Microsoft Tuesday lost its appeal of a patent lawsuit regarding Office 2007's "custom XML" feature and now has to remove the offending feature from products sold in the U.S. post haste.
Analysts said the blowback from the court upholding i4i's victory means that Microsoft, and other large developers, will need to factor litigation costs into future projects.
The ruling came from a three -- judge panel of the U.S. Court of Appeals for the Federal Circuit in Washington, which granted the plaintiff -- tiny Canadian firm i4i -- a permanent injunction blocking Microsoft (NASDAQ: MSFT) from selling any version of Office that contains the infringing features.
The technology in question is a set of tools for writing so-called "custom" XML (eXtended Markup Language) often used for file portability in products like Microsoft Word. Last summer, a lower court ruled Microsoft had infringed i4i's patent on the technology.
Following Tuesday's ruling, Microsoft immediately issued a statement saying it is prepared to meet the terms of the injunction as of January 11.
"We are moving quickly to comply with the injunction," Microsoft spokesperson Kevin Kutz said in a statement e-mailed to InternetNews.com. "We expect to have copies of Microsoft Word 2007 and Office 2007, with this feature removed, available for U.S. sale and distribution by the injunction date."
Meanwhile, the next release of the product, Office 2010, which is currently in beta test and on track for release in June, does not contain the infringing feature, according to Microsoft.
Obviously, the upholding of the lower court verdict makes i4i, which specializes in custom XML editing tools, extremely happy.
"We look forward to getting a lot of phone calls over the holidays from people who want to use our custom XML tools," Loudon Owen, chairman of i4i, told InternetNews.com. "While we're appreciative of [the ruling], we're not surprised by it."
That's not exactly the way some analysts see the ruling.
"This is a big deal," Matt Rosoff, research vice president for corporate and consumer affairs at Directions on Microsoft, told InternetNews.com. "In the past ten years or so that I've been covering Microsoft, this is the biggest case that Microsoft has lost on appeal," Rosoff added.
While Microsoft will meet the injunction date, the company has only said it is still considering its options, which aren't many. Microsoft can request that the Appeals Court reconsider the decision "en banc" -- meaning all of the appeals court judges in the district would re-decide the case together.
Beyond that, Microsoft can appeal to the U.S. Supreme Court. However, the Supreme Court only accepts a handful of new cases each term.
"It shows the increasing hostility of this market," Rob Enderle, principal analyst at the Enderle Group, told InternetNews.com. "For Microsoft, I think it's going to be an increasingly expensive way to do business, with a lot more patent vetting," he added.
The smaller firm sued Microsoft in 2007 over its 11-year-old patent, and won its case in the U.S. District Court for the Eastern District of Texas, Tyler Division, last May. In mid-August, the judge ruled that Microsoft had to cease selling Word 2003 and 2007 -- the offending products -- by October 10 or completely remove the infringing XML editing capabilities.
The judge also awarded a total of $290 million in penalties, fines, and interest to i4i.
In early September, the Appeals Court agreed to stay the permanent injunction on sales of offending versions of Word pending the resolution of Microsoft's appeals.
"This is both a vindication for i4i and a war cry for talented inventors whose patents are infringed," i4i's Owen said in a separate statement e-mailed to InternetNews.com.