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The Federal U.S. Circuit Court of Appeals sided against celebrated patent lawyer Matthew Powers and Microsoft Corp. on Dec. 22, 2009, affirming an injunction and a $290 million patent judgment against the software company.

Microsoft will have to stop selling the current version of Microsoft Word 2007 on Jan. 11 and pay damages to patent holder i4i Inc. On the winning side were Finnegan, Henderson, Farabow, Garrett & Dunner and McKool Smith.

Powers, the co-head of Weil, Gotshal & Manges' litigation practice, had incurred the wrath of the trial court in the Eastern District of Texas, where Microsoft lost this summer. Along with the injunction and $200 million jury verdict, Judge Leonard Davis tacked on $40 million in part because of Powers' "improper arguments."

In its appeal, Microsoft and Powers took Davis to task, writing that, "In patent cases, even more than most, the trial judge's role as a gatekeeper is crucial." They argued that the patent was invalid and that the testimony on outsized damages should have never been allowed into court. [See "Microsoft and i4i Readying for Fast-Track Appeal," Texas Lawyer, Sept. 14, 2009, page 1.]

But the Federal Circuit opinion, authored by Judge Sharon Prost, sided consistently with Davis and against Microsoft. It only modified the injunction slightly, ruling that it would take effect five months after Davis' Aug. 11 order, not 60 days.

The court hardly touched on the conflict between Powers and Davis. Although it affirmed the enhanced damages, also based on other factors, the opinion didn't condemn Powers for comparing i4i to a bank seeking a bailout - the argument that Davis had forbidden.

"Microsoft is correct that it would have been improper to enhance damages based solely on litigation misconduct, and that this is not the prototypical case of litigation misconduct," Prost wrote.

Powers did not return a telephone call seeking comment, but Microsoft issued a statement, saying that it is considering an appeal. The giant software company also says that it already had planned to work around the infringing feature - the custom XML-editing function in Word.

Doug Cawley, a partner in McKool Smith in Dallas, says i4i is "excited about the prospects of being able to offer their software to the public without infringement by competitors."

Mckool Smith Attorney Doug Cawley in Texas Lawyer newspaper

From a pure legal perspective, patent litigators were buzzing about the fact that the Federal Circuit actually upheld a permanent injunction.

Injunctions have been rare since the U.S. Supreme Court's 2006 eBay v. MercExchange ruling made it more difficult for patent-holding companies to get them. But the Federal Circuit opinion in i4i v. Microsoft Corp. went out of its way to explain that i4i, an obscure Canadian company, was in fact in the business of selling software, not just filing suits.

"The Federal Circuit doesn't want this decision to be a siren call to trolls," says Joseph Gratz, a patent litigator at Durie Tangri in San Francisco. "You can't just enjoin major products for fun - there has to be a real harm done." Finnegan's Puknys agrees that it was important to show that i4i was a real business.

"They really wanted to make a business out of this," he says. "This wasn't about them going out and wanting to hit this big piņata of cash."

McKool Smith's Cawley says he had not expected a decision from the Federal Circuit prior to the holidays, and given the time of year, he and his colleagues have not yet celebrated the court's "very exciting decision."

"Maybe we should have, but I guess we'll probably celebrate after the holidays," he says.

Zusha Elinson is a reporter with The Recorder, a San Francisco affiliate of Texas Lawyer in which this article originally appeared. Texas Lawyer research editor Jeanne Graham contributed to this article.

www.law.com/jsp/tx/PubArticleTX.jsp?id=1202437266881

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