Microsoft Dealt Another Setback in i4i Patent Case

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The panel of judges that turned down Microsoft’s appeal of a major patent infringement verdict against the company in December clarified part of its earlier ruling on the case Wednesday.

However, Microsoft’s (NASDAQ: MSFT) case is still alive, because the full court has not yet decided whether or not to rehear the company’s appeal in an “en banc” proceeding, meaning that it would be considered by all of the judges in that appeals court circuit at once — although such group rehearings are seldom granted.

Beyond that, if its request to the appeals court goes unheeded, Microsoft has not yet decided whether it will petition the U.S. Supreme Court for a hearing, according to sources close to the case.

“We realize that a full en banc rehearing is rare but we feel the issues need to be addressed,” said one of the sources.

The case revolves around tiny Toronto-based i4i, which sued Microsoft in 2007 for infringing its 11-year-old patent for a “custom XML” editor, claiming that the software giant had tricked it into revealing its secrets and then wrote its own editor that was included with Word 2003 and 2007, as well as in Office 2004 and 2007.

A jury in the U.S. District Court for the Eastern District of Texas, Tyler Division, found for the plaintiffsin May, and in August, the lower court judge awarded i4i damages and penalties of approximately $290 million. The lower court also issued a permanent injunction against shipping the offending software.

Microsoft had already excluded the software at issue from Office 2010, which is due out in May. The company appealed but in December a three-judge panel of the U.S. Court of Appeals for the Federal Circuit upheld the verdict against Microsoft and set the injunction to begin Jan. 11. Microsoft complied.

In early January, Microsoft appealed part of the December ruling, and also asked for an en banc rehearing of the case. Wednesday, the original three-judge panel clarified a part of its earlier decision that Microsoft’s infringement met the definition of “willfulness.”

“The reissued decision is a clarification from the earlier decision [which is] good news for i4i,” Loudon Owen, i4i’s chairman, told InternetNews.com.

In the meantime, the entire appeals court has not yet decided whether to rehear Microsoft’s appeal in an en banc proceeding. The court has not set a date as to when it might make that decision either, although sources close to the case concede that, not only is such a rehearing petition rarely granted, cases that are reheard en banc typically end up with an unfavorable outcome for the appellant.

Microsoft declined to comment on the case.

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals.