Digest Comment – Second Round of Patent Litigation Brought on by Eolas May Redefine and Set Back Development in the Software Industry

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On October 6, 2009, Eolas Technologies Inc., a research and development company specializing in web solutions, filed a federal lawsuit in the Eastern District of Texas against 23 prominent companies in the software and Internet industry. Eolas claims that these companies are infringing two of its patents, U.S. Patent No. 5,838,906 ('906 Patent) and U.S. Patent No. 7,599,985 ('985 Patent). These two patents cover technology that enables websites to act as platforms for fully integrated embedded applications. The '906 Patent was granted in November 1998. It defines a system that would allow Internet users to access and execute an embedded program. The '985 Patent, which was granted on the same day that the company filed its present lawsuit, extends the reach of the older patent to AJAX (asynchronous JavaScript and XML) applications.

The present suit is not Eolas’ first. In a previous patent infringement suit, Eolas targeted Microsoft, claiming that the company had infringed its ‘906 Patent. Eolas alleged that its invention, which was first demonstrated at a SIGWEB meeting in 1994, was the “first instance where interactive applications were embedded in Webpages.”[1] The district court sided with Eolas, and the jury awarded Eolas $521 million in damages.[2] Microsoft appealed this decision, but after unsuccessful attempts at moving the case to the Supreme Court and invalidating the patent, the software giant chose to settle with Eolas.

Now Eolas has initiated suits against a number of large corporations for infringing the same patent and another that is an extension of the previous one. The current defendants include Adobe Systems, Amazon.com, Apple, Blockbuster, Citigroup, eBay, Frito-Lay, Go Daddy, Google, J.C. Penney, JPMorgan Chase, Office Depot, Perot Systems, Playboy Enterprises, Staples, Sun Microsystems, Texas Instruments, Yahoo, and YouTube. The court is being asked to rule on a case that not only includes several large players in the technology industry, but that also deals with a patent that has been upheld by the USPTO on several occasions.

The case has broad implications for internet use and software development in the future. It appears that Eolas has set its sights on a new string of tech companies following its successful suit against Microsoft. The outcome of this case could affect a wide range of businesses that interact with users through embedded programs on websites. Furthermore, the case could reshape and set back software development in fields that have come to depend on these embedded applications.

These broad implications have surfaced in past cases involving software patent claims. In December 1994, Unisys, a company that owned a patent on a software process built into a standard image file format known as the GIF, announced that it expected royalties from companies and developers all over the world who were using its code. In a mad scramble, users of the code desperately tried to bypass the use of the file format in their products, but many were forced to license the code from Unisys because too many of their software systems depended on the technology. Developers then spent years trying to develop a new image file format that could replace the GIF. However, even after a new image file format, the PNG, was available for companies to use, there were still setbacks in its implementation.[3] Many web browsers did not support PNG, and the technology was still not advanced enough to handle web animation. Therefore, it appeared that even before the new technology could overcome the old, the patent rights over the old would have already expired.

The results of the Unisys case demonstrate how difficult it may be for software companies to develop new technology to work around existing technology that requires licensing fees but has become ubiquitous. Even though software developers worked hard to fashion a new image file format to replace the GIF, in the end, the new file format was still unable to compete with the older and more popular file format, at least not before the patent rights over the GIF file format had expired. Unisys, by waiting until the GIF file format had become a standardized part of the software industry to assert patent rights over the technology, was able to collect large financial gains from the system. However, this was done at the expense of diverting company efforts away from developing new and more advanced technology to developing alternative methods to replace technology that already existed but was costly to use because of licensing fees.

In the present case, Eolas claims patent rights over technology that governs the use of interactive plug-ins. Plug-ins are used by companies to extend the capabilities of their applications, to play audio or video files, and to support different programming languages and file formats. Some popular examples of plug-ins include Winamp, which supports several music file formats; Adobe Flash Player, which enhances audio and visual web page components; and Google Earth API, which allows individuals to embed a 3D digital globe in a web page.

With the growing and already vast number of web browsers that use plug-ins to integrate interactive material into a web page, a ruling for Eolas in the present case may stall the development of web-based interactive tools. The technology that Eolas claims to have patent rights to has become so pervasive that individuals using platforms on websites such as Facebook and Google have already developed hundreds of embedded programs using the technology. Eolas counsel has released comments in magazines such as the German FOCUS Magazine that mitigate some fears of widespread litigation and mass licensing. Eolas claims that the company does not intend to cripple the Internet or go after individuals such as Facebook users and bloggers. However, with the history of litigation leading up to the present case and the large number of growing companies that are using its patented technology, it is unclear where Eolas will draw the line between litigation and allowance.

Eolas’ second lawsuit suggests that the company is interested in collecting royalties from internet and software companies at large. CNET argues that the present case stands out from other infringement cases because it involves a patent that has been upheld by the patent office on several occasions and targets a group of high-profile companies. Following the district court’s adverse ruling in 2003, Microsoft had considered tweaking Internet Explorer to avoid future injunctive and monetary action against the company.[4] The World Wide Web Consortium (W3C) at the time had commented that “the changes may affect a large number of existing Web pages,” which in turn would affect a large number of businesses that conduct transactions over those web pages. In summary, the court’s decision in the present Eolas case could have far reaching effects on software and website functionality for years to come as web designers and developers work around licensing restrictions that may be imposed on web browsers and other commercial entities.

[1] Eolas Techs., Inc. v. Microsoft Corp., 399 F.3d 1325, 1329 (Fed. Cir. 2005).

[2] Eolas Techs. v. Microsoft Corp., 2005 U.S. Dist. LEXIS 39896 (N.D. Ill. Nov. 30, 2005).

[3] http://www.cloanto.com/users/m...

[4] http://news.cnet.com/Will-Micr...