Microsoft Word may get a facelift, post patent loss :ET 241209

Microsoft, the world's biggest software maker, is preparing to alter its popular Word software after it lost its appeal of
a $200-million patent-infringement verdict won by a Canadian firm. The company, based in Redmond, Washington,
was given until January 11 to make the change or stop sales, in a decision released on Wednesday by the US Court of
Appeals for the Federal Circuit in Washington. Word is part of Microsoft's Office software, used by more than 500
million people.

The court upheld a verdict that has since grown to $290 million, won by closely held I4i of Toronto. The dispute is over
an invention related to customising extensible markup language, or XML, a way of encoding data to exchange
information among programmes. Microsoft has called it an "obscure functionality."

Microsoft said it has been working on making the change since the trial judge first ordered a halt in August and has
"put the wheels in motion to remove this little-used feature from our products."

Copies of Word 2007 and Office 2007 with the feature removed will be available for US sale by January 11, and "beta
versions of Microsoft Word 2010 and Microsoft Office 2010, which are available now for downloading, don't contain
the technology covered by the injunction," said Kevin Kutz, a company spokesman. Microsoft is testing Office 2010
with customers and will release the completed version in the first half of next year. The unit that sells Office is
Microsoft's biggest, with $18.9 billion in sales in the year ended June 30. Microsoft can continue to provide technical
support to current Word users. It can't instruct new users who buy Word after the deadline on how to use the custom
XML editor or sell copies of Word with the feature, the court said.

The software maker said it may ask the Federal Circuit to reconsider the decision or appeal to the US Supreme Court.
The Federal Circuit isn't likely to grant such a request, and "there's no issue really sexy or different for the Supreme
Court to address either," said James Kulbaski, a patent lawyer with Oblon Spivak in Alexandria, Virginia, who isn't
part of the case. "This was a small company that appeared to be doing reasonably well, and Microsoft's product
essentially eliminated that part of the business," Kulbaski said. "I4i could not compete with Microsoft Word
incorporating their feature."

Based on the company's statement, it's doubtful that Microsoft will try to reach a licensing deal with I4i, said Matt
Rosoff, an analyst with Directions on Microsoft, based in Kirkland, Washington. "There may be conversations going
on now, but the safest thing is to not include it in 2010," said Rosoff, whose company is a research firm focused on
Microsoft's technology and business strategy. "They have to look at this feature, see how important it is, who's using
it, and decide how much they're willing to pay for it." I4i's business was based on preserving its patent rights, and
"Microsoft is not entitled to continue infringing simply because it successfully exploited its infringement," the three-
judge panel said. "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," the court said. "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 decision is "an important step in protecting the property rights of small inventors," Michael Vulpe, I4i's co-
founder, said in an e-mail. Company Chairman Loudon Owen called it "both a vindication for I4i and a war cry for
talented inventors whose patents are infringed." "The same guts and integrity that are needed to invent and go against
the herd, are at the heart of success in patent litigation against a behemoth like Microsoft," Owen said in a statement.

There was "sufficient evidence" for the jury to reach both its verdict and damage award, the court said. It also upheld
the trial judge's decision to add $40 million to the original $200 million verdict for intentional infringement. The
remaining $50 million is for post-verdict damages and interest.

Microsoft claimed the product was a small part of its Word package and the damages are inordinately high. The
company also argued in court papers that it was under an unrealistic deadline to "redesign its flagship Word software to
remove an obscure functionality" or be "compelled to stop distributing Word and the popular Office software suite."

The appeals court said the scope of the order was narrow in that it wouldn't affect existing customers. It did say
Microsoft should have been given more time to implement any change to Word, based on a declaration from a
Microsoft employee that it would take at least five months to do so. The judge originally allowed just 60 days.

XML is a common way of encoding data, and nothing in the order prevented Microsoft from continuing to offer that
feature in Word, or for allowing customized XML when it's used in plain text. The disputed feature is one used by
large companies to add special data to Word files, such as information in forms submitted by customers. I4i's patent
was issued in 1998.

Customized XML is a key feature of the software and services sold by I4i, Owen has said. Customers including
drugmakers Merck & Co. and Bayer AG use I4i's software to make sure that people get the correct and most up-to-date
information on the labels of their medicine.