Microsoft's patent loss rattles tech community

Company says it is responding by making changes to Internet Explorer

Companies with products that work on the Internet are slowly waking up to the broad implications of a recent judgement against software behemoth Microsoft Corp. in a patent infringement case.

The $520 million award to Eolas Technologies Inc. of Chicago and the University of California (UC) stemmed from a 1999 lawsuit in which Eolas and UC charged Microsoft with infringing on a 1998 patent owned by the university and licensed to Eolas. However, the verdict could spell trouble for a wide range of popular Web-based products and services, experts agree.

That patent, U.S. number 5,838,906, was developed by Eolas president Michael Doyle at the University of California in San Francisco and covers technology that enables small computer programs, often referred to as "applets" or "plug-ins," to be embedded in Web pages and interacted with through Web browsers like Microsoft's Internet Explorer.

In response to the judgement against it, Microsoft said last week that it will be making changes to Internet Explorer (IE) that may affect a "large number of existing Web pages," according to a statement by the World Wide Web Consortium (W3C). 

In addition to pursuing post-trial motions against Eolas, Microsoft is also evaluating what changes may be necessary and will not comment on its work, according to company spokesman Jim Desler. The Redmond, Wash., company stands by its claims that it did not infringe on the Eolas patent, but will work to minimize the effect on customers of changes to IE and is cooperating with the W3C to coordinate that effort, he said.

Computer security experts initially hailed the announcement, speculating that the ruling might spell the end of Microsoft's ActiveX controls, notoriously insecure software components that allow software developers to integrate specialized functionality with Web pages.

But technology and legal experts agree that the ruling could affect a wide range of technology companies with products that interact with Web browsers, or services that rely on customer interaction through Web browsers.

"Fundamentally, (the Eolas patent) describes a way of implementing plug-ins in a Web browser," said Richard Smith, an independent technology expert in Boston. "People who use plug-ins like (Macromedia Inc.'s) Flash or Java applets are covered by the Eolas patent," he said.

Macromedia, which distributes a free plug-in to view Macromedia Flash files, did not respond to requests for comment.

Real Software Inc., which makes multimedia software that can be played through Web browsers, said it could not immediately comment on the ruling.

However, the W3C is concerned about the implications of Eolas' patent claim, according to Janet Daly, the organization's head of communications.

"There certainly are concerns whenever patent issues ... appear to be relevant to basic technology. That gets the attention of the W3C membership," she said.

Past patent claims, such as those affecting the P3P (Platform for Privacy Preferences ) standard, have stopped development or the implementation of development standards, she said.

As in that case, the W3C has legal and technology experts analyzing the Eolas patent and the legal decisions that led to the company's court victory over Microsoft, according to Daly. That analysis could take six months or more, but the group will make its findings public once they are known, she said.

Among other things, the group is trying to determine whether any of its published standards infringe on the Eolas patent, Daly said.

In the meantime, technologists and executives who feel they may have products that infringe on Eolas' patent are following the post-trial motions closely and hoping for some word about how Eolas and the University of California will proceed.

One of those is Hector Santos, president and chief technology officer of Santronics Software Inc. of Homestead, Florida, which sells BBS (bulletin board system) software. Santos learned of the Eolas case after the $520 million verdict was announced, but became concerned about the implications for his three person company after reading more about the Eolas patent.

"As I learned more about it and understood more about what these guys patented and what it means, the more I felt like 'This claim is pretty broad!'," Santos said.

"The idea of remote client-server applets activated by a remote hosting server has been around for a while and we do it with our own technology," he said.

In particular, a "chat" feature in Santronics' Wildcat software uses a Java application (or applet) that may violate Eolas' patent, he said.

Santos is reviewing his product's code and functionality carefully in light of the suit.

"My lawyer gave the advice, 'Start reviewing what you've got,'" he said.

Santos feels that there is plenty of evidence that his company's product used Eolas' patented techniques before Doyle filed for his patent in 1994 -- an argument known as "prior art" that can be used to defuse patent infringement claims. If anything, Santos is surprised that Microsoft wasn't able to successfully use such claims in its own defense.

One of the problems may be that technologists routinely underestimate the reach of patents, according to Smith.

"Technology people don't understand what patents are and they make big claims, like, 'Oh, it's just like this or that. There's prior art.' But there was none produced by Microsoft," Smith said.

Assuming the Eolas decision stands, the fact that Microsoft apparently could produce no prior art will only serve to strengthen the patent, according to attorney Douglas Kline, chairman of the patent and intellectual property group at Boston law firm Testa, Hurwitz & Thiebeault LLP.

"Microsoft would know better than anybody what they were working on when the patent was filed," Kline said.

"To the extent they did exhibit (prior art), the jury disagreed. So if Microsoft couldn't prove that their own activity didn't render a patent invalid, it could be difficult for anyone else to prove it," he said.

Companies like Macromedia, Real and Apple Computer Inc. should all be on notice following the Eolas ruling, Kline said.

"If they didn't know about this patent before, they do now. And they have guidance about what one court thinks (the patent) means," he said.

Under patent law, Eolas and the University of California are free to go after technology companies as well as "end users" of that technology, according to attorney Jim Gatto, co-head of the intellectual property group at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC.

Typically, however, small companies will target one or two large companies, collecting significant damages and enforcing their patent rights, he said.

The University of California is not aware of any plans to pursue parties other than Microsoft, but UC spokesman Trey Davis referred questions about legal strategies to Eolas' attorney, Martin Lueck, who did not respond to repeated requests for comment.

Regardless of what happens in the Eolas case, industry watchers should expect to see more and bigger patent cases in the future, Gatto said. The size of the judgement against Microsoft, which is one of the largest ever in terms of monetary damages, and the increasing importance of intellectual property to companies' bottom lines will drive an interest in pursuing big patent cases, he said.

In addition, the Eolas case may send a message to small companies that they can successfully defend patents in court, even when pitted against much larger companies with limitless resources like Microsoft, Gatto said.

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