In 1999, Eolas Technologies sued Microsoft for patent infringement over its implementation of ActiveX. The Patent, No. 5,838,906t, owned by the University of California and exclusively licensed to Eolas, deals with third party plug-ins. A jury decision was reached in August 2003, ordering Microsoft to pay $520.6 million in damages. Pursuant to post-trial motions filed by both Microsoft and Eolas, on January 15, 2004, the Court upheld the jury ruling that Microsoft's Internet Explorer (IE) Web browser infringed the patent and granted a permanent injunction.The Court denied Microsoft’s post-trial motion for Judgment As a Matter of Law and for a New Trial, finding no errors in the jury instructions and no material change in the law that would support another outcome. Similarly, the court denied the motion for a New Trial with Respect to Damages or, in the Alternative, for Remittitur. Because Microsoft bundles multiple functionalities in a product, the valuation of individual components is difficult. The Court affirmed the royalty rate.
Microsoft’s motion to exclude foreign sales from the royalty base was denied. The Court found no liability under 34 U.S.C. § 271(a) because exports of unassembled component parts do not infringe a combination patent claiming the assembled whole. However, Microsoft is liable under § 271(f), which prohibits the manufacture of all or a substantial part of the significant components of a patented invention within the US and then having those components assembled abroad. The Court concluded that the source code in a computer product is, the legal equivalent of a piece of computer hardware; hence Microsoft is liable for units of Windows with IE which are produced and sold outside of the US.
Microsoft’s motion to suspend a decision until the U.S. Patent and Trademark Office completes a re-examination of the patent was denied. The Court found that a stay would impose more significant costs on Eolas, whereas Microsoft risks only the payment of royalties if the patent is not invalidated. The injunction does not prevent Microsoft’s customers who already bought Internet Explorer from continuing to use it. Microsoft was ordered to pay Prejudgment Interest in the amount of $45.3 million, based on a reasonable royalty paid four times a year invested in a risk-free instrument. Eolas’s motion for an Accounting subsequent to the appeal was granted as well.