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Microsoft Corp. may be the first company to benefit from the Supreme Court’s recent decision to end a long-standing presumption that an injunction should be issued almost automatically against a proven patent infringer. Applying the Supreme Court’s May ruling in MercExchange v. eBay, a Texas federal judge denied the request of Z4 Technologies Inc., a tiny Michigan company, to bar Microsoft from making, selling, and using its infringing Windows and Office software. The ruling, issued June 15 by U.S. District Judge Leonard Davis of the Eastern District of Texas, signals a major shift in patent-litigation practice. Michael Barclay, a patent-litigation partner in the Palo Alto, Calif., office of Wilson Sonsini Goodrich & Rosati, calls it “the classic first example of how the eBay case is going to limit the number of injunctions in patent cases.” Harold McElhinny, co-chairman of Morrison & Foerster’s patent-litigation group based in San Francisco, says the ruling is likely to break “wide open” the question of whether an injunction is justified in every patent case. “Z4 does not fit the traditional definition of a patent troll. It is a company that is in the market and making a product and trying to compete with Microsoft, so now it looks like every defendant can use the eBay logic against all companies, regardless of whether they’re trolls or not,” says McElhinny. ADVANTAGE: MICROSOFT In April, a jury found that Microsoft and Autodesk Inc. willfully infringed two Z4 patents covering methods for limiting unauthorized use of software. Both Microsoft and Autodesk include Z4′s anti-piracy program in some of their products. The jury ordered the two companies to pay Z4 damages in the amounts of $115 million from Microsoft and $18 million from Autodesk. In refusing Z4′s request for a permanent injunction against Microsoft, Davis used the traditional four-factor test recommended by the high court. He concluded that Z4 would not suffer irreparable harm in the absence of a permanent injunction. The judge ruled that because the infringing technology is only a small component of Microsoft’s software, Z4 will not lose profits, brand-name recognition, or market share. Davis cited a comment in Justice Anthony Kennedy’s concurring opinion in eBay that if a patented invention is only a small component of the infringing product, monetary damages should be sufficient. Davis also found that the balance of hardships tilts in favor of Microsoft because a permanent injunction would require the company to redesign and rerelease its products. Office is distributed in 450 variations in 37 languages, and Windows comes in 600 variations in more than 40 languages. Davis’ ruling also cited possible harm to the public interest. “Microsoft’s Windows and Office software products are likely the most popular software products in the world,” wrote Davis. “Accordingly, the public interest is likely to be disserved if a permanent injunction were entered.” Barclay of Wilson Sonsini says that reasoning surprised him: “It’s ironic that Microsoft was able to use its enormous market position to stop the court from issuing an injunction.” But McElhinny of Morrison & Foerster calls it a positive development that courts may now weigh the public’s interest in cases where the public could be greatly inconvenienced and the plaintiff’s interest can be served by a royalty fee. “It seems right to deny an injunction in a case like that,” he says.
Xenia P. Kobylarz is a reporter for The Recorder , an ALM publication based in San Francisco where this article first ran.

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