Patent suit against Microsoft tossed

Microsoft won its bid to have a patent-infringement lawsuit by creditors of defunct Internet service provider At Home thrown out.

The U.S. Court of Appeals for the Federal Circuit in Washington ruled Wednesday that a trust set up to pay At Home's creditors lacked authority to sue Microsoft over a patent they received in payment of bankruptcy claims.

The court ruled that U.S. patent law, not bankruptcy law, governs who has power to sue over patents transferred to help pay off a bankrupt company's debt.

It's the first time the court decided a case on how bankruptcy law affects the right to sue in a patent dispute, according to the opinion.

"The patent statutes have long been recognized as the law that governs who has the right to bring suit for patent infringement, even when patent rights have been transferred as a result of bankruptcy," Judge Kimberly Moore wrote for a divided three-judge panel.

Three trusts were set up in At Home's bankruptcy case to pay bondholders and other creditors.

The plan gave title to a patent for linking documents with Web sites to the At Home Liquidating Trust, while the right to sue over the invention was given to the General Unsecured Creditors Liquidating Trust.

The trust for unsecured creditors had no authority to sue Microsoft because the plan "separated the right to sue from the underlying legally protected interests created by the patent statutes," Moore said.

Since the liquidating trust kept the rights to the patent, the creditors' trust "suffers no legal injury" from Microsoft's alleged use of the technology.

At Home, which offered Web access over cable lines and once had a $16.5 billion market value, filed for bankruptcy in September 2001. It shut down less than six months later.

The liquidation plan to pay creditors took effect in September 2003.

The trust for suppliers and other general unsecured creditors sued in San Francisco federal court in October 2003, accusing Microsoft of using At Home's patent on hypertext links in its Office XP software.

U.S. District Judge Claudia Wilken ruled before trial that Microsoft didn't violate the At Home patent. Frank Morrow, in charge of the creditors' trust, appealed the ruling. On appeal, Microsoft challenged his authority to sue.

A trust lawyer, Jason Kravitz, said his client is considering the next legal move.