US court vacates another jury's huge patent verdict against Microsoft

In the second colossal overturning of a jury verdict against Microsoft this month alone, a US District Court judge in Rhode Island has completely tossed out a $388 million patent infringement ruling against Microsoft. But rather than just accept the arguments that the jury's formula was excessive -- an argument that the Federal Circuit Court of Appeals agreed with last September 11 -- the district court judge flame-broiled the case of an Australian inventor who claimed to have created keycode-driven software activation, as not only without merit but ludicrous.

Judge William Smith shot down most of inventor Uniloc's arguments, except for the one right up front. It concerned whether Microsoft's product activation system used a locally unique identifier (LUID) to represent a software license holder -- the person, not the software. Uniloc's patent described a system whereby a completely unique (or as Microsoft might put it, "globally unique") identifier represents a licensee. The randomizer in this system is supposed to be powerful enough that it would be virtually impossible for any two systems operating independently to generate the same number. (This despite the fact that, years ago, this reporter was able to accomplish this feat during a beta test of GUID.)

Microsoft's argument was that "virtually" impossible was not enough, but more importantly still, that its activation system was written in such a way that personally identifying information was excluded from the license -- intentionally, so that no one stealing a computer could reverse-engineer a software license to learn about the licensee. Judge Smith ruled, however, that a reasonable person could come to the conclusion that such a uniquely generated number tended to represent the software installed on the computer belonging to the person whose name could be looked up in the Windows account directory.
That fact, however, inevitably played into Microsoft's hands, because of how Uniloc defended its own patented method by comparing it to how DNA identifies an individual person. Microsoft's method, it turns out, isn't like DNA.

Uniloc's own expert witness testified that its patented technology generated unique values using a hashing algorithm that would utilize multiple inputs using addition. Microsoft's technique uses the MD5 algorithm, which Uniloc's own expert described as not performing the task explained in Uniloc's patent.

"A simple comparison of MD5 as a whole to the algorithm Uniloc's patent discloses clearly reveals non-equivalence," Judge Smith ruled. "While the existence of additional components or different steps does not per se preclude a structure from being considered substantially the same as another structure, the various non-additive mathematical operations in MD5 demonstrate significant (and undisputed) differences between MD5 and the summation algorithm in the '216 patent [for Uniloc], which cannot be overstated. For example, the compressive, circular shifting and mixing functions fundamentally create a more secure result compared to an algorithm based in summation as the specification discloses. Indeed, the unchallenged evidence was that MD5's hallmark is the variety of its logical and mathematical steps to obtain a more secure result. This complexity highlights the advantage of an irreversible one-way function with a fixed output, instead of an algorithm that uses a single type of reversible operation (with no fixed output), such as that disclosed in the patent."

Uniloc's case pretty much falls apart from there, because the use of a different technique than the one patented pretty much implies that Microsoft could not have acted maliciously to infringe Uniloc's patent; indeed, it could be argued that Microsoft actively worked to avoid infringement by using MD5, which Microsoft's expert explained as a superior algorithm and which Uniloc avoided contesting directly.

Instead, Uniloc's attorneys went with the strategy of trying to explain its technology in very simple terms -- perhaps too simple, relying on bits and pieces of spotlighted terms and concepts as evidence that Microsoft's entire scheme violated Uniloc's entire patented concept.
The judge called Uniloc on it: "Uniloc's approach, both to the jury and now the Court, is to boil down complex computer software programs to a kind of generic word find puzzle, that ignores how the allegedly infringing system actually works and, most important, the actual disclosure in the '216 patent. Some of these documents no doubt say MD5 and SHA-1 are a type of hash, or checksum. This is undisputed. But the fact that the word 'hash' or the phrase 'hash total' appears in the same sentence as 'addition' (in documents unrelated to PA [program activation) is beside the point in the overall picture of what the evidence showed the complex hashes in this case actually do, and whether that is equivalent to the 'by addition' structure Uniloc disclosed."

One of the areas fuzzed over using this tactic, the judge found, was the concept in Uniloc's patent that the software only becomes functional once the software is activated. Microsoft's system has historically given users a grace period, sometimes with limited or diminished functionality, before shutting off access to software; and that very fact suggests that it isn't the activation that makes the software functional in the first place.

"This grace period functionality is not trivial. For example, Office XP limits the licensee to 50 boots, and the product functions with all of its features during this time (the evidence was that on the 51st try, if the user does not activate most features become disabled). But if a user were to install the software, agree to the EULA [end user license agreement] and then not close the software for six months, it would function fully for that period of time, and have 49 boots remaining. This is clearly much more than a frisbee. The long and short of it is this: as a matter of law, PA cannot be a registration system with mode switching means as that term has been construed. Uniloc deems this conclusion a hypertechnical trap contrived by Microsoft. But in this writer's view, it is the unavoidable (and correct) result -- one that in hindsight could have, and perhaps should have, been reached when Microsoft first raised it as a summary judgment question of law for the Court, not the jury. It is undisputed that licensing of Microsoft's accused products takes place separate from and before activation."

Judge Smith evidently was capable of navigating through the most intricate details of both sides' expert arguments, including a very passable summary of how MD5 works. Perhaps neither side expected him to have such a comprehensive understanding of technology as well as the law. As the remainder of his ruling unraveled, he did take the jury to task after all for succumbing to Uniloc's appeal to the jury, which he said "elevates form over substance," in assessing damages not at $18 million or less but at $388 million. Should this case be retried, Judge Smith wrote, the evidence that led the jury to that higher figure should be deemed "irrelevant."

[This article was slightly corrected at 3:47 pm EDT September 30, 2009, to account for a missing sentence. Facts were not altered in the editing process.]