In September, the Court Of Appeals For The Federal Circuit heard oral arguments in Microsoft’s appeal of a trial court decision awarding i4i hundreds of millions of dollars in damages for patent infringement. Although the appellate decision has not yet been rendered, much of interest may be gleaned from the questions posed by the appellate judges.
Much of the questioning revolved around the fact that the patented invention, a method of editing Extensible Markup Language (XML) files, is only one feature amongst many found in the accused Microsoft Word product.
Asked one judge, “[w]hy didn’t [the i4i damages expert] start with the cost of Word and then figure out how much of the value of Word is attributable to the XML patented technology?” Instead, i4i had applied the Microsoft profit margin (80% in case the reader is interested) to a so-called “benchmark” product which provided the same XML capability and sold for $499. One judge described the underlying assumption, that users would have purchased the $499 product as an alternative to Word, as “totally irrational.”
One of the judges had previously held (Cornell University v. Hewlett-Packard Company) that plaintiffs needed to provide survey evidence of market demand – something i4i failed to do.
Finally, the panel seemed to attack the so-called “25% Rule” (also known as the “Goldsheid Rule”) as “unreliable” and “lacking a rational or theoretical basis.” This rule is a favorite of plaintiffs as it frequently yields the highest damages demand. A finding that it lacked the aforesaid basis would mean that it would no longer be admissible – it couldn’t be presented to a jury. This could be the most important aspect of the upcoming decision.
We’ll keep you informed.