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Microsoft at a loss in Word patent case?

Texas hold 'em

Comment Time to take a breath following the "landmark" injunction against Microsoft over alleged infringement of an XML patent in Word.

Never mind a US jury has found that Microsoft willfully violated an XML patent in its ubiquitous Word application and the case judge fined the company $200m. Microsoft's no stranger to patent infringement cases or their awards, either as a plaintiff or a defendant.

The supposed jaw dropper was that the judge ruled Microsoft cannot sell or import Word 2003 and Word 2007. These versions have the ability to open .XML, .DOCX, or DOCM files XML files containing what's being called "custom XML" and allegedly violate i4i's patent.

No longer being permitted to sell Word is a showstopper for Microsoft, partners, and customers. Word is part of Office, which earned $18bn in revenue for Microsoft during the company's last fiscal year. Not being able to sell Word would potentially hurt sales of Office.

Word and Office are important strategically to Microsoft: It's increasingly the front end to data held in Microsoft's SharePoint server and SQL Server database. No Word, or Office minus Word, would hurt Microsoft's plans around these products.

The implication of today's ruling is that Microsoft won't be able to release the forthcoming Office 2010, due next year, which will also use "custom XML" and see even tighter links between SharePoint and SQL Server.

Thousands of partners rely on Word and Office, building customizations, plug-ins, and extensions, while Word is used by millions of individual customers worldwide. The suggestion is that partners' business would be hurt while partners and customers would be forced to find alternative products.

At the heart of this alleged patent infringement case, brought by hitherto unknown i4i, is the "custom XML". But what is that? All-About-Microsoft blogger Mary Jo Foley has reported that "custom XML" covers the ability to "define your data using XML Schema syntax, and then you can use that data in your Office documents."

As ever with patent cases, though, the ruling is not the end of the case. Rather it marks the end of one particular phase in the legal process. And on a larger scale, it's unlikely this is the end for Word for Microsoft, its partners, or millions of users.

Appeal is the next phase, while Microsoft has 60 days to comply with the ruling. That means, as of now, Microsoft has not stopped sales of Word or Office as a result of this verdict.

The company's already said, meanwhile, it plans to appeal the verdict.

Furthermore, Microsoft also has legal avenues open to seek a stay of the injunction on Word sales while the appeals process works its way through the US court system. The company has not yet decided on what its legal response to the injunction will be.

Outside of the legal process, Microsoft's apparently taken steps to circumvent the patent in question. MJF reported that Microsoft could simply disable the Custom XML feature if the appeal fails. She said: "There is talk of a re-release of Word 2007 with a patch, which the company already has developed, that will disable the Custom XML functionality upon installation."

Microsoft has refused to comment other than to say it's disappointed with the ruling and planned to appeal.

Microsoft is known for lengthy legal battles, the kind that famously drain parties' pockets in patent actions and see many cases actually settled out of court for millions.

Stacked against Microsoft this time, though, is the venue. I4i's case has been logged with the District Court for the Eastern District of Texas, Tyler Division. That district has become a magnet for patent litigants in recent years.

The New York Times reported three years ago that patent holders were flocking to the district where they win 78 per cent of the time, compared to an average of 59 per cent nationwide. "What's behind the rush to file patent lawsuits here? A combination of quick trials and plaintiff-friendly juries, many lawyers say," the NYT wrote at the time.

It's notable in this case that I4i is a Canadian company and Microsoft based in Washington state, while the i4i trial lasted just eight days. US lawyers are renowned for shopping around to find friendly judge and jury systems.

There have been "land mark" rulings against Microsoft before. Eolas Technologies scored a $565m hit over plug ins to browsers against Internet Explorer (IE) while a US judged once ordered Microsoft be broken into two pieces after it was found the company had abused its monopoly position in the browser market, in the long-running US Department of Justice (DoJ) case.

The problem for "land mark" cases is they have a habit of getting worn down and nullified through the legal process, after everybody gets over their initial shock.

Web father Tim Berners-Lee warned a finding for Eolas wouldn't just harm IE it would "break" the internet. The case was quietly settled almost a decade later with Microsoft paying Eolas an undisclosed sum after Microsoft build a work-around for IE to sidestep the Eolas patent. The order to break up Microsoft was significantly whittled down following an appeal and a change of US government.

This i4i ruling is not the end of the Word or the lucrative Office franchises. Notably, this patent only applies to Word - and not the rest of the Office suite.

And if Microsoft can't win the case either on the merits of its legal arguments or the smarts of its legal team to play a long game and wear down its rivals, expect Microsoft to side step the patent while paying i4i to go away should it lose this case in the appeals process. ®

This article has been updated to report Microsoft's Office revenue as $18bn.

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