In a rare move, regulators have agreed to reexamine a controversial patent covering Web-browsing technology, delaying the enforcement of a patent infringement verdict that could force Microsoft to overhaul Internet Explorer (IE) and cause significant headaches for Web sites. Although Microsoft hailed the development as a victory, the case is not over—the verdict remains in place but is suspended until a potentially long and complicated appeals process is completed.

In other legal news, a class-action antitrust lawsuit filed on behalf of Minnesota consumers went to trial, Microsoft and AT&T settled a patent infringement suit over speech technology, and the company joined with several other ISPs to file suit against spammers under a new U.S. law.

Eolas Patent Under Review

A patent granted to Eolas Technologies and the University of California in 1998 covers the ability of a Web browser to automatically launch interactive elements, such as Java applets, ActiveX controls, and digital media files, embedded in Web pages. In Aug. 2003, a jury found that IE violated the patent and levied a US$520.6 million fine against Microsoft. (A judge later added another US$45 million in prejudgment interest.) Microsoft began preparing a non-infringing version of IE and briefing the Web community about the proposed changes. Meanwhile, both Microsoft and the World Wide Web Consortium (W3C) asked the United States Patent and Trademark Office (USPTO) to invalidate the patent, arguing that it stifles innovation and that the non-infringing version of IE would create significant disruptions for Web sites, requiring them to redesign their pages. (For background on the proposed changes to IE and how they would affect Web sites, see "Lawsuit Drives Browser Changes" on page 7 of the Nov. 2003 Update).

In Mar. 2003, the USPTO issued a preliminary ruling, known as an "office order," agreeing that the patent involves prior art and therefore must be reexamined. Since 1988, only 151 such reexaminations have occurred, 19% of which resulted in the invention in question being found "unpatentable," and 68% of which ended in some of the patent's claims being invalidated; the remaining 13% resulted in no change.

The reexamination throws considerable uncertainty over the case. Eolas must respond to the office order within 60 days, after which the USPTO will weigh both sides' arguments and make its decision—a process that could take up to three years. After that, Eolas can challenge the USPTO's decision to the Board of Patent Appeals and Interferences, and then to a federal appeals court. Likewise, if Microsoft is not satisfied with the USPTO's decision, it can resume its appeal of the jury verdict.

In the meantime, Web sites gain a reprieve: Microsoft need not make any changes to IE until the appeals process is exhausted, according to the last judge that ruled on the case.

Other Legal News

Other developments on the legal front in the first part of Mar. 2004 included the beginning of a class-action antitrust trial, a patent infringement settlement, and new action against spammers.

Minnesota class-action trial. A class-action antitrust trial has begun, pitting Microsoft against Minnesota consumers who allege they were overcharged for Windows and certain productivity software; the plaintiffs are seeking US$425 million from the company. Microsoft has settled similar suits in nine states and Washington, D.C., by offering vouchers redeemable for hardware and software, and money for local school districts; another 16 class-action antitrust suits were dismissed.

As the first such case to reach trial, the outcome of the Minnesota case could set an important legal precedent and reveal new details about Microsoft's past business dealings—two reasons that Microsoft has been amenable to settling such cases in the past.

Most of AT&T suit settled. Microsoft paid AT&T an undisclosed amount to settle all but one claim in a patent infringement case. AT&T sued Microsoft in 2001, alleging that Microsoft's TrueSpeech audio compression algorithm and its NetMeeting conferencing software infringed a patent granted to AT&T in 1981. The case went to trial in Feb. 2004, and AT&T asked a jury to award it at least US$90 million in damages. The settlement followed shortly thereafter.

The two companies said that one claim remained unresolved and would be decided by an appeals court, which could result in Microsoft paying further damages, but they did not disclose more details.

ISPs sue spammers. Microsoft joined AOL, Earthlink, and Yahoo to file six lawsuits in the states of California, Georgia, Virginia, and Washington against senders of unsolicited commercial e-mail. The suits accuse several hundred defendants of sending deceptive messages and disguising the origins of the messages. Although Microsoft has sued spammers in the past, this is the first suit the company has filed under the Can-Spam Act, a United States law that took effect on Jan. 1, 2004, which allows ISPs to seek damages of between US$25 and US$100 per message. As with past antispam suits, most of the spammers are unknown and being sued as "John Doe" defendants, but the ISPs expressed confidence that they'd be able to track the defendants down.