Toronto firm wins battle against Microsoft


From Thursday’s Globe and Mail Last updated on Thursday, Aug. 13, 2009 10:10AM EDT

A tiny Toronto firm that took on Microsoft Corp. has succeeded in winning an injunction against sales of the technology giant’s flagship word-processing software.

A U.S. judge, agreeing with an earlier jury verdict that Microsoft had willfully infringed a patent belonging to i4i LP, gave the software giant 60 days to comply with the injunction and awarded the Canadian company about $290-million (U.S.).

The injunction bans U.S. sales of Word 2003, Word 2007 and future versions of the software that use i4i’s technology without a licence. Microsoft said it would appeal.

"We feel vindicated with this result," said Michel Vulpe, founder of privately held i4i and an inventor of the disputed patent. "We did not go into business to litigate, we build products that serve our customers’ needs."

I4i sued Microsoft in March, 2007, claiming the company had infringed on a patent awarded in 1998 for manipulating complex data in electronic documents. The technology lets users manage mounds of information by turning complex documents into more accessible databases.

Microsoft became aware of i4i when the firm was tapped by the U.S. government after the 9/11 terrorist attacks to help "connect the dots" between different agencies, Mr. Vulpe said. Rather than licence i4i’s technology, Microsoft chose instead to just incorporate it into its Word products, he added.

Kevin Kutz, a spokesman for Microsoft, said the software giant would appeal the verdict, but declined to discuss the impact the ruling would have on operations. "We are disappointed by the court’s ruling. We believe the evidence clearly demonstrated that we do not infringe and that the i4i patent is invalid," he said.

Judge Leonard Davis of the U.S. District Court for the Eastern District of Texas on Tuesday did not stay the injunction through an appeal process. Microsoft could still file for such a motion in another court, but if it is not successful with that tactic, it will have to remove the patented technology from its Word products until it reaches a licensing agreement with i4i for future sales.

"I would assume the biggest software company in the world would have a solution," said Loudon Owen, chairman of both i4i and McLean Watson Capital Inc., a Toronto-based venture capital firm that seeded i4i in 1996 and still holds a financial stake.

(Mr. Owen’s keen eye for promising technology led him and a friend to raise cash for a tiny Montreal software company back in 1987. Softimage Inc., whose animation software would later bring dinosaurs to life in the blockbuster Jurassic Park, was acquired just seven years later for $200-million by Microsoft.) The i4i jury verdict in May had recommended damages against Microsoft in the amount of $200-million. On Tuesday, the judge awarded another $40-million for willful infringement, plus $37-million in prejudgment interest payments, and post-verdict damages from May at the rate of $144,060 a day. The court’s calculations included an assumption that about 2 per cent of Microsoft’s customer base in the U.S. was using i4i technology. Mr. Vulpe says that is forecast to swell to 80 per cent within three years as word processing moves beyond simple presentation into data retrieval and organization.

Based on the court’s guidelines, a licensing agreement going forward with Microsoft will be "huge," he said. "We expect the process is going to run for a while yet," Mr. Vulpe said. "This has been a huge distraction over the last few years to get vindicated, but we have to stick with our core business. If we take our eye off the ball, it will destroy our customer base."

I4i’s first customer after being awarded the patent was the U.S. Patent and Trademark Office itself. Today, the technology is used by pharmaceutical firms, manufacturers, airlines and governments.

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