The Eolas-Microsoft case--patent ending?

The United States Patent and Trademark Office (USPTO) last month issued a preliminary finding that appeared to tip the closely watched case in Microsoft's favor: A patent licensed by Eolas Technologies at the heart of a $521 million infringement verdict against the software giant may have been wrongly granted, the agency acknowledged.

Microsoft was quick to tout the findings as a victory--an outcome that would save it a considerable amount of money and allow it to avoid rewriting portions of its Internet Explorer browser. Standards body the World Wide Web Consortium (W3C) has joined Microsoft's side, arguing that a loss for the company would wreak havoc with millions of Web pages.

But legal experts said last month's preliminary finding in Microsoft's favor, coming just months into what will likely be a years-long process, is far from the last word.

"In the long term this doesn't make a heck of a lot of difference," said Greg Aharonian, editor and publisher of the Internet Patent News Service and a prominent critic of the USPTO. "This will probably wind up in front of the court of appeals at some point. Right now I wouldn't bet any money on the outcome, because there are too many fifty-fifties all around."

Wherever Microsoft's battle with Eolas ultimately winds up, it has for now thrown a spotlight on a little-known review procedure that from time to time has led the USPTO to overturn or revise patents. Known as director-ordered re-examinations, such reviews have been conducted just 159 times in the agency's history, resulting in at least partial changes in patents about 87 percent of the time.

Although that bodes well for Microsoft, a detailed look at the re-examination process reveals advantages and pitfalls for both sides.

Microsoft and the W3C in the fall spurred the rare re-examination after a federal court found Microsoft guilty of infringing a patent relating to widely used browser plug-ins owned by the University of California and licensed solely to Eolas. If the federal court's verdict stands, it could force Microsoft and other Web software developers to pay royalties in order to launch other applications, such as Macromedia's Flash animation software, within a browser window. Microsoft attorneys were preparing to appeal the decision before the patent office launched its review, and they could resume the process should the patent survive USPTO review.

On Feb. 25, USPTO examiner Andrew Caldwell issued a preliminary finding that upheld the premise of the re-examination request: that older technologies, or "prior art," existed that could invalidate the patent.

Now it's UC and Eolas' turn to defend the patent. They have two months from the date of the filing to do so and have expressed confidence that Caldwell's preliminary finding will not stand.

"It's not a decision, it's a nonfinal office action," said Eolas patent inventor Mike Doyle of the February filing. "It's the first step in the dialogue between the patent owner and the patent office. It's routine for him to present the arguments that have been submitted, as a straw man for the patent owners to knock down."

Fight for your right to inter partes
Whatever the patent holders say in their response to Caldwell could go substantially unanswered. Because Microsoft and the W3C could only request an "ex parte" re-examination, government rules sideline them in the ensuing debate. In ex parte proceedings, the debate will be conducted as Doyle described it: as a dialogue between the patent examiner and the patent holder.

A process that excludes the patent challenger from the highly technical and contentious intellectual property debates that characterize patent disputes is not one that intellectual property attorneys enter into lightly. Many recommend the step only after exhausting traditional legal options, in which opponents are given equal time and say.

The exclusive nature of the ex parte re-examination process inspired sufficient complaints from its inception in 1981 that the patent office instituted reforms in 1999. Now those seeking a re-exam can opt for an "inter partes" re-examination, which allows for input by the patent's opponents.

But Microsoft said that option was not available to it, given the date of the original patent filing.

"Microsoft is evaluating all its legal options as the case continues," said representative Jim Desler. "Like everyone else, we will continue to watch the patent re-exam process, and we believe in the end they will conclude what we've maintained all along--that the Eolas patent is not valid."

The W3C, which cited the interoperable nature of the Web in joining Microsoft's fight against the patent, said that despite being ex parte, a director-ordered re-exam was the best hope for an invalidation.

"The reason we opted to motivate the director to order a re-exam is that we felt that if we could persuade the director to act on his own initiative, the case would get a higher level of attention within the patent office," said Danny Weitzner, director of the W3C's technology and society work. "We thought we had a strong case on the merits, and the challenge was to make sure it was addressed at a level more sophisticated than it was to begin with."

Patent office statistics suggest that director-ordered re-exams bode well for patent challengers.

Of the 6,899 re-examinations the patent office has conducted since 1981, 3,804 of them, or 55 percent, were requested by third parties. Another 2,936, or 43 percent, were requested by patent-owners seeking clarification of the validity of their own patents.

A scant 159, or 2 percent, were initiated by the director. Of those, the patent examiner invalidated the patents 19 percent of the time, altered some claims 68 percent of the time and upheld the patents 13 percent of the time.

Weitzner contended that the patent's challengers had passed a more than usually stringent test in persuading the director to order the patent re-exam.

The patent office agreed.

"The bar is higher when the director orders the re-exam," said USPTO representative Brigid. "The prior art has to raise a prima facie claim against at least one claim in the process."

But one attorney for UC and Eolas warned against calculating their odds based on prior director-ordered re-exams.

"It is classified as director-ordered, but keep in mind that the letters and the prior art were submitted by Microsoft and others in the Web community," said Jan Conlin, partner with Robins, Kaplan, Miller & Ciresi. "It's not like the director woke up one day and said, 'We have to re-examine this thing.'"

Unappealing for challengers
Whatever the statistical odds, important procedural rules heavily favor patent holders. Patent re-examinations offer two levels of appeal, the first to the Board of Patent Appeals and Interferences and the second to the Federal Circuit Court of Appeals in Washington, D.C.

But only patent holders--not challengers--can appeal.

Despite the patent office's pledge to act on re-exams with "special dispatch," particularly in cases subject to litigation, the average length of a patent re-exam is 21 months. An original patent application, by comparison, takes an average of 26 months.

For so-called electrical patents, which include software patents, the average re-exam takes three years.

"Re-exams are supposed to be decided speedily," said Joseph Hosteny, an attorney with Niro, Scavone, Haller & Niro. "In my experience that does not always happen."

Hosteny successfully defended two patents in re-exams that lasted five years apiece.

"Often they last longer than that," he noted.

Quinn defended the transparency of the patent office's procedure, noting the new inter partes option and also the fact that anyone can, after paying a $2,520 fee, ask the patent office to consider, ex parte, prior art not considered in the original application. (An inter partes request, at $8,800, is somewhat costlier.)

But Quinn also noted that the patent office, which grants two thirds of the 300,000 patent applications it reviews every year, did not base its decisions on community feedback.

"It's certainly not an open process and was never intended to be a process where y'all come," Quinn said. "It's an inherently governmental process based on the patent examiner's knowledge of the science or technology and their knowledge of the law. That said, the office is always looking for ways of making it easier to find a suitable alternative to time-consuming litigation in the courts."

The patent office is revising its practices under considerable public and legislative pressure. Critics of the office claim it has issued a whole class of questionable "business method" patents. The patent office has acknowledged problems and countered that it is understaffed and underfunded to keep up with demand. In a vote of confidence for the office, the U.S. House earlier this month passed a bill that would prevent patent office fees from being siphoned off to other agencies and offices.

Before his resignation early this year, Director James Rogan outlined a comprehensive five-year plan for revamping the patent office--a plan that includes revising procedures for "post-grant opposition."

Meanwhile, some think the ex parte re-examination rules leave more room for third-party input than was generally recognized.

"The rules do not obligate the examiner to listen to or respond to any third party," said Carl Oppedahl, an attorney with the Colorado-based firm Oppedahl & Larson who is not involved in the case. "It is nonetheless within the power of the examiner to choose to listen if the examiner exercises that discretion."

Oppedahl noted that while letters from Microsoft and the W3C were widely credited with having spurred Rogan's decision to re-examine, patent office guidelines all but rule out that kind of solicitation.

Patent news service editor Aharonian--himself the target of a patent infringement lawsuit that is suspended pending the results of a re-exam--questioned the logic of the patent office's process.

"We pay money to the patent office to do a job," he said. "They should do it right the first time around, and if they don't, why do we pay more money to have them take another look?"