$358 million penalty against Microsoft lifted as patent case returns on appeal

Microsoft dodged a $358 million penalty — one of the largest damage awards the software company has faced — when an appeals court lifted an award Friday to Alcatel-Lucent for patent infringement.

While the U.S. Court of Appeals for the Federal Circuit affirmed that Microsoft had infringed on an Alcatel-Lucent patent, the court remanded the case to the lower court to reevaluate how much Microsoft should have to pay Lucent.

The ruling, by Chief Judge Paul Michel and circuit judges Pauline Newman and Alan Lourie, means the case heads back to the U.S. District Court for the Southern District of California.

Microsoft still will have to pay damages, but it likely will not come near the $358 million a jury decided it should pay.

The case could set a precedent for how damages are calculated in other software-patent cases.

The lawsuit concerns a calendar feature in Outlook that allows users to choose a date from a graphical calendar interface when scheduling an appointment. The feature also was incorporated into Microsoft Money and Microsoft Mobile, and Alcatel-Lucent claimed it infringed on a "Day" patent the company owned.

Lucent had asked for damages of $561.9 million, or 8 percent of all the revenue Microsoft had made from selling 110 million copies of Outlook, Money and Mobile.

Microsoft claimed the damage was worth only $6.5 million, based on a previous licensing agreement for similar technology Microsoft had struck with another company.

Michel wrote in the court's ruling that if the jury had arrived at $358 million as a percentage of Microsoft's sales revenue, it would be erroneous to place such a high value on the feature.

"In short, Outlook is an enormously complex software program comprising hundreds, if not thousands or even more, features. We find it inconceivable to conclude, based on the present record, that the use of one small feature, the date-picker, constitutes a substantial portion of the value of Outlook," Michel wrote.

"We are pleased that the court vacated the damages award, and we look forward to taking the next step in the judicial process," said Microsoft spokesman Kevin Kutz.

Mary Ward, spokeswoman for Alcatel-Lucent said: "We are very pleased with this decision because it affirms Microsoft infringed on our patent. We are disappointed the court did not affirm the jury's decision on damages, but we will take that in the next step."

Judge Michel criticized both parties equally in the case, writing in his ruling, "A complicated case this was, and the damages evidence of record was neither very powerful, nor presented very well by either party."

The court's decision could have an impact on a separate patent-infringement case in which a company called i4i won a $200 million jury verdict against Microsoft, plus $90 million added by the judge. That case involved the use of XML in Microsoft's Word software, and the case is scheduled to be heard by the Court of Appeals for the Federal Circuit on Sept. 23.

"We will have to see, but we are encouraged by appellate court's explanation of their decision," Kutz said.

Sharon Pian Chan: 206-464-2958 or schan@seattletimes.com