[ LA Times] Microsoft Loses UC Patent Case A jury sets damages of $520.6 million, the largest award ever against the company. By Joseph Menn Times Staff Writer
August 12, 2003 A federal jury found Monday that Microsoft Corp.'s Web browser infringed a University of California patent and directed the company to pay $520.6 million in damages, the biggest award ever against the Redmond, Wash.-based software giant. The jury, which deliberated for two days after a four-week trial, decided that Microsoft should pay the University of California and Eolas Technologies Inc., a tiny Chicago company that licenses the technology from the university. The 12-member jury determined the damage award by concluding that Microsoft owed $1.47 for each copy of the Windows operating system that included Internet Explorer during a nearly three-year period. Should the verdict stand, the university system could gain 10% of the award, or about $52 million, under the terms of its licensing contract, a person familiar with the case said. The university system could use the money: The recently approved state budget for the 2003-04 fiscal year cut $410 million in UC programs. The verdict underscores both the uncertainty of patent issues in the world of high technology and the variety of legal challenges facing Microsoft. The dominant maker of basic software for personal computers has settled cases with federal antitrust officials and classes of consumers but still is battling a European Union probe, lawsuits by competitors including Sun Microsystems Inc. and claims by 20 patent holders. In the last three years, a dozen patent cases against Microsoft have been dismissed before reaching a jury. "Many successful companies are faced with this type of litigation. We will continue to vigorously defend our claims," said Microsoft spokesman Jim Desler. The technology in question allows Web browsers to alter the display of Internet pages, by rotating a picture, for example. It was invented by, among others, Eolas President Michael D. Doyle when he was a professor at UC San Francisco. The university licensed the patent to Eolas in 1994. No major maker of browsers has permission to use the technology, said Eolas attorney Jan Conlin. The verdict marks Microsoft's first significant loss in a patent case since 1994, when Stac Electronics in Carlsbad won $120 million. That case was appealed and then settled for about $80 million. Though it would take Microsoft less than three weeks to earn enough money to pay the new judgment, the company said it would appeal. Before that happens, the judge in the case may hear arguments about whether more recent sales of Windows should be included in the royalty calculations and whether, as Microsoft attorneys claim, Doyle misled patent officials in 1998 about the possibility that someone else developed similar capabilities before he did. "We are confident the facts will support our position," Desler said. "It's important to note that the court has already rejected claims that there was any willful infringement. We believe the evidence will ultimately show that there was no infringement of any kind." Microsoft investors shrugged off the news, leaving the company's shares little changed in late trading from their pre-verdict close of $25.61, up 3 cents, on Nasdaq. "Everybody knows that there are legal risks at Microsoft," said U.S. Bancorp Piper Jaffray analyst Eugene Munster. "Get comfortable with it if you want to own the stock." Munster predicted that Microsoft would drag the case out in appeals, then settle. He said Internet Explorer could use different techniques to achieve the same effect as achieved by the technology at issue, so that consumers won't perceive any changes if Microsoft is forced to stop using the technology. In making their case, Eolas attorneys tried to show that Microsoft had a small share of the browser market when it began using the disputed technology in November 1998. By September 2001, the end of the period in which the jury found infringement, Microsoft had vanquished browser pioneer Netscape Communications Corp. by including Internet Explorer with Windows. The bundling of Explorer with Windows was a key part of the federal and state antitrust suits against Microsoft and of Netscape's private suit, which was settled this year for $750 million. In their pursuit of a claimed $1.2 billion in damages, Eolas' lawyers sought to piggyback on the antitrust claims. Eolas is a technology development firm that aims to license its patents. Its biggest financial success may have been licensing the stylized "E" in its logo to IBM Corp., which uses a version for its "ebusiness" marketing campaign. And Eolas' trademark claims include one for the phrase "invented here," according to its Web site. Should Eolas collect from Microsoft, attorney Conlin said, it would expand its operations. "It has always been Eolas' intent to have an ongoing business," she said.
