Microsoft Loses $521M Patent Suit

Microsoft lost only its second-ever patent case on Monday, when a federal court in Chicago awarded a startup software company and the University of California $521 million in a patent-infringement lawsuit. The world's largest software company says it will appeal.

The judgment by the U.S. District Court for the Northern District of Illinois says that Microsoft's Internet Explorer Web browser infringed on a 1998 patent held by the university and Eolas Technologies Inc., founded by Michael Doyle, a former university professor. The plaintiffs claimed their software technology for plug-ins and applets made it possible for Microsoft to compete in the market for Web browsers against Netscape Communications, now owned by AOL Time Warner.

The patent describes a system for executing remotely stored applications on a client or server, via objects in a browser window. Eolas and the university filed suit against Microsoft in 1999.

Since 1998, Microsoft has been named as a defendant in some 35 patent-infringement cases. In its previous 22 years of existence, the company was a defendant in seven. It only lost once, in 1994, to Stac Electronics Inc., a maker of data-compression technology. But 21 patent-infringement suits against Microsoft are still active, including a dispute over digital-rights-management technology with InterTrust Technologies Corp., which was purchased in January by units of Sony and Royal Philips Electronics.

Last month, Microsoft paid $26 million to settle a patent-infringement case with Immersion Corp., a maker of touch-sensitive user-interface technology, and took a 10% stake in the company.

Microsoft says it will appeal the Eolas decision. The startup had originally asked for $1.2 billion in damages. Microsoft says Eolas' invention didn't work, and that its own Web browser uses different technology. Microsoft also invoked a "prior art" defense, arguing that Eolas' technology is based on a large body of public knowledge, including a system called Viola developed at the University of California at Berkeley.

A case involving eBay Inc. this month showed the potential danger of patent lawsuits to technology companies. Ebay on Monday said it took a $30 million second-quarter charge against earnings to cover a court-ordered patent-lawsuit payment to E-commerce company MercExchange LLC. The charge reduced the online auctioneer's second-quarter earnings by about 16%, or $17.8 million.