Will Microsoft Settle With Eolas?

On the eve of a new trial to determine whether Microsoft’s Internet Explorer infringed a patent held by a small startup and a major university, the opposing sides have agreed to try negotiations instead. At stake: a $521 million judgment against Microsoft that is literally hanging in the balance.

The trial, which was scheduled to begin in Federal District Court in Chicago this week, has been postponed for 30 days so the parties can try to work out a deal.

And that could work in all parties’ favor.

This past Monday, both sides were supposed to present their opening arguments in a partial retrial of the original case that had resulted in that massive 2003 jury award. Instead, both parties asked for more time to try to work out a settlement, a Microsoft  spokesperson told internetnews.com.

“We are in active discussions with Eolas Technologies regarding a possible settlement [and] we are hopeful that we can resolve our dispute amicably,” the spokesperson said.

The long litigation trail began eight years ago.

Eolas Technologies, a Chicago-based spin-off from the University of California (UC), sued Microsoft in 1999 over a patent that was issued to the startup in 1998. The patent deals with the way a Web browser opens plug-ins, Java applets, scriptlets and Microsoft’s ActiveX Controls.

Microsoft lost the case in 2003, resulting in the $521 million jury award. The software giant later modified IE to exclude the contested technology in 2005. However, in March of that year, a Federal Appeals Court tossed out part of the verdict on the grounds that the lower court should have let the jury consider whether Eolas’ patent was invalid.

Unraveling that is the purpose of the trial that had been set to start this week.

In the meantime, however, Microsoft convinced the U.S. Patent & Trademark Office (USPTO) in late May that it should be allowed to argue in a patent court that it, and not Eolas, is the rightful owner of the disputed patent.

That is a separate legal action which has not yet gone to court. But it’s outcome, if it comes out in Microsoft’s favor, could completely undercut the plaintiffs’ position in the infringement case.

That could mean that the time is right for both sides to cut their losses.

“If Microsoft is found to infringe the patent, the potential award could be pretty large,” Matt Rosoff, lead analyst at researcher Directions on Microsoft, told internetnews.com.

At the same time, Microsoft has billions in the bank and can afford to drag the case out, if necessary. That is not true of tiny Eolas, and is also likely not the case for the University of California, which is also a plaintiff.

“They thought they had a big check coming [plus] they’ve run up a lot of legal fees,” Rosoff said. Now that judgment is in doubt, so it may be an incentive for the plaintiffs to settle, albeit for less than the original award.

Still, it’s just the most notable of a plethora of legal tiffs Microsoft finds itself engaged in on an ongoing basis – which can be both expensive and distracting.

“In general, Microsoft is trying to clear its plate [of litigation],” Rosoff added. “It seems like a good time to settle.”

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