It pays to get protection

In a courtroom in Tyler, the first decade of the second millennium drew to a close in dramatic style. First in the Texan city – the region being a magnet for patent litigation – and finally in a Washington DC judgment dated 22 December 2009, Microsoft lost out in a long-running intellectual property dispute with small Canadian company i4i. Microsoft was not only ordered to pay $290m (£184m) in damages to its minnow rival, but made to remove existing versions of Microsoft Office Word from its shelves and online store. The injunction, requiring the eradication of infringing features from January 2010, will no doubt improve the prospects for i4i’s business considerably.

i4i vs Microsoft
While the defendant’s history will be familiar to most, the same cannot be said for Infrastructures For Information (i4i). Founded in 1993, the Toronto-based company sought to specialise in “collaborative content authoring” products. The patent at the heart of the Microsoft case, granted by the US Patent and Trademark Office in 1998, relates to the separate storage of a document’s content and metacodes. It describes a method for editing documents in XML and other similar markup languages.

Throughout legal proceedings, i4i asserted that the damage inflicted by Microsoft infringing its patent was irreparable, and that as such the court should grant a permanent injunction against Microsoft. The invention formed the basis for i4i’s revenue stream in the form of an editing plug-in for Microsoft Word that catered neatly to a niche commercial market. In fact, the relationship between i4i and Microsoft was rather amiable, and even symbiotic, at first. At the turn of the millennium, i4i was enjoying increasing success as XML slowly started to become the ubiquitous force it is today. Between 2000 and 2002, i4i and Microsoft were in discussion regarding the capabilities of XML editing software and, according to reports, even began jointly pitching to clients.

Things quickly turned sour when Microsoft began developing XML editing capabilities of its own. This was then bundled within copies of Word 2003, rendering i4i’s main offering obsolete. Sales plummeted, and the company – already hit hard by the bursting of the dot com bubble – dwindled from 150 staff members to about 50. Believing that Microsoft had appropriated its patented technology, David decided to take on Goliath.

To patent or not to patent?
What is clear from the judgment and the significant damages paid to i4i is the potentially vast com­mercial power that software patents can provide.

The patent system can appear intimidating, especially to small companies. Patent costs often loom large, and the benefits may not always be appreciated. For many, the idea of taking on a rival – let alone a rival the size of Microsoft – may not seem like an option. However, simply assessing the need for a software patenting strategy and deploying one accordingly can provide highly useful commercial leverage in negotiations with competitors. Indeed, it helps substantiate in law the very time and effort put into developing a given product in the first place.

An important distinction here is the level of automatic protection given by copyright and the protection provided by software patents. In truth, the Microsoft case drives to the very heart of why the patent system is important in the field of software: copyright protection alone is not sufficient to protect innovative developments implemented in software. While i4i will have gained some benefit from copyright protection for its code, it would have been entirely irrelevant in this dispute. Microsoft did not copy i4i’s code; it appropriated an invention that i4i had developed. Put simply, if i4i had relied solely on copyright protection, it would have had no complaint against Microsoft.

An innovative strategy
The sheer pace of innovation and the speed and variety of technological means in developing software make the patent system all the more relevant. Often, it is not specific code that provides commercial value; rather, the true value lies in the idea implemented in that code.

What is more, companies rarely have the luxury nowadays of product dominance over a number of years while their rivals struggle to catch up. Continued and long-term growth for many companies will be reliant on the patent system to protect the heart and soul of a company’s inventions being adopted, albeit circuitously, by competitors. Without patent protection, there would be far less incentive for companies such as i4i to develop novel technologies in the first place.

When i4i applied for its custom XML patent, XML was itself far from established. Its commercial potential would only become apparent after the turn of the millennium. So widespread is the use of XML technologies today, that i4i’s patent may well seem obvious, but that was not so when it was filed in 1994. Indeed, Microsoft attempted to argue i4i’s patent was invalid – a claim that was rejected.

Today’s groundbreaking technology can and does sometimes become the industry norm of tomorrow. Not only does this make it all the more commercially necessary to protect revenue from today’s innovation, but essential to recognise that doing so in the future might not be possible.

In putting in place a thorough intellectual property strategy, companies need to think carefully about what they protect. In so doing, they should focus on technologies that they believe will play an important role in their commercial future, and those they have helped pioneer that may be useful to the market at large.

Wrongly, an holistic approach to patent protection is sometimes seen in a defensive light, and likened to patent “trolling”. Yet in the case of i4i, which was actively building its entire business model on its custom XML technology, this is clearly not the case. Rightly, the patent system seeks to reward true invention. For i4i, it should have been in a strong position to reach a settlement, strike a licensing deal, or see itself bought out handsomely in reward for its forerunner status in the area of custom XML.