Update: Appeals court reverses patent ruling against Microsoft in Eolas case

An appeals court on Wednesday threw out a $520.6 million patent infringement judgment against Microsoft Corp. and ordered a new trial in the dispute brought by Eolas Technologies.

The ruling has both sides claiming victory. The appeals court ordered a lower court to hold a new trial concerning the validity of the patent involved in the case, but upheld the lower court's finding that Microsoft infringed upon the patent, as well as the awarded damages, according to the University of California, which joined Eolas in the lawsuit.

In the case, Eolas and the University of California accused Microsoft of improperly including technology in the Internet Explorer Web browser that allows interactive content to be embedded in a Web site, a common practice on the Internet. Eolas sued Microsoft in 1999; the university later joined the suit.

A jury in August 2003 ruled against Microsoft and ordered the company to pay $520.6 million in damages. Judge James Zagel at the U.S. District Court for the Northern District of Illinois in Chicago upheld the jury verdict in January last year.

The ruling triggered an outcry from experts, who argued that the patent should be invalid because of prior art, or examples of the technology's use before the patent was issued. Tim Berners-Lee, director of the World Wide Web Consortium (W3C), urged the U.S. Under Secretary of Commerce for Intellectual Property to invalidate the patent.

Microsoft appealed to the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. The case was heard in December. On Wednesday the appeals court reversed the lower court's decision against Microsoft and ordered a new trial, Microsoft said in a statement sent via e-mail.

"Today’s appeals court decision overturning and remanding the district court verdict in the Eolas patent case is a clear victory not only for Microsoft, but for Internet users as well," Microsoft said in the statement. "We have maintained throughout this process that the Eolas patent is not valid and today’s ruling is a clear affirmation of our position."

The University of California sees things differently. "We regard it as a victory," said Trey Davis, director of special projects and new media for the university. "We prevailed on issues that were most critical to Microsoft's argument, namely on the question of damages and patent infringement."

The University of California was issued the patent involved in the case in November 1998. The technology covered in the patent was developed by researcher Michael Doyle, who went on to found Eolas. The patent describes in part "a system allowing a user of a browser program ... to access and execute an embedded program object." Eolas has exclusive rights to use and license the patent.