i4i v. Microsoft - Largest Jury Verdict Ever Affirmed by Federal Circuit

Senniger Powers attorney Sara Weilert Gillette discusses i4i v. Microsoft in the following article. Ms. Gillette's practice is concentrated in intellectual property litigation.

On January 9, 2009, Microsoft filed its request for rehearing of the decision that affirmed a $290 million award for willful patent infringement and imposed a permanent injunction. On December 22, 2009, in a 49 page opinion, the Federal Circuit affirmed the decision of the District Court. In its appeal, Microsoft argued that the damage award was excessive and should be reduced as was the excessive award in Lucent Technologies, Inc. v. Gateway, Inc. However, the Federal Circuit found it could not treat this case as it had Lucent, because Microsoft failed to file a pre-verdict judgment as a matter of law on damages. Therefore, the panel was forced to evaluate the case under the heightened standard for awarding a new trial.

The Federal Circuit found the large verdict was supported by evidence presented by i4i. i4i’s damage expert testified that the royalty rate should be based on the cheapest XML editor available when Microsoft began developing its XML editor. This product or “benchmark” retailed for $499. The i4i’s expert multiplied this price by Microsoft’s profit margin (76.6%) and then applied the 25% rule to arrive at a baseline royalty rate of $96. The panel held i4i’s expert’s analysis was based on sufficient facts or data to meet a Daubert challenge. Microsoft argued that the $499 XML editor had numerous additional features and the price overestimated the portion attributable to the XML editor alone. Microsoft contended that a better estimate was the $50 price difference between Word with XML editor and Word without the XML editor. However, the panel held Microsoft’s objections were merely disagreements with his conclusions, not his methodology.

Microsoft was also found to willfully infringe the patent because its engineers had met with i4i, were “familiar” with its products, and believed Word’s custom XML editor would render i4i’s product “obsolete.” Therefore, it was reasonable for the jury to conclude that Microsoft knew about the patent and knew its custom XML editor would infringe.

Also of interest is the Federal Circuit’s holding that testimony to defend against anticipation does not need to be corroborated. Microsoft argued that an earlier product by i4i anticipated its XML editor. However, the original source code was destroyed years earlier, so no copy was available for analysis. The inventors of the asserted patent were also the developers of the earlier product. Their testimony that the earlier product did not have XML editing functionality was admitted into evidence without any corroborating evidence. The Federal Circuit held that corroborating evidence is not necessary to support testimony, when that testimony is used to rebut an invalidity attack by pointing to deficiencies in the allegedly invalidating prior art.