It's been a busy winter for Microsoft's four-lawyer patent litigation team. On February 10 the U.S. Supreme Court heard oral arguments in AT&T v. Microsoft to determine whether the software giant is responsible in the United States for its patent infringement overseas. It was Microsoft's first appearance before the justices. But in case the gravity of the event was lost on anyone, less than two weeks later, a San Diego jury provided a $1.52 billion reminder in its verdict against Microsoft-the largest patent infringement verdict ever-in a separate patent case concerning digital music technology. Nearly half of the damages claimed by plaintiff Alcatel-Lucent in that case come from abroad, so the outcome of the Supreme Court case could directly affect the San Diego damages.
Microsoft's in-house patent litigation team is headed by Andrew Culbert, associate general counsel. A former partner at Drinker Biddle & Reath, Culbert has served as lead counsel in several of Microsoft's biggest cases, most notably in Eolas Technologies Inc. v. Microsoft Corp. in 2000, which ended with a $521 million judgment against Microsoft over a Web-browsing patent. In October 2005 the Supreme Court refused to hear Microsoft's appeal in that case, but Microsoft did get its day against AT&T. As of press time, there was no decision in that case.
Culbert has a team of three trial lawyers and three patent litigation para-legals who help manage the company's docket, which currently has about 40 patent cases. According to Culbert's boss, Thomas Burt, Microsoft's corporate vice president and deputy general counsel for litigation, most of the pending cases against Microsoft are brought by so-called patent trolls. A full 15 of the 40 pending suits are in the plaintiff-friendly Eastern District of Texas. In the past five years, Microsoft has been a defendant in 96 patent cases, according to West Litigation Monitor. Burt calls the AT&T and Alcatel-Lucent cases very rare. "We have a small handful of plaintiffs with actual products," Burt says.
Microsoft's list of outside counsel is also short. In early 2004 the legal team in Redmond began creating a "preferred provider" list of law firms in an effort to control the cost of litigation across the board. These days patent litigation is approaching half of the company's legal fees. "If you measure it by how much we spend on outside counsel in any given year, 40 percent-plus is patent litigation, 40 percent-plus antitrust, and the rest is everything else," says Burt.
The firms that made the cut for patent litigation have had little time to rest. Fish & Richardson gets the lion's share of that work-patent litigator John Gartman argued Microsoft's defense against Alcatel-Lucent in San Diego, working with Microsoft's Steve McGrath. Boutiques Klarquist Sparkman and Woodcock Washburn, as well as Sidley Austin and Weil, Gotshal & Manges, handle most of the remaining patent litigation. The company takes a very hands-on approach with outside counsel, says Burt: "We actively edit and modify and rewrite briefs, participate in all the discovery, present arguments, depose witnesses as necessary."
Microsoft became a patent powerhouse only after the Supreme Court's 1998 State Street decision legitimized patents on software. The company revamped its patenting regime and went from a portfolio of less than a dozen patents to more than 5,000 today. At the same time, Microsoft built a licensing group with former IBM licensing guru Marshall Phelps in 2004 as deputy general counsel of IP. Compared to the company's busy out-licensors, Microsoft's litigation team has mostly been playing defence.
The company has been a plaintiff in a patent case only 11 times in the past five years. But lately Microsoft has been taking an increasingly aggressive and vocal IP stance. In mid-February, Microsoft CEO Steve Ballmer criticized the open source community for not respecting IP rights, despite Microsoft's expansion of its own open source efforts. Then, in early March, Tom Rubin, associate general counsel for Microsoft, speaking at a publishing conference, accused Google of making runaway profits from alleged copyright violations.
And there's no slowdown in cases. The gigantic San Diego verdict occurred in the midst of one of six patent battles pending with Alcatel-Lucent, and Microsoft has already said that it will appeal. Then there's the new case before the International Trade Commission that Microsoft filed against Alcatel-Lucent in a separate dispute with Alcatel that began prior to its September 2006 merger with Lucent. No wonder Microsoft is reading resumes to hire another patent litigator.
