Willful Infringement and Injunctions at the E.D. Tex.

i4i Ltd. v. Microsoft, No. 6:07CV113 (E.D. Tex., August 11, 2009, order) (L. Davis)

In May, a jury found that Microsoft willfully infringed i4i's patent relating to the processing of XML documents with custon XML elements, and awarded i4i $200M in damages. A flurry of post-trial motions followed, among which was a motion by i4i for a permanent injunction, and a JMOL motion by Microsoft to negate the finding of willful infringement.

On the issue of willful infringement, Microsoft argued that the fact that pretrial summary judgment was granted on certain asserted claims, i4i's voluntary dismissal of other claims, and defenses asserted at trial precluded willfulness liability entirely under Seagate.

Judge Davis disagreed:

Microsoft’s arguments are premised on an overly broad reading of Seagate. It argues that the objective prong of the willfulness analysis is met if and only if a defendant failed to present valid defenses during the infringement proceedings . . . most disturbingly, Microsoft’s arguments invite the Court to adopt a view of willful infringement that would allow an accused infringer to stay willfully ignorant despite a high likelihood that its actions infringe a valid patent. Such a view would allow an infringer to escape a finding of willfulness regardless of its conduct at the time the infringement began as long as it presented many defenses after a formal action was filed. Such a view is inconsistent with both Seagate and generally accepted legal principals regarding “objective” legal analysis.

On the subjective prong, Judge Davis focused on whether Microsoft "knew or should have
known" of the likelihood that their actions would infringe:

As Microsoft does not argue (and did not argue to the jury) that any of these “defenses” would have been apparent and considered by a reasonable person in Microsoft’s position prior to its infringing activity, these arguments are irrelevant and inappropriate. Furthermore, the pretrial summary judgment and i4i’s voluntary dismissal of accused products are irrelevant to the remaining claims that the jury found were valid and the remaining products that the jury found were willfully infringing. Additionally, Microsoft’s remaining defenses of invalidity were rejected by the jury and i4i presented sufficient evidence to support its infringement and validity positions.

Second, Microsoft argues that i4i presented insufficient evidence under the subjective prong of Seagate. Microsoft effectively argues that anything short of a “cease-and-desist” letter would be ineffective to put it on notice of an objective risk of infringement. In fact, i4i presented sufficient evidence, both direct and circumstantial, that Microsoft was aware of the likelihood that its activities were infringing.

On the issue of i4i's motion for a permanent injunction, the court applied the 4-factor eBay test and found that an injunction was warranted:

First, i4i has overwhelmingly shown that it has been irreparably injured by Microsoft’s continuing infringement of the ‘449 patent and could not be compensated with monetary damages. The fact that there is direct competition in a markplace weighs heavily in favor of a finding of irreparable injury . . . Simply because i4i adapted to a market where Microsoft fills 80% of the market space does mean that i4i has not suffered an irreparable injury. The evidence shows that i4i lost a, perhaps irretrievable, opportunity in the early days of the custom XML market. See PX 172. This continuing loss of market share and brand recognition is the type of injury that is both incalculable and irreparable.

[T]he balance of hardships also favors i4i. As i4i notes, Microsoft is the world’s largest software company with yearly revenues exceeding $60 billion. . . . i4i’s business is comprised almost exclusively of XML authoring products based off of the ‘449 patent . . . Thus, the evidence clearly indicates that while custom XML is a small fraction of Microsoft’s business, it is central to i4i’s.

[Wi]th regard to the public interest, i4i does not request that Microsoft disable infringing WORD products that are sold prior to the effective date of any injunction. i4i also indicated at the hearing, that it would be amenable to Microsoft providing support to customers who purchased infringing WORD products before the effective date of its proposed injunction. Thus, i4i’s proposed injunction would have little effect, if any, on the daily operations of Microsoft’s current customers. In addition, where products do not relate to a significant compelling public interest, such as health or safety, this factor weighs in favor of an injunction.

To read more, download the (65-page) opinion here (link)