Patent logic in Lucent case may benefit Microsoft in its Word appeal

Two weeks ago, the Federal Circuit Appeals court struck down a huge jury verdict against Microsoft, on the basis that the jury didn't appear to use a real-world formula for determining infringement damages. If it had, it might not have come up with $357,693,056.18, the judges there stated. In the same appeals court this morning but in a different case, as reported separately by Reuters and by Bloomberg, Microsoft's lawyers were all prepared to argue that they could not have infringed upon a patent for XML tag storage, as former partner i4i alleged, because no one in the company had actually seen the patent.

But they may as well have come to court stone-cold silent, as the issue Judge Kimberly Moore raised, according to both reports, was whether i4i's experts came up with a real-world formula for calculating damages. Citing the very same case that these same judges would cite in overturning the Alcatel-Lucent ruling, i4i argued that its expert figured that a company that borrows a patented invention generally owes the inventor about one fourth of its profits.
As i4i's citation explicitly read, "When an inventor allows someone else to use [his] invention, [he'll] keep 25 percent of the profits from the sale of that infringing product."

I4i had produced an XML tag editor that had been used with a previous version of Microsoft Word; Microsoft later replaced it with one of its own in all versions of Microsoft Office, though i4i claims that replacement infringes upon its exclusive patent. Had i4i's product been included instead, that company's expert estimated that it might have been used by some 2.1 million customers. Two-point-one million times about a fourth of the average price per copy of Office -- about $98 -- comes up to about $200 million.

Maybe you've already caught some of the stretches in that formula, and apparently the judges' eyebrows were raised here as well. That would assume that everyone would have been happy to pay at least $400 for Word (or for Office with Word), which is a calculation about "the whole market" (a phrase used in the Alcatel-Lucent analysis) that could be too much of an assumption. "Not everyone who is willing to pay $90 or $200 for a product is willing to pay $500," Reuters quotes Judge Moore as having said.

At one point, according to Bloomberg's reporting, when Microsoft's lawyers attempted to proceed on their original plan to argue that the Texas district court judge was unfair, Judge Moore stopped them to say their argument didn't apply here -- that the appeals court could only focus on the jury's conduct, not the judge's. That could very well have been an admonition to the attorneys to stop while they're ahead.

This isn't to say that Microsoft could emerge from this case completely clean, as Reuters also noted Judge Alvin Schall on the panel expressed deep skepticism as to Microsoft's attorneys' arguments that the company had not seen i4i's patent.