Microsoft Loses Another Patent Lawsuit

Microsoft’s legal department may be whistling a new tune — “T’s for Texas.”

At least the Microsoft (NASDAQ: MSFT) patent defense team must be getting used to hearing those long Texas drawls in recent weeks.

An East Texas jury Tuesday found Microsoft culpable of “willfully” infringing two patents for virtual private networking (VPN) technologies that belong to Scotts Valley, Calif.-based holding company VirnetX. The jury also proposed that Microsoft be ordered to pay $105.75 million.

Microsoft said it plans to ask the trial judge to toss out the jury’s verdict and the suggested damages and penalties.

“We respect others’ intellectual property, and we believe the evidence demonstrated that we do not infringe and the patents are invalid. We believe the award of damages is legally and factually unsupported, so we will ask the court to overturn the verdict,” Kevin Kutz, Microsoft director of public affairs, said in an e-mail.

Besides the damages and penalties, VirnetX also requested that the judge issue a permanent injunction blocking sale and distribution of Microsoft products containing the contested patents. The trial began on March 8.

Code implementing VirnetX’s allegedly infringed patents is contained in a passel of Microsoft products. The allegedly offending products are Windows XP, Windows Vista, Live Communication Server, Office Communication Server, Windows Messenger, Live Meeting Console, and Microsoft Office Communicator,” Kutz told InternetNews.com in a follow up e-mail.

VirnetX filed suit regarding the alleged infringement in 2007 and it went to trial in U.S. District Court for the Eastern District of Texas — Tyler Division — last week.

However, the case began in 2005 when VirnetX discovered the infringement, according to Doug Cawley, a partner in the Dallas-based law firm of McKool Smith, which represents VirnetX.

“There was correspondence between the parties but they were never able to reach an agreement on a reasonable royalty,” Cawley told InternetNews.com.

The VirnetX verdict comes less than a week after the latest developments in the i4i patent infringement case, ironically originally tried by the same court under the same judge — Leonard Davis.

In the i4i case, a Tyler, Texas jury found last spring that Microsoft had infringed a patent that tiny, Toronto-based i4i argued was infringed by a “custom XML” editor in Microsoft Word 2003 and 2007 as well as in Office 2004 and 2007.

In August, Judge Davis agreed with the jury’s decision and fined the software giant approximately $290 million.

Microsoft had asked a three-judge appeals court panel to clarify a ruling in December upholding the verdict, which it did last week — although the clarification changed little.

Microsoft is still awaiting a decision by the entire appeals court as to whether it will rehear Microsoft’s appeal “en banc.” Not coincidentally, McKool Smith also represents i4i.

As it has become ever larger, Microsoft has been accosted by more and more plaintiffs claiming patent infringement. The i4i and VirnetX cases are just the most recent.

So far, the software giant’s win-loss record is about even.

For instance, last September, a federal district judge in Rhode Island overturned a jury verdict that had found Microsoft guilty of infringing 13 patent for software activation technologies owned by tiny Uniloc USA. The judge also overturned some $388 million in damages and penalties in that case.

In August 2007, however, Microsoft’s legal eagles decided not to fight an infringement verdict from 2003 that found the company culpable of infringing a patent on add-ins for browsers that was owned by the University of California and licensed to a small spin-off company — Eolas.

Instead, they decided to settle that case out of court.

While there has been no date set in the VirnetX case, McKool Smith’s Cawley said that the judge in the case told both

parties that a hearing on the request for a permanent injunction will likely be set for some time in May.

Stuart J. Johnston is a contributing writer at “>Internet.com, the network for technology professionals.