If Michael Doyle, Eolas Technologies and the University of California win the next round in a patent-infringement lawsuit against Microsoft...

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WASHINGTON, D.C. — If Michael Doyle, Eolas Technologies and the University of California win the next round in a patent-infringement lawsuit against Microsoft, they stand to make more than half a billion dollars.


The amount represents $1.47 plus interest for the more than 354 million copies of the Internet Explorer browser that a jury in 2003 determined contains an idea Doyle and his colleagues at Eolas developed while they were researchers at the university. But Microsoft never paid any licensing fees.


Microsoft has vigorously disputed the validity of Eolas’ patent and the way the jury arrived at the damage award. The software giant took its grievance all the way to the Supreme Court but was rebuffed on Halloween Eve. Now the case goes back to a federal district court in Illinois.


Such high-stakes disputes — and their broader impact on users who depend on such technologies — have become a topic of discussion in Congress. Lawmakers are wrestling with the question of how to reward inventors while reducing opportunities to abuse the nation’s patent system.


In recent years, the Federal Trade Commission and the National Academy of Sciences have issued recommendations for changes, some of which are in a patent-reform bill under consideration in the House. One recommendation: Reduce the rising tide of litigation. Patent-infringement suits are expensive.


An American Intellectual Property Law Association survey finds that the median cost of bringing a patent-infringement suit to a verdict is about $500,000 for each side. That number omits private settlements that avoid drawn-out court proceedings.


Key case


NTP v. Research in Motion

Amount: Research in Motion (RIM), maker of the BlackBerry device, agreed to settle with NTP for $450 million


Status: After the Supreme Court declined to freeze legal proceedings, a Virginia federal district court will now reconsider the case for a retrial. Meanwhile, the U.S. Patent and Trademark Office has issued an initial finding that several of NTP’s patents are invalid. The district court judge has agreed to review the settlement. Last Tuesday, Justice Department attorneys filed a document with the court asking the judge to make sure that any injunction would not accidentally cut off government employees’ use of BlackBerry devices. Government users of BlackBerries are generally exempt from the court’s injunction because of a quirk in the law. Justice also said that it is examining how the general public interest would be affected if the judge granted NTP the injunction.


What’s disputed: Part of the method of transporting e-mails across RIM’s network involves sending the mail through a relay system in Canada. The method is similar to methods described in NTP’s patents.


Broader impact: Daily communications between people on a device that has become ubiquitous could be affected.


Much of the debate has focused on companies that rely on the licensing of ideas, rather than the manufacture of products, for the bulk of their revenue. Detractors dub these companies “patent trolls,” a term that refers loosely to the practice of threatening other businesses with expensive infringement lawsuits to extract large monetary settlements.


One example is Austin, Texas-based Forgent Networks, a patent licensing and software company.


Forgent owns a number of patents, one of which relates to the JPEG image-compression-technology standard. From April to November 2004, it sued a roster of who’s who in technology.


In all, 44 companies were sued for infringement, including PC makers Apple Computer and Dell, search engines Yahoo! and Google, and equipment and imaging giant Kodak.


Other high-profile cases include MercExchange’s lawsuit against eBay for infringing patents related to online auctions, and NTP’s suit against BlackBerry maker Research in Motion over wireless e-mail patents.


Decision on ebay


The Supreme Court could decide as soon as today whether to consider eBay’s appeal of a lower-court decision that would prevent it from continuing its “Buy It Now” feature.


And in a sign of how far-reaching the cases have become, even the Bush administration became involved in the debate last week. The Justice Department on Tuesday asked a Virginia district court judge to consider suspending an injunction against RIM’s BlackBerry device.


“There may be a substantial public interest that would be impaired by enjoining commercial use of BlackBerry devices,” wrote the department’s attorneys in a court filing.


Two Seattle-area companies — Microsoft and Intellectual Ventures — are in the middle of this stormy debate. Both have actively lobbied Congress this year.


Microsoft, alongside its rivals and lobbying groups, has advocated an ambitious agenda to improve the quality of patents issued by the U.S. Patent and Trademark Office. The company has lobbied Congress to implement what some view as radical suggestions designed to curb litigation from patent-licensing companies such as Eolas.


Microsoft, the Business Software Alliance (BSA), the Information Industry Technology Council (ITIC) and others told lawmakers the patent system has run amok with an explosion in “patent troll” lawsuits, and needs to be reformed.


“Our one goal in seeking patent reform was to target patent trolls who have no intention of selling a product, who game the patent system and hold tech companies for ransom in patent litigation,” says Josh Ackil, ITIC’s vice president of government relations.


This group urged Congress for a raft of changes, including one that would stop courts from automatically asking infringers to halt manufacturing and marketing disputed products, but to consider alternatives such as only paying damages.


Meanwhile, Bellevue-based Intellectual Ventures has lobbied for the opposite view. The company, headed by former Microsoft Chief Technology Officer Nathan Myhrvold, conducts research in hopes of stumbling upon the next big lucrative invention.


Myhrvold opposed Microsoft-backed changes in testimony before a House Judiciary subcommittee in April. He called the “explosion” in patent litigation a misconception, and argued that changing the legal standards to obtain injunctions would weaken the bargaining power of small inventors to persuade large companies to license their innovations.


Myhrvold’s view was widely shared by representatives of other sectors, including those in the biotechnology and the pharmaceutical industries.


“If you look at the statistics, it’s not obvious that there’s a problem at all,” Myhrvold said in a recent interview. “If an inventor wants to sell patents, and if it’s a dot-com company that’s gone bankrupt and the investor wants to recoup some of the money, I don’t see that as a terrible thing.”


BSA’s lobbying campaign also stirs bitterness among independent inventors who need to recoup money for their investors and for the work they invest in their ideas.


“This debate is getting to me,” says MercExchange founder Thomas Woolston. “What is getting to me is the fibs that the BSA is telling about the litigation problem, when to me it’s an infringement problem.”


Adds Martin Lueck, an attorney at Robins, Kaplan, Miller & Ciresi, which represents Eolas against Microsoft: “I don’t hear anyone saying IBM is a troll — even though they have a bunch of patents and license them. To suggest that the University of California is a patent troll is absurd — they make contributions just like corporate America, and they want to protect their intellectual property.”


Ambitious plans dropped


As a result of strong opposition, some of the more ambitious proposals in the House Judiciary subcommittee bill were dropped.


Peter Detkin, a managing director at Intellectual Ventures, called a rival bill proposed by a group of 33 corporations a “reasonable compromise.”


That bill and the subcommittee’s latest bill contain several measures aimed at improving the quality of the patents, an issue universally thought to need urgent attention.


An oft-repeated criticism of the current system is that the rise in litigation and the troll phenomenon can be attributed to stronger legal protection for patents in courts in recent years and the approval — by harried, time-starved patent examiners — of broadly written patents with questionable claims.


The two bills examined in September by the House Subcommittee on the Courts, the Internet and Intellectual Property try to improve patent-office procedures. They would also simplify how the office determines who has the right to patent an idea by granting patents to those who file an application first.


The system now is based on a “first to invent” standard, one that critics say is overly cumbersome. Establishing that you’re the first inventor requires volumes of evidence and often involves a costly procedure at the patent office to adjudicate such disputes.


Deadlocked


Right now, the information-technology industry is deadlocked with the coalition of 33 corporations over a proposal on how juries should calculate damages.


The question: Should juries value the inventions in isolation? Or should their value be considered in the context of the commercial success of an entire product?


The IT industry wants lawmakers to limit damage awards to a patent holder’s specific “inventive contribution” to a product. Microsoft made that argument in the Eolas case.


The coalition, on the other hand, wants to preserve the status quo because a change could have far-reaching implications in biotech and pharmaceutical products, which often do not have the bundled patented components found in the IT industry.


Intellectual Ventures’ Detkin echoes the views of other patent-litigation attorneys when he says changes to the law ultimately won’t make much of a difference because juries have other factors to weigh.


The outlook for House passage remains unclear. When asked about plans for his patent-reform bill, a spokesman for subcommittee chairman Rep. Lamar Smith, R-Texas, said the congressman “is encouraging the groups to continue in discussions on the best ways to improve the patent system.”


The Senate still has to introduce its own version of similar legislation.


Sarah Lai Stirland is a senior writer at National Journal’s Technology Daily in Washington, D.C. She can be reached at:


sstirland@nationaljournal.com.