.

The court reviewed a September ruling by Judge William E. Smith of the U.S. District Court for Rhode Island, which voided on appeal the $388 million in damages that had been awarded by a jury to Uniloc. Microsoft was found by the jury to have willfully infringed U.S. Patent No. 5,490,216, an antipiracy software technology invented by Uniloc. The patent was found to have been violated in Microsoft Word XP and Word 2003, as well as the Windows XP operating system.

Judge Smith had voided the award, claiming that the jury "lacked a grasp of the issues before it." However, today's federal circuit court opinion (PDF download) indicated that "the jury's verdict on infringement was supported by substantial evidence." It disagreed that the infringement was "willful," and affirmed the need for a new trial on damages.

The Jan. 4 federal circuit court opinion also opened a legal can of worms for Uniloc by throwing out the "25 percent rule," which was the method used during the trial for calculating damages. The 25 percent rule assumes that the infringing party would pay 25 percent of a product's profits to the patent holder. However, the court dismissed it as groundless.

"Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue," the opinion explains on page 42.

Despite losing its appeal in the case, Microsoft issued a statement that was far from glum. David Howard, a Microsoft corporate vice president and deputy general counsel for litigation, cited the elimination of the 25 percent rule as particularly "helpful."

"This is an important and helpful opinion with respect to the law of damages, and it may signal the end of unreasonable and outsized damages awards based on faulty methodology," Howard said in a released statement. "For example, the Federal Circuit found that product revenues cannot be admitted unless the accused feature is first determined to be the basis for consumer demand. Expert testimony relying on the 25% rule was determined to be 'fundamentally flawed' and inadmissible. Moreover, the Federal Circuit reinforced the basic concept of the trial court as gatekeeper by emphasizing that once a court determines an expert's methodology is faulty, the court must exclude that testimony. We look forward to the new trial."

Brad Davis, CEO of Irvine, Calif.-based Uniloc USA, affirmed that the next step was a new trial on damages. He explained that the federal circuit court had not exactly thrown out the tripled penalty associated with willful infringement, but the opinion had "a similar result."

"The Federal Circuit affirmed the lower court's grant of JMOL [judgment as a matter of law] for no willfulness," he stated in an e-mail. "Under a willfulness ruling, up to treble damages are at the discretion of the court, but the lower court in our case had yet to rule on any enhancement of damages based upon willfulness."

Uniloc, based in both Singapore and California, has other lawsuits pending based on its patented device-based security technology. Defendants include companies such as Intuit, Electronic Arts, Adobe, Symantec and CA Technologies.

About the Author

Kurt Mackie is senior news producer for the 1105 Enterprise Computing Group.

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