Irvine-based Uniloc USA Inc. scored a big legal victory over Microsoft Corp. last week.
Now the privately held maker of security software is hoping for a payout that could set a precedent in patent law.
The Court of Appeals for the Federal Circuit—a specialized court that handles patent appeals—last week affirmed an earlier ruling that Microsoft infringed on a Uniloc patent.
The court found that Microsoft used Uniloc’s product-activation technology in Windows XP and Office XP.
The decision came with a surprising twist that appears to open the door for a new calculation on how damages are awarded in patent infringement cases.
The court said it will end the use of a commonly used rule of thumb in tallying damages. The rule has held that a company should pay 25% of expected profits on a product found to have infringed on a patent.
An opinion from the court called the rule “a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation.”
A jury trial on damages for Uniloc is expected and hasn’t been scheduled yet.
It’s unclear what method might be used to determine penalties in the case. Microsoft could end up paying less than the $388 million it was ordered to pay Uniloc in 2009.
That led Microsoft to claim a small win in the ruling last week.
The ruling could benefit some companies found to have infringed on patents by focusing on each case’s circumstances rather than a rule of thumb, according to Doug Muehlhauser, a partner at Irvine-based patent law firm Knobbe Martens Olson & Bear LLP.
“This decision reinforces the view that damages awarded in patent cases should be based on real facts involving the parties and the industry in question rather than on arbitrary rules,” he said.
Legal Saga
The ruling on the merits of Uniloc’s case ends a legal saga that stretched back to 2003 and often took on shades of a David vs. Goliath battle.
“People saw this as a pretty no-holds-barred case, and we prevailed,” Uniloc Chief Executive Brad Davis said. “This is a big validation of this patent, which has some implications over the rest of our very large patent portfolio. That’s a huge win.”
The company initially went after Microsoft for infringing on a patent that Uniloc’s Australian founder, Ric Richardson, secured in the 1990s for a process that’s become a standard for preventing software piracy.
In 2008, Uniloc asked to be awarded $564 million in damages, based on calculations that considered how much Microsoft had profited from the technology as well as the number of copies of the infringing software that had been activated.
In 2009, a federal court jury in Rhode Island found Microsoft guilty of patent infringement and awarded $388 million in damages plus $86 million in interest.
Microsoft appealed later that year and got the verdict overturned.
Uniloc appealed, bringing the most recent win.
The company likely will stick to its prior calculations in seeking damages, according to Davis.
“Our thinking hasn’t changed in terms of the amount of incremental profit that Microsoft has generated from our technology,” he said. “They have generated billions in profits, so we think we are in a good position to get a fair award.”
Uniloc also plans to take into account the additional years that the legal back-and-forth has dragged on since Microsoft appealed the original verdict, Davis said.
Uniloc pioneered the idea of using a unique product key or serial number embedded into each copy of a software program. It ensures there’s only one registered user per copy and limits the product to being loaded on a select number of computers.
Uniloc’s patent has until 2013 before it comes to the end of its life.
Other Lawsuits
Last week’s win could help give Uniloc a leg up in other litigation.
In the past six months, the company has gone after some 120 other software makers in lawsuits in Texas that allege infringement of the same patent.
Companies named in the suits include Sony Corp., Activision Blizzard Inc., McAf-ee Inc., Adobe Systems Inc., Symantec Corp., as well as smaller software names.
Uniloc is seeking damages and injunctions on selling products that contain allegedly infringing software, according to the lawsuits.
About 40 of companies named in the suits have settled and struck licensing pacts with Uniloc, Davis said.
“Those are settling out nicely,” he said. “We’d love to get paid for our inventions and move on.”
