Microsoft Anti-piracy Technology Is Patent Infringement

I expect to read lots of comments on this blog praising today's jury verdict, which ordered Microsoft to pay Uniloc $388 million. Gauging from comments on past posts about product activation, many of you don't much like it.

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The case could be an episode of some TV legal drama. Uniloc filed the patent dispute in late Sept. 2003. About three years later, U.S. District Judge William Smith issued summary judgment for Microsoft, which Uniloc appealed. In August 2008, the U.S. Court of Appeals for the Federal Circuit sent the case back to trial, overruling the judge.

How's this for drama? According to court documents:

The district judge indicated that he was inclined to appoint an independent expert or special master to assist in deciding the motions given the complicated subject matter of this dispute. Ultimately, the district court hired an evening law student who was finishing his Ph.D. in computer science as an unpaid judicial intern to work on the case. Uniloc objected to the intern's involvement with the case, alleging that the intern had numerous ties to Microsoft.

What drama! The so-called expert advising for the court had ties to Microsoft. The lower court essentially dismissed the case in Microsoft's favor, claiming that for infringement there must be identical algorithms used on client and server systems, which Uniloc failed to prove. The appellate court disagreed, in part because of statements made by Microsoft and Uniloc's narrower scope of infringement. But the appellate court didn't remove Judge Smith, as Uniloc had requested.

In dispute: U.S. Patent No. 5,490,216. The appeals court ruling explains:

The '216 patent is directed to a software registration system wherein a particular piece of software may run on a platform in use mode if and only if a specified licensing procedure has taken place ... Uniloc sued Microsoft, alleging that Microsoft's Product Activation system, an anti-piracy registration system used to reduce unlicensed use of its software products, infringed sixteen claims of the '216 patent under eight different infringement theories over twenty-four different disputed claim terms.

Today's jury verdict is bigger trouble for Microsoft than might initially appear, because the award covers product activation outside the United States—$194 million of the award (MarketWatch reported the $194 million figure, based on court documents, which I haven't yet seen). The Patent Act, or Title 35 of the United States Code, governs U.S. patents and generally protects U.S. companies from international infringement. Uniloc has offices in California and Singapore.

The jury applied the $388 million back to Oct. 1, 2003, around the time of the case's filing. Microsoft can ask the court to dismiss the verdict, and there is an option to appeal. But none of that avoids the irony of Microsoft being found guilty of stealing, so to speak, technology meant to prevent people from stealing its software.

"We are very disappointed in the jury verdict," Microsoft spokesperson David Bowermaster said in an e-mailed statement. "We believe that we do not infringe, that the patent is invalid and that this award of damages is legally and factually unsupported. We will ask the court to overturn the verdict."

It has not been a good day for Microsoft. There was another adverse legal ruling and fine. Earlier, Bundeskartellamt, Germany's Federal Office, revealed that it had fined Microsoft 9 million euros (about $12 million) for, according to a press release, influencing "the resale price of the software package 'Office Home & Student 2007' in an anticompetitive manner." More:

The product in question was heavily advertised in the autumn of 2008 in stationary retail outlets. Amongst others, a nationwide active retailer advertised the product with financial support from Microsoft. Even before the launch of the advertising campaign in mid-October 2008, employees of Microsoft and the retailer in question had agreed on at least two occasions on the resale price of the software package Office Home & Student 2007.

Not every contact between supplier and retailer regarding resale prices constitutes an illegal concerted practice within the meaning of Section 1 ARC. However, this must not lead to a form of coordination where the supplier actively tries to coordinate the pricing activities of the retailer and thus retailer and supplier agree on future actions of the retailer. In the present case, this boundary has been crossed. Microsoft has accepted the fine.

I don't have any legal expertise when it comes to German law. But, as described above, that doesn't sound like a violation had Microsoft done something similar here in the United States.

After I posted, Microsoft responded to my request for comment. "We respect German competition law and are committed to running our business in full compliance with all German laws and regulations," said a spokesperson. "We will use this case as an opportunity to review our internal commercial processes and ensure that we are in full compliance with German law."

[Please send your tips or rumors to watchtips at gmail.com.]