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Microsoft's Emergency Motion for a Stay Repeats Arguments Already Rejected by District Court

Wednesday, August 19 2009 @ 09:17 AM EDT

In Microsoft's Emergency Motion for a Stay of Injunction [PDF], it argues that it would be irreparably harmed without a stay, that it's in the public interest to avoid disruption to its business and its partners' businesses, and that while they expect to win on appeal, they'd then be out all the expense of implementing the injunction. However, they already asked the judge in the District Court for a stay on those exact grounds and were denied.

Of course, it's now trying them with the appellate court, so who knows? Perhaps they'll be more amenable, but I'll show you what the judge in the District Court said to those same Microsoft's arguments. In a nutshell, he found irreparable harm to i4i, that without a stay they'd be irreparably harmed in an ongoing way without a way to fix the harm, that it's a small company that was being put out of business by Microsoft's infringement, and that money alone could not fix the problem:

On the other hand, i4i will continue to be irreparably injured absent a stay. As discussed, the evidence shows that Microsoft's presence in the custom XML market has altered the very nature of the marketplace for smaller competitors such as i4i. The fact of Microsoft's infringement causes i4i to suffer irreparable harm for every new XML customer that purchases an infringing Microsoft product. To stay any injunction would only prolong that harm without providing any remedy.

We have his Memorandum Opinion and Order as text now, so you can read it in full easily. While acknowledging burdens to both parties, he weighed them and decided that the burden on i4i without an injunction would be worse than any issue Microsoft faces implementing a change. The only irreparable harm, he decided, was to i4i; the burden on Microsoft, he decided, was something it could absorb. And one thing he wrote indicates he doesn't necessarily believe Microsoft's burden is as great as it claims.

Microsoft said it would take five months to implement an injunction. However, I don't think the judge believed Microsoft, because he wrote this:

Microsoft additionally proposes that, in lieu of an injunction, for its upcoming WORD 2010 product, it would be able to 1) hide any XML functionality from the purchasers of WORD 2010, 2) activate the XML functionality upon demand from its customers, 3) track the use of such functionality, and 4) pay an ongoing royalty for such use. As i4i points out, this option would amount to a compulsory license, while ignoring i4i's ongoing injury by way of loss of brand recognition and market share. It is clearly improper, and Microsoft's request is denied.
However, the Court finds it necessary to note that there has been an ongoing disagreement between the parties over the burden faced by Microsoft in complying with an injunction regarding current versions of WORD. Microsoft has presented evidence that it may take five months to implement any injunction. See Tostevin Decl., Docket No. 270-5 at ¶ 16. However, i4i has presented evidence that it is possible to design a software patch that can remove a user's ability to operate the infringing functionality. Oddly, Microsoft's proposal regarding WORD 2010 seems to imply an ability to manipulate its software beyond what has been previously indicated by Microsoft in its opposition to an injunction.

When a judge says something you've told him is oddly contradictory to something else you said, he means he doesn't believe you. But here's a question: how can Microsoft do #3? -- "3) track the use of such functionality"? Things that make you go hmm.

Microsoft begs to stay the injunction on the basis of irreparable harm to itself, as well as on the grounds of public interest, and that it expects to win on appeal, but they already asked for a stay on those grounds and were rejected. In this emergency motion, for example, it argues, as pointed out on Todd Bishop's Microsoft Blog:

"If left undisturbed, the district court's injunction will inflict irreparable harm on Microsoft by potentially keeping the centerpiece of its product line out of the market for months. The injunction would block the distribution not only of Word but also of the entire Office suite, which contains Word and other popular programs," lawyers for the Redmond company write in the filing (Download PDF)....
Unless Microsoft is able to redesign Word and push that redesigned version through its entire distribution network by October 10th -- [long clause redacted] -- Microsoft and its distributors (which includes retailers such as Best Buy and OEMs such as HP and Dell) face the imminent possibility of a massive disruption in their sales," the filing says. It continues, "Even if Microsoft ultimately succeeds on appeal, it will never be able to recoup the funds expended in redesigning and redistributing Word, the sales lost during the period when Word and Office are barred from the market, and the diminished goodwill from Microsoft's many retail and industrial customers. Those significant unrecoverable costs make this a classic case for a stay pending appeal."

But in the Memorandum Opinion and Order, the judge already heard all that and wrote this in response:

Microsoft argues that redesigning current and upcoming WORD products is an enormous task. Microsoft suggests that compliance with i4i's proposed injunction would take approximately five months to re-release the currently infringing products. See Tostevin Decl., Docket No. 369-7.9 While there is also some disagreement over whether Microsoft has the capability to disable the infringing functionality with a mere "software patch," the Court will assume for the purposes of this analysis that complying with i4i's injunction poses a not insubstantial burden on Microsoft. Regardless, Microsoft has not presented any evidence on alternative methods for compensating i4i for its previous and ongoing loss of customers, market share, and brand recognition. While Microsoft concedes it has the ability to comply with an injunction encompassing i4i's proposed language, i4i will be continuingly injured without it. See Tivo v. EchoStar Commc'ns Corp., 446 F. Supp. 2d 664, 669 (E.D. Tex.2006) (Folsom, J.), rev'd on other grounds, 516 F.3d 1290 (Fed. Cir. 2008) (explaining that so called "sticky customers" continually shaped the market to patentee's disadvantage). Thus, the balance of hardships must favor the injured party.
With 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. See Tivo, 446 F. Supp. 2d at 670 ("The public has an interest in maintaining a strong patent system. . . . The infringing products are not related to any issue of public health or any other equally key interest."). Custom XML does not relate to any of such key social interests. As a result, this factor also favors an injunction. Because all four eBay factors weigh in favor of injunctive relief, i4i's motion is granted....
MICROSOFT'S MOTION TO STAY INJUNCTION
Microsoft moves to stay the injunction on three grounds: 1) Microsoft is likely to succeed on appeal; 2) Microsoft and the public will be irreparably harmed absent a stay; and 3) the pending re-examination of the '449 patent requires a stay. Whether to grant a stay under Federal Rule of Civil Procedure 62(c) requires consideration of 1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; 2) whether the applicant will be irreparably injured absent a stay; 3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and 4) where the public interests lies.
Regarding the first factor, Microsoft argues that it has presented substantial legal questions regarding nearly every issue and that, since some of these questions are pure questions of law, they will be reviewed de novo. Indeed, this very situation is present in nearly every patent case following a jury verdict. For additional assistance in assessing this factor, the Fifth Circuit has held "the movant need only present a substantial case on the merits when a serious legal question is involved and show that the balance of the equities weighs heavily in favor of granting the stay." Ruiz v. Estelle, 650 F.2d 555, 565 (5th Cir. 1981). Here, as discussed above, the balance of equities strongly favors i4i nearly every day Microsoft continues to sell its infringing products. As explained throughout this opinion, Microsoft does not present such a compelling case, either legally or factually, that would override the irreparable harm that its infringement imposes on i4i. This factor weighs against a stay.
Also as mentioned above, it is likely that Microsoft will incur a loss as a result of an injunction. However, given Microsoft's size and financial condition, the loss can not be considered irreparable. This factor also weighs against a stay.
On the other hand, i4i will continue to be irreparably injured absent a stay. As discussed, the evidence shows that Microsoft's presence in the custom XML market has altered the very nature of the marketplace for smaller competitors such as i4i. The fact of Microsoft's infringement causes i4i to suffer irreparable harm for every new XML customer that purchases an infringing Microsoft product. To stay any injunction would only prolong that harm without providing any remedy. Finally, as discussed above, the injunction is narrowly tailored to cause minimal disruption to the public. This factor does not support a stay.
Microsoft further argues that it is entitled to a stay pending reexamination of the '449 patent. At this time, the claims of the '449 patent have been provisionally rejected by the PTO. i4i has yet to respond in the reexamination proceedings. Courts typically consider the following factors when deciding whether to grant a stay pending reexamination: 1) whether a stay will unduly prejudice or present clear tactical disadvantage to the nonmoving party, 2) whether a stay will simplify the issues in question and the trial of the case, and 3) whether discovery is complete and whether a trial date has been set. Soverain Software LLC v. Amazon.com, Inc., 356 F. Supp. 2d 660, 662 (E.D. Tex. 2005) (Davis, J.). Here, discovery has been completed, the issues have been resolved, and the case is ripe for final judgment. None of these factors favor a stay pending reexamination. Microsoft's request for a stay is denied....
Therefore, after considering this competing evidence, considering the ongoing irreparable injury faced by i4i, the amount of time that has already passed since the jury's verdict, the burden on Microsoft, and given the uncertainty surrounding what period of time would be "reasonable" to expect Microsoft to comply with any injunction, the Court orders that Microsoft comply with the foregoing injunction within 60 days of the date of this order.

Once you lose a judge's trust, everything gets harder. However, the appeals process is precisely so that you get a fresh chance with folks who don't already have a negative opinion about you, but that record follows you up the chain. And the appeals court looks only for errors of law or fact. In short, I think this is an uphill climb for Microsoft, further burden by the fact that the court tacked on millions in damages for attorney misconduct.

Update: Someone asked what the 4 eBay factors are. In the full Memorandum, the judge explains:

In determining whether to issue a permanent injunction in patent cases, courts apply the four factor test provided for ineBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 394 (2006). A party is entitled to a permanent injunction only if: "1) [the party] has suffered an irreparable injury; 2) that remedies at law, such as monetary damages, are inadequate to compensate for that injury; 3) that, considering the balance of hardships between the [parties], a remedy in equity is warranted; and 4) that the public interest would not be disserved by a permanent injunction."

That's why Microsoft is touching those bases. But if you read the Memorandum, the judge also looked at all four. It's really worthwhile to read it in full, if you have the time.

So, since appellate courts don't do fact finding, what are the arguments Microsoft uses to show errors of fact or law?

1. Regarding Microsoft's chances on appeal, Microsoft claims several legal errors. One, it asserts i4i is not entitled to an injunction, because whatever harm it allegedly suffered can be fixed by a check. The court could award an ongoing royalty instead. It was i4i's burden to show money wasn't enough, and instead, Microsoft argues, the district court faulted Microsoft for not presenting evidence on alternatives to an injunction.

The court found 3 kinds of losses to i4i, loss of customers, market share and brand recognition. But they are not necessarily irreparable, Microsoft argues, citing several cases (Abbott Labs. v. Andrx Pharms., Inc., Eli Lilly & Co. v. Am. Cyanamid Co., Altana Pharma AG v. Teva Pharms. USA, Inc., MercExchange LLC v. eBay Inc., and Cordis Corp. v. ACS, Inc.) that held that harms sometimes are fixable with just money.

And then Microsoft says that the court erred in "relying on past harm alone to justify relief". It says i4i now only offers products that run as add-ons to Word, as opposed to a product that could fill the gap left by the injunction. However, I believe the court below said they did that after Microsoft's infringement wiped them out of the market. Microsoft says, however, that an injunction is supposed to prevent future harm, not be used as punishment for past damage.

Additionally, Microsoft argues that i4i failed to prove that Word customers prefer it because of the infringing functionality, which it claims is fatal to claims of lost customers.

2. Microsoft also asserts errors relating to claims construction. That's on page 21, for those who have no legal barrier to reading about such things.

3. Microsoft, beginning on page 25 of the PDF, claims invalidity of the patent. Same caution.

4. On the same page, Microsoft begins its arguments about irreparable harm to itself and its distributors, saying it will "potentially" keep "the centerpiece of its product line out of the market for months." The injunction would block not only Word but the entire Office suite unless Microsoft can redesign Word and "push that redesigned version through its entire distribution network by October 10th." There could be "massive disruption" in the sales of retailers like BestBuy and OEMS like HP and Dell. Even if Microsoft wins on appeal, it can never get back "the sales lost" during the period that Word and Office are "barred from the market" or the diminished goodwill.

5. Pulling Word from the market would actually harm i4i, Microsoft claims, since its products now are "merely add-ons to Word". Yuck.

6. The public interest favors a stay, according to Microsoft. Office "could be scarce" and i4i has no competing product. Well, they have a license you can pay for and they've offered to work with folks. And it's not going after current users, just future. And Microsoft says i4i has no Office suite to offer. But there surely are other products available, like OpenOffice.org or WordPerfect, etc. I think the argument that folks will be "stranded" without Microsoft is a bit over the top. I haven't used Word for many years, and I'm still in the land of the living, I note. I deduce that Word is therefore not absolutely required to function on planet Earth.

7. Microsoft again reargues its claim that a reexam means there is a substantial question as to the validity of the patent. But I recall a reexam was granted regarding Microsoft's FAT patent, or one claim or so of one of them, and later, Microsoft prevailed, so a reexam doesn't really ensure a patent will be thrown out. Yet, my favorite part of this document, Microsoft argues that "while the public interest favors enforcement of valid patents, the public is just as harmed by the enforcement of invalid patents."

Words to live by. Words to live by, speaking of FAT patents.

Update: Here's an explanation of customXML, in case you are, like me, still struggling to understand it.

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Corrections Here

Authored by: DaveJakeman on Wednesday, August 19 2009 @ 09:31 AM EDT

Should there be any.