The U.S. Court of Appeals for the Federal Circuit upheld a permanent injunction and an award of $240 million in damages against Microsoft for patent infringement in connection with certain versions of MS Word software that offer XML editing functionality. The Federal Circuit held that by failing to file certain pre-verdict judgment as a matter of law motions, Microsoft waived two pivotal issues relating to the validity and damage for appeal. i4i Ltd. v. Microsoft Corp., Case No. 09-1504 (Fed. Cir., Dec. 22, 2009) (Prost, J.).

Validity

Microsoft filed a pre-verdict judgment as a matter of law (JMOL) motion on invalidity but it only included arguments for anticipation based on the on-sale bar, not arguments regarding obviousness and other prior art references. In its decision, the Federal Circuit reminds us that “a party must file a pre-verdict motion on all theories, and with respect to all prior art references, that it wishes to challenge with a post-verdict JMOL.” Because Microsoft waived its right to challenge the factual findings underlying the obviousness verdict, the appellate court presumed all the underlying factual disputes—none of which were explicitly enumerated in the jury verdict form—were resolved by the jury in i4i’s favor and affirmed the district court’s ruling on the validity of i4i’s patent.

Damages

The Federal Circuit found that Microsoft also waived its right to appeal the damages amount, which was based on the plaintiff i4i expert’s claimed royalty rate of $98 per sale of MS Word. The Federal Circuit explained that in terms of evidentiary review, its hands were tied. “Had Microsoft filed a pre-verdict JMOL, it is true that the outcome might have been different. Given the opportunity to review the sufficiency of the evidence, we could have considered whether the $200 million damages award was ‘grossly excessive or monstrous’ in light of MS Word’s retail price and the licensing fees Microsoft paid for other patents.” However, because of the waiver, the Federal Circuit could not scrutinize or modify the damage award as it did recently in Lucent Technologies, Inc. v. Gateway, Inc.

The Federal Circuit also upheld $40 million in willfulness damages, raising the value of i4i’s Christmas present to $240 million. In regard to the enhanced damages, the Federal Circuit noted that since the jury had found willfulness, the district court had the authority to award as much as treble damages and that the decision to enhance damages by $40 million was within its discretion.

Injunction

After analyzing the eBay factors, the Federal Circuit affirmed the permanent injunction ordering Microsoft to stop instructing how to use and stop selling infringing versions of MS Word, i.e., versions that include i4i’s XML editing technology as of January 11, 2010. However, those who purchased MS Word prior to the injunction may still use all of the features in MS Word as purchased and receive technical support.