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December 22, 2009

Unpreserved

i4i sued Microsoft for a pissant feature in Word: editing custom XML. But to i4i's business, the feature was puissant. A seven-day trial found Microsoft willfully infringing a valid patent, with a jury award of $200 million. "Although statutorily authorized to triple the jury's damages award because of Microsoft's willful infringement, the district court awarded only $40 million in additional damages. It also granted i4i's motion for a permanent injunction." The inevitable appeal, widely expected to go more Microsoft's way than not, did not. Procedural fumbling by supposedly the best lawyers money can buy sold Microsoft short. Herein, CAFC case law heavy on burden and sufficiency, in a case practically covering the gauntlet of patent enforcement.

i4i v. Microsoft (CAFC 2009-1504) precedential

Since 2003, versions of Microsoft Word, a word processing and editing software, have had XML editing capabilities. In 2007, i4i filed this action against Microsoft, the developer and seller of Word.

Microsoft loaded the appeal's plate with all the fare that comprises dire dishes of despair: claim construction, validity, infringement, damages, and injunctive relief. For its prodigious appetite, all Microsoft got was dessert: humble pie.

Claim Construction

Microsoft's lynchpin claim term was "distinct." Microsoft had wanted a narrow, and hence non-infringing, construction for "distinct," constrictions related to storing the XML code and the ability to edit it. There was scant support in the claims, specification, or prosecution history for Microsoft's construction.

Generally, a claim is not limited to the embodiments described in the specification unless the patentee has demonstrated a "clear intention" to limit the claim's scope with "words or expressions of manifest exclusion or restriction." Liebel-Flarsheim, 358 F.3d at 906; see also Teleflex, Inc. v. Ficosa N. Am. Corp., 299 F.3d 1313, 1327 (Fed. Cir. 2002). By the same token, not every benefit flowing from an invention is a claim limitation. See Computer Docking, 519 F.3d at 1374; Verizon Servs. Corp. v. Vonage Holding Corp., 503 F.3d 1295, 1302-03 (Fed. Cir. 2007).

i4i's subsequent discussion of the benefits of separate storage is not sufficiently "clear and unmistakable" to disavow embodiments lacking independent manipulation. Purdue Pharma, 438 F.3d at 1136.

Validity

The claims were all found valid. Microsoft wanted a second bite at poisoning the apple.

Microsoft also appeals two issues regarding the validity of i4i's patent. The first is whether the invention would have been obvious to one of skill in the art. The second is whether Microsoft is entitled to JMOL or a new trial on validity, due to anticipation by a software program called S4.

To obviousness, and other issues, Microsoft hadn't preserved error.

In this case, Microsoft has waived its right to challenge the factual findings underlying the jury's implicit obviousness verdict because it did not file a pre-verdict JMOL on obviousness for the Rita, DeRose and Kugimiya references. Fed. R. Civ. P. 50(a), (b). As we explained in Duro-Last, a party must file a pre-verdict JMOL motion on all theories, and with respect to all prior art references, that it wishes to challenge with a post-verdict JMOL. 321 F.3d at 1107-08. Microsoft's pre-verdict JMOL on anticipation, based on S4, was insufficient to preserve its right to post-verdict JMOL on a different theory (obviousness), or on different prior art (Rita, DeRose, Kugimiya). Duro-Last, 321 F.3d at 1107-08.

Accordingly, we do not consider whether the evidence presented at trial was legally sufficient to support the jury's verdict. Our review is limited to determining whether the district court's legal conclusion of nonobviousness was correct, based on the presumed factual findings. Id. at 1108-09; Kinetic Concepts, Inc. v. Blue Sky Med. Group, Inc., 554 F.3d 1010, 1020-21 (Fed. Cir. 2009). In conducting this review, we must presume the jury resolved underlying factual disputes in i4i's favor because the jury made no explicit factual findings. Duro-Last, 321 F.3d at 1108. This presumption applies to disputes about (1) the scope and content of the prior art; (2) differences between the prior art and asserted claims; (3) the existence of motivation to modify prior art references; and (4) the level of ordinary skill in the pertinent art. Id. at 1109; see also Graham v. John Deere Co., 383 U.S. 1, 17 (1966); Kinetic Concepts, 554 F.3d at 1019.

In light of the jury's implicit factual findings, Microsoft has not established that the asserted claims would have been obvious.

The S4 software, developed with the involvement of an inventor of '449, had been found wanting as anticipatory.

On appeal, Microsoft argues that it was entitled to JMOL because it established a prima facie case of anticipation, which i4i could not rebut by relying on the inventors' testimony alone, absent corroboration. Alternatively, Microsoft contends the evidence was not sufficient to support the jury's verdict of validity.

Prone to trying to twist case law to its own ends, Microsoft failed to bamboozle here. To bolster an assertion of on-sale bar, Microsoft used a previous case of trying to overcome prior art by claiming a pre-filing invention date. Lawyers holding the shit end of the stick feel beholden to walk the tightrope between creatively clever and disingenuously dunderheaded.

Microsoft's contention regarding a prima facie case and i4i's "rebuttal" misunderstands the nature of an anticipation claim under 35 U.S.C. § 102(b). Anticipation is an affirmative defense. See, e.g., Electro Med. Sys., S.A. v. Cooper Life Scis., Inc., 34 F.3d 1048, 1052 (Fed. Cir. 1994). We do not agree that i4i was required to come forward with corroboration to "rebut" Microsoft's prima facie case of anticipation. Corroboration is required in certain circumstances. See, e.g., Martek Biosciences Corp. v. Nutrinova, Inc., 579 F.3d 1363, 1374-76 (Fed. Cir. 2009) ("Because Lonza sought to introduce the testimony of an alleged prior inventor under § 102(g) for the purpose of invalidating a patent, Lonza was required to produce evidence corroborating Dr. Long's testimony."); Procter & Gamble Co. v. Teva Pharms. USA, Inc., 566 F.3d 989, 989-99 (Fed. Cir. 2009) (requiring corroboration where patentee tried to prove that the conception date was earlier than the filing date of a potentially anticipatory patent); Henkel Corp. v. Procter & Gamble Co., 560 F.3d 1286 (Fed. Cir. 2009) (interference); Symantec Corp. v. Computer Assocs. Int'l, Inc., 522 F.3d 1279, 1295-96 (Fed. Cir. 2008) ("An alleged co-inventor's testimony, standing alone, cannot rise to the level of clear and convincing evidence; he must supply evidence to corroborate his testimony."). However, this is not a case where witness testimony was being used to overcome prior art by establishing an earlier date of invention.

To support its argument that S4 practiced the '449 patent, Microsoft offered testimony by a former i4i employee and its expert. i4i responded with evidence, specifically testimony by S4's inventors, that S4 did not practice the claimed method. Though we require corroboration of "any witness whose testimony alone is asserted to invalidate a patent," Finnigan Corp. v. Int'l Trade Comm'n, 180 F.3d 1354, 1369-70 (Fed. Cir. 1999) (emphasis added), here the inventor testimony was offered by i4i in response to Microsoft's attack on the validity of the '449 patent. It was not offered to meet Microsoft's burden of proving invalidity by clear and convincing evidence. Cf. TypeRight Keyboard Corp. v. Microsoft Corp., 374 F.3d 1151, 1159-60 (Fed. Cir. 2004); Tex. Digital Sys., Inc. v. Telegenix, Inc., 308 F.3d 1193, 1217 (Fed. Cir. 2002); Finnigan, 180 F.3d at 1367. We know of no corroboration requirement for inventor testimony asserted to defend against a finding of invalidity by pointing to deficiencies in the prior art. Accordingly, we hold that corroboration was not required in this instance, where the testimony was offered in response to a claim of anticipation and pertained to whether the prior art practiced the claimed invention.

Self-serving to a fault, socially unconscious Microsoft seeks to service its frequent infringement by trying to lower the bar to proving invalidity. The CAFC would have none of it.

Microsoft also challenges the jury instructions on its burden of proving anticipation. According to Microsoft, the burden of proof should have been less for prior art that was not before the PTO, as was the case for Rita and DeRose.

We conclude that the jury instructions were correct in light of this court's precedent, which requires the challenger to prove invalidity by clear and convincing evidence. See, e.g., Zenith Elecs. Corp. v. PDI Commc'n Sys., Inc., 522 F.3d 1348, 1363-64 (Fed. Cir. 2008). This court's decisions in Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301, 1311-16 (Fed. Cir. 2009), and Technology Licensing Corp. v. Videotek, Inc., 545 F.3d 1316, 1327 (Fed. Cir. 2008), make clear that the Supreme Court's decision in KSR International Co. v. Teleflex Inc., 550 U.S. 398, 426 (2007) did not change the burden of proving invalidity by clear and convincing evidence. Thus, based on our precedent, we cannot discern any error in the jury instructions.

Infringement

Microsoft argued, in error, error in jury instruction. Microsoft's argument was over a difference without distinction.

The corresponding statutory section, 35 U.S.C. § 271(c), uses the words "material or apparatus," not "component," for patented processes. Although the district court's instructions differed from the statute, this is not a case where the difference mattered. See Baker, 536 F.3d at 363-64 (reversing a jury verdict "only if the charge as a whole creates a substantial doubt as to whether the jury has been properly guided in its deliberations"). The parties' infringement arguments did not turn on whether Word's custom XML editor was a "component," versus a "material or apparatus." Nor is there any reason to think the jury was aware of the difference, or would have viewed the difference as anything but semantics had it known, because both parties used the terms interchangeably at trial. Under these circumstances, we are satisfied that the instruction properly guided the jury in its deliberations.

Microsoft also argues that the district court erred by instructing the jury to focus on the custom XML editor, rather than all of Word, when deciding whether any noninfringing uses were "substantial." Given the evidence presented at trial, the district court did not abuse its discretion. As we explained in Lucent, a particular tool within a larger software package may be the relevant "material or apparatus" when that tool is a separate and distinct feature. 580 F.3d at 1320-21. In Lucent, the infringement inquiry accordingly focused on the date-picker, even though that tool was included in Microsoft Outlook, a larger software package. Id. Although the software differs, our reasoning in Lucent applies equally here. At trial, i4i showed that some versions of Word 2003 included the custom XML editor, while others did not. Dr. Rhyne opined that this ability to "leave [the editor] out or put it in" various Word products showed that the editor was a separate and distinct feature. Thus, there was sufficient evidence before the jury for it to conclude that the relevant "material or apparatus" was the custom XML editor, not all of Word. Accordingly, the jury was properly instructed that it should focus on the editor, not all of Word. See Ricoh Co. v. Quanta Computer Inc., 550 F.3d 1325, 1337 (Fed. Cir. 2008).

Microsoft challenged "the sufficiency of evidence supporting the jury's general verdict of infringement" by arguing a mangling of the law. The court held, as it has before, that a jury is given the benefit of a doubt in weighing the evidence.

Infringement is a question of fact. Because infringement was tried to a jury, we review the verdict only for substantial evidence. ACCO Brands, Inc. v. ABA Locks Mfrs. Co., 501 F.3d 1307, 1311 (Fed. Cir. 2007).

Before we consider the evidence, we pause briefly to address what errors are fatal to a general verdict. Different rules apply depending upon whether the flaw is in the legal theory or the evidence. We must set aside a general verdict if the jury was told it could rely on any of two or more independent legal theories, one of which was defective. Walther, 952 F.2d at 126; see Northpoint Tech., Ltd. v. MDS Am., Inc., 413 F.3d 1301, 1311-12 (Fed. Cir. 2005). However, we will not set aside a general verdict "simply because the jury might have decided on a ground that was supported by insufficient evidence." Walther, 952 F.2d at 126 (emphasis added). We will uphold such a verdict if there was sufficient evidence to support any of the plaintiff's alternative factual theories; we assume the jury considered all the evidence and relied upon a factual theory for which the burden of proof was satisfied. See Northpoint Tech., 413 F.3d at 1311-12.

In this case, Microsoft argues that the general verdict must be set aside unless both of i4i's alternative legal theories, contributory infringement and induced infringement, are supported by substantial evidence. We disagree: the verdict must be upheld if substantial evidence supports either legal theory. Microsoft's argument fails to distinguish between defects in legal theories and defects in the factual evidence. In this case, the jury was instructed that it could rely on any of three legal theories--direct, contributory, or induced infringement. All of these theories are legally valid and the corresponding instructions on each were proper. Because the jury could not have relied on a legally defective theory, the only remaining question is whether there was sufficient evidence to support either of i4i's independently sufficient legal theories, contributory infringement or induced infringement. We conclude that there was.

The forms of infringement: direct, contributory, and inducing. The tally: i4i  = 3; Microsoft = 0.

To succeed on a theory of contributory or induced infringement, i4i was required to show direct infringement of the '449 patent. Lucent, 580 F.3d at 1317; see also Glenayre Elecs., Inc. v. Jackson, 443 F.3d 851, 858 (Fed. Cir. 2006). Because the claims asserted by i4i are method claims, Microsoft's sale of Word, without more, did not infringe the '449 patent. Lucent, 580 F.3d at 1317. Direct infringement occurs only when someone performs the claimed method. Id.

For contributory infringement, the question is whether there is substantial evidence to support a finding under this theory. A party is liable for contributory infringement if that party sells, or offers to sell, a material or apparatus for use in practicing a patented process. That "material or apparatus" must be a material part of the invention, have no substantial noninfringing uses, and be known (by the party) "to be especially made or especially adapted for use in an infringement of such patent." 35 U.S.C. § 271(c); Cross Med. Prods., Inc. v. Medtronic Sofamor Danek, Inc., 424 F.3d 1293, 1312 (Fed. Cir. 2005).

Though we need not reach this theory because substantial evidence supports i4i's theory of contributory infringement, we do so for the sake of completeness. On appeal, the sole question is whether there is substantial evidence to support a verdict of induced infringement. To prove inducement, the patentee must show direct infringement, and that the alleged infringer "knowingly induced infringement and possessed specific intent to encourage another's infringement." MEMC Elec. Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420 F.3d 1369, 1378 (Fed. Cir. 2005); see 35 U.S.C. § 271(b).

At the end of the day, its lawyers well exercised and purses bulging from the good clean fun of trying to sew a silk purse from a sow's ear, Microsoft shells out again for patent infringement.

Damages

Microsoft protested the damages award every way possible. Well, not possible, in this case.

The common way to damage damages is to assail the expert proffering damages, as Microsoft did here.

To determine whether expert testimony was properly admitted under Rule 702 of the Federal Rules of Evidence, we use the framework set out in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589-90 (1993).2 Daubert requires the district court ensure that any scientific testimony "is not only relevant, but reliable." Id. at 589; see also Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141-42 (1999). When the methodology is sound, and the evidence relied upon sufficiently related to the case at hand, disputes about the degree of relevance or accuracy (above this minimum threshold) may go to the testimony's weight, but not its admissibility. Knight v. Kirby Inland Marine Inc., 482 F.3d 347, 351 (5th Cir. 2007); Moore v. Ashland Chem. Inc., 151 F.3d 269, 276 (5th Cir. 1998) (en banc).

2 An expert witness with "scientific, technical, or otherwise specialized knowledge," may testify and form an opinion "if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods; and (3) the witness has applied the principles and methods reliably to the facts of the case." Fed. R. Evid. 702.

i4i's expert, Dr. Wagner, came in with a soaring estimate as to the value of infringement, by using a sleight-of-hand product substitution that five times the price of Word. And so artfully done that the tail stayed pinned on the donkey.

At trial, the parties hotly disputed the correctness of the $98 royalty rate. Microsoft argued that this rate was exorbitant given the price of certain Word products, which could be as little as $97... Wagner testified that he first chose an appropriate "benchmark" in order to value Microsoft's use of the claimed invention at the time of the hypothetical negotiation. Wagner chose a product called XMetaL as his benchmark, which had a retail price of $499. To calculate the licensing fee, Wagner multiplied the price of XMetaL ($499) by Microsoft's profit margin (76.6%), based on his assumption that any licensing fee would be a fraction of the profits.

Regarding the benchmark, Wagner explained that he chose XMetaL because it was the product Microsoft bought and used before developing its own custom XML editor, it was the cheapest of the custom XML editors available on the market at the time, and it was one of three principal competitors Microsoft identified in the custom XML market. Microsoft contended that a better estimate of the custom XML editor's value was $50, the difference in price between versions of Word with and without the editor. Microsoft also argued that because XMetaL has many additional features besides custom XML editing, the $499 retail price overestimated the value of the custom XML editor. In response, Wagner acknowledged that not all users of custom XML would have switched to a high-end product like XMetaL, but that those "who really needed that functionality" would have, requiring them to buy one of the commercially available products, even if it had many superfluous features. Wagner clarified that his damages estimate only considered users who "really needed" the custom XML editor, making it inappropriate to use the $50 price difference paid by all purchasers of Word, regardless of whether they infringed or not.

Ah, but the good doctor's method was impeccable. The plaintiff team did a brilliant job putting together a tight damages position.

To support his royalty calculation, Wagner adjusted the baseline royalty rate of ($96) using the factors set out in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970).3

3 These factors include: (1) royalties the patentee has received for licensing the patent to others; (2) rates paid by the licensee for the use of comparable patents; (3) the nature and scope of the license (exclusive or nonexclusive, restricted or non-restricted by territory or product type); (4) any established policies or marketing programs by the licensor to maintain its patent monopoly by not licensing others to use the invention or granting licenses under special conditions to maintain the monopoly; (5) the commercial relationship between the licensor and licensee, such as whether they are competitors; (6) the effect of selling the patented specialty in promoting sales of other products of the licensee; (7) the duration of the patent and license term; (8) the established profitability of the product made under the patent, including its commercial success and current popularity; (9) the utility and advantages of the patent property over old modes or devices; (10) the nature of the patented invention and the benefits to those who have used the invention; (11) the extent to which the infringer has used the invention and the value of that use; (12) the portion of profit or of the selling price that may be customary in that particular business to allow for use of the invention or analogous inventions; (13) the portion of the realizable profit that should be credited to the invention as opposed to its non-patented elements; (14) the opinion testimony of qualified experts; and (15) the results of a hypothetical negotiation between the licensor and licensee. Id.

So Microsoft was doing nothing but whining.

On appeal, Microsoft ably points out various weaknesses in the damage calculations by i4i's expert. At their heart, however, Microsoft's disagreements are with Wagner's conclusions, not his methodology. Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions, not guarantees of correctness. We have consistently upheld experts' use of a hypothetical negotiation and Georgia-Pacific factors for estimating a reasonable royalty. See, e.g., Micro Chem., Inc. v. Lextron, Inc., 317 F.3d 1387, 1393 (Fed. Cir. 2003); Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371, 1384 (Fed. Cir. 2001). Wagner's testimony about the acceptance of the hypothetical negotiation model among damage experts and economists, combined with his methodical explication of how he applied the model to the relevant facts, satisfied Rule 702 and Daubert. See Daubert, 509 U.S. at 593. Given Wagner's testimony about his credentials, the district court did not abuse its discretion in finding Wagner qualified to apply the methodology. See Pipitone v. Biomatrix, Inc., 288 F.3d 239, 249-50 (5th Cir. 2002). Microsoft's quarrel with the facts Wagner used go to the weight, not admissibility, of his opinion.

As with other issues in this case, Microsoft screwed its own pooch with procedural sloppiness.

Microsoft urges us to follow this court's recent decision in Lucent, 580 F.3d 1301, and hold that $200 million is not a reasonable royalty. We cannot, however, because the procedural posture of this case differs from Lucent, and that difference controls this case. Although Microsoft now objects to the size of the damages award, we cannot reach that question because Microsoft did not file a pre-verdict JMOL on damages.

There was no hesitation to rub salt in that wound.

Had Microsoft filed a pre-verdict JMOL, it is true that the outcome might have been different.

Microsoft also appealed the willfulness damages tack-on of $40 million by the parsimonious district court judge, prodded by i4i. Could be that the judge was taken aback by the jury damages award, and so tempered piling on damages. But give no credit to Microsoft, found guilty of litigation misconduct. "Here, the misconduct was improper statements by Microsoft's counsel to the jury, in defiance of the court's repeated admonitions."

The district court then analyzed the factors set out in Read Corp. v. Portec, Inc., 970 F.2d 816, 826-27 (Fed. Cir. 1992), in deciding whether to enhance damages... Although statutorily authorized to increase the award to $600 million, the district court awarded only $40 million in enhanced damages. See 35 U.S.C. § 284.

On this record, we cannot conclude that the district court abused its discretion in weighing the evidence or applying the Read factors. See Amsted Indus., Inc. v. Buckeye Steel Castings Co., 24 F.3d 178, 184 (Fed. Cir. 1994). The district court made detailed factual findings which, taken together, support its award of enhanced damages. See Jurgens v. CBK, Ltd., 80 F.3d 1566, 1570-71 (Fed. Cir. 1996). In deciding whether to enhance damages, the district court properly declined to reapply the test for willfulness set out in Seagate, 497 F.3d 1360. Although a finding of willfulness is a prerequisite for enhancing damages under § 284, the standard for deciding whether--and by how much--to enhance damages is set forth in Read, not Seagate. See 35 U.S.C. § 284; SRI Int'l, Inc. v. Advanced Tech. Labs., Inc., 127 F.3d 1462, 1468-69 (Fed. Cir. 1997); cf. Seagate, 497 F.3d at 1371. Here, the question of willfulness was submitted to the jury. Microsoft does not dispute that the jury instructions were proper under Seagate, 497 F.3d at 1371. The test for willfulness is distinct and separate from the factors guiding a district court's discretion regarding enhanced damages. Compare id., with Read, 970 F.2d at 826-27. Under the Read factors, the district court properly considered Microsoft's size and financial condition, as well as whether Microsoft investigated the scope of the patent. Id. at 827; see also Transclean Corp. v. Bridgewood Servs., Inc., 290 F.3d 1364, 1377-78 (Fed. Cir. 2002).

Permanent Injunction

i4i practices the invention claimed by asserted patent 5,787,449. That made all the difference in obtaining an injunction.

The injunction was carefully tailored.

This injunction, which this court stayed pending the outcome of this appeal, is narrow. i4i Ltd. v. Microsoft Corp., No. 2009-1504 (Fed. Cir. Sept. 3, 2009). It does not affect copies of Word sold or licensed before the injunction goes into effect. Thus, users who bought or licensed Word before the injunction becomes effective will still be able to use the infringing custom XML editor, and receive technical support from Microsoft. After its effective date, the injunction prohibits Microsoft from selling, offering to sell, importing, or using copies of Word with the infringing custom XML editor. Microsoft is also prohibited from instructing or assisting new customers in the custom XML editor's use.

We review the decision to grant an injunction, as well as the scope of that injunction, for abuse of discretion. Joy Techs., Inc. v. Flakt, Inc., 6 F.3d 770, 772 (Fed. Cir. 1993). Factual findings made in support of the injunction are reviewed for clear error; the district court's conclusion as to each eBay factor is reviewed for abuse of discretion. Acumed LLC v. Stryker Corp., 551 F.3d 1323, 1327-31 (Fed. Cir. 2008). Our review is guided by statute and well-established principles of equity. See 35 U.S.C. § 283.6 The plaintiff has the burden of showing that (1) it has suffered an irreparable injury; (2) remedies available at law are inadequate to compensate for that injury; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) the public interest would not be "disserved" by a permanent injunction. eBay, 547 U.S. at 391.

6 The Patent Act provides that courts "may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable." 35 U.S.C. § 283.

The CAFC panel addressed each of the four factors. First, irreparable harm.

It was proper for the district court to consider evidence of past harm to i4i. Past harm to a patentee's market share, revenues, and brand recognition is relevant for determining whether the patentee "has suffered an irreparable injury." Id. at 391 (emphasis added); see, e.g., Acumed, 551 F.3d at 1328-29 (considering the relevance of past licensing decisions in assessing irreparable injury); Voda v. Cordis Corp., 536 F.3d 1311, 1329 (Fed. Cir. 2008) (concluding that the patentee "had not identified any irreparable injury to himself"); Innogenetics, N.V. v. Abbott Labs., 512 F.3d 1363, 1379-80 (Fed. Cir. 2008) (analyzing whether the patentee "had been irreparably harmed"). Although injunctions are tools for prospective relief designed to alleviate future harm, by its terms the first eBay factor looks, in part, at what has already occurred. Considering past harm to a patentee does not establish a "general rule" or rely on the sort of "broad classifications" rejected by the Supreme Court in eBay; not all patentees will be able to show injury, and even those who do must still satisfy the other three factors. Cf. eBay, 547 U.S. at 393-94.

Second, inadequate remedies at law.

In this case, a small company was practicing its patent, only to suffer a loss of market share, brand recognition, and customer goodwill as the result of the defendant's infringing acts. Such losses may frequently defy attempts at valuation, particularly when the infringing acts significantly change the relevant market, as occurred here. The district court found that Microsoft captured 80% of the custom XML market with its infringing Word products, forcing i4i to change its business strategy. The loss associated with these effects is particularly difficult to quantify. Difficulty in estimating monetary damages is evidence that remedies at law are inadequate. Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 703-04 (Fed. Cir. 2008).

i4i's patent was central to its business. The balance of hardships, factor three, was clearly in its favor.

Except on the limited issue of timing, the balance of hardships favors i4i. The district court found that i4i's business is comprised "almost exclusively" of products based on the '449 patent. In contrast, Microsoft's infringing custom XML editor was found to be "merely one of thousands of features" within Word, used by only a small fraction of Microsoft's customers. The district court further found that Microsoft's infringement of the '449 patent allowed Microsoft to "corner[] the XML market."

Because the "balance of hardships" assesses the relative effect of granting or denying an injunction on the parties, the district court properly considered several factors in its analysis. eBay, 547 U.S. at 391. These factors included the parties' sizes, products, and revenue sources.

The district court's analysis properly ignored the expenses Microsoft incurred in creating the infringing products. See Acumed, 551 F.3d at 1330. Similarly irrelevant are the consequences to Microsoft of its infringement, such as the cost of redesigning the infringing products. Id. As we explained in Broadcom, neither commercial success, nor sunk development costs, shield an infringer from injunctive relief. 543 F.3d at 704. Microsoft is not entitled to continue infringing simply because it successfully exploited its infringement. Id.; see also Windsurfing Int'l v. AMF, Inc., 782 F.2d 995, 1003 n.12 (Fed. Cir. 1986).

Finally, the tailored injunction waylaid the abstraction of "public interest."

The district court's conclusion properly recognized that the touchstone of the public interest factor is whether an injunction, both in scope and effect, strikes a workable balance between protecting the patentee's rights and protecting the public from the injunction's adverse effects. Broadcom, 543 F.3d at 704. In particular, the injunction's narrow scope substantially mitigates the negative effects on the public, practically and economically.

The CAFC delayed the effective date of injunctive relief, from 60 days to five months, to give Microsoft time to implement the injunction.

Otherwise, affirmed.

Posted by Patent Hawk at December 22, 2009 8:57 PM | Case Law

Comments

Good post, particularly on how microsoft's lawyers did their job. I think the main focus should have been on damages. I didn't buy word for XML editing and I am willing to bet that 99% of the buyers don't care about xml whatsoever. In fact, I would probably pay to have the different format removed because it impacts compatibility with word 2003, so as a feature for me, this is a negative value and I would award negative damages to i4i. But it doesn't sound like this argument was made.

Posted by: critique at December 29, 2009 2:46 PM