Federal Circuit Vacates in Eolas Patent Case

March 2, 2005. The U.S. Court of Appeals (FedCir) issued its opinion [29 pages in PDF] in Eolas v. Microsoft, vacating in part, and affirming in part, the judgment of the District Court, and remanding.

The Court of Appeals held the the District Court "improperly granted judgment as a matter of law (JMOL) in Eolas’ favor on Microsoft's anticipation and obviousness defenses and improperly rejected Microsoft’s inequitable conduct defense, this court vacates the district court's decision and remands for a new trial on these issues."

However, the Court of Appeals affirmed the District Court on other issues. It affirmed the District Court's claim construction of "executable application". It also found the the District Court did not err in its jury instruction with regard to the claim limitation "utilized by said browser to identify and locate." And, it affirmed the District Court's holding that "components" under 35 U.S.C. § 271(f)(1) (regarding foreign sales) includes software code on golden master disks.

Eolas is the licensee of U.S. Patent No. 5,838,906. It is titled "Distributed hypermedia method for automatically invoking external application providing interaction and display of embedded objects within a hypermedia document". Eolas asserts that Microsoft's web browser, Internet Explorer, incorporates the invention disclosed in this patent.

The University of California (UC) filed the patent application on October 17, 1994. The U.S. Patent and Trademark Office (USPTO) issued the patent on November 17, 1998. The UC granted an exclusive license to Eolas.

On February 2, 1999 Eolas filed a complaint in U.S. District Court (NDIll) against Microsoft alleging patent infringement.

On August 11, 2003, a trial jury of the District Court returned its verdict that Microsoft's Internet Explorer infringed this patent. The jury also awarded damages of $521 Million. See, story titled "Jury Returns Verdict of Infringement Against Microsoft in Eolas Browser Patent Case" in TLJ Daily E-Mail Alert No. 716, August 12, 2003.

On October 30, 2003, the U.S. Patent and Trademark Office (USPTO) issued a "Director Initiated Order for Reexamination" of this patent. See, story titled "USPTO Orders Reexamination of Eolas Patent" in TLJ Daily E-Mail Alert No. 778, November 13, 2003. This is Control No. 90/006,831.

Microsoft argues that the patent is invalid because prior art anticipated it, or rendered it obvious. The prior art in question is an earlier browser developed by Pei-Yuan Wei, and named Viola, or DX34. Microsoft also asserts the defense of inequitable conduct. That is, Michael Doyle, one of the inventors of the invention disclosed in the Eolas patent, knew of Wei's browser, but did not disclose this to the USPTO.

The District Court rejected these arguments. It held that the Viola browser was abandoned, suppressed, or concealed within the meaning of 35 U.S.C. § 102(g). The Court of Appeals, noting that Wei demonstrated his browser to two Sun Microsystems engineers without a confidentiality agreement and posted it on a publicly accessible internet site, held that the District Court erred, and vacated. Hence, on remand to the District Court, Microsoft will be able to present evidence of Wei's browser, and argue anticipation and obviousness.

The District Court also held that the failure to disclose Wei's browser to the patent examiner could not constitute inequitable conduct because the browser was not prior art. The Court of Appeals vacated, and remanded.

However, Microsoft lost on other appeal issues. The Court of Appeals affirmed on the claim construction issues. It also affirmed on the Section 271 foreign sales issue.

Microsoft issued a release in which it claimed victory. It wrote that "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 added that "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 potential enforcement of the Eolas patent further created confusion that could have impacted the use of the World Wide Web. This concern was shared by others in the industry -- including the W3C -- who have also maintained that the patent is invalid and have requested a re-examination by the U.S. Patent Office."

Microsoft also wrote that "Today's reversal gives Microsoft the opportunity to tell the jury the whole story of how this technology was developed and to present evidence that shows that Eolas did not invent this technology, and that it was developed by others, particularly Pei-yuan Wei and his colleagues at O’Reilly and Associates. They are the true pioneers of this technology. The ruling also gives Microsoft the opportunity to present evidence that Eolas knowingly withheld information about Pei-Wei’s invention to the Patent Office."

The outcome of this case will affect not only Eolas and Microsoft. For example, on October 28, 2003, Tim Berners-Lee, the Director of the W3C wrote a letter to James Rogan, the then Director of the USPTO, in which he stated that "we urge you to initiate a reexamination of the '906 patent in order to prevent substantial economic and technical damage to the operation of World Wide Web. As a result of a recent infringement judgment against Microsoft Corporation based on the '906 patent, they have stated publicly that they intend to redesign the Internet Explorer browser to avoid infringing the '906 patent. Although Microsoft's proposed redesign covers only a small portion of its entire browser program, it would render millions of Web pages and many products of independent software developers incompatible with Microsoft's product."

Berners-Lee, who is also generally credited with being the primary inventor of the web, continued in his letter that "A patent whose validity is demonstrably in doubt ought not be allowed to undo the years of work that have gone into building the Web. Removing the improperly disruptive effect of this invalid patent is important not only for the future of the Web, but also for the past. Even if the Web has to endure several years of disruption, we are confident that currently active Web pages will eventually be fixed and brought into compliance with whatever the prevailing standard is. However, pages that are inactive but have historical value may well remain in a state of impaired accessibility indefinitely if Web technology is forced to deviate from standards in this manner. The Web functions only on the strength of its common standards." (Emphasis in original.)

This case is Eolas Technologies Incorporated and the Regents of the University of California v. Microsoft Corporation, U.S. Court of Appeals for the Federal Circuit, App. Ct. No. 04-1234, an appeal from the U.S. District Court for the Northern District of Illinois, D.C. No. 99 C 0626, Judge James Zagel presiding. Judge Randall Rader wrote the opinion of the Court of Appeals, in which Judges Friedman and Plager joined.