i4i Inc. vs. the Software Giant: success story and advice from the underdog

i4i Inc. vs. the Software Giant: success story and advice from the underdog

Nathan Fan is a JD candidate at Osgoode Hall Law School.

When Toronto-based i4i Inc. suspected their software patent had been infringed by Microsoft Corp., they rallied their resources and launched a lawsuit against the software giant in March 2007.  i4i’s patent was granted in 1998 for their XML software which allowed users to manage large amounts of information by turning complex documents into accessible databases. In 2000, Microsoft approached i4i regarding their product for a high-profile customer. However, instead of licensing the technology from i4i, Microsoft incorporated the programming into their Word products (2003, 2007). It was not until August 2009 that a U.S. court ruled in i4i’s favour, granting an injunction on U.S. sales of Word 2003, 2007 and any future versions that use i4i’s technology without a licence and also a monetary award of $290 million (USD).

In a recent podcast from The Globe and Mail, the entrepreneurs behind i4i described their experience with the litigation against Microsoft and gave their advice on how entrepreneurs can better protect their intellectual property. Loudon Owen (chairman of i4i) and Michel Vulpe (founder of i4i, Chief Technology Officer, and developer of the patented software) met in a coffee shop in 1995 to form Infrastructures for Information (i4i). Even at that early stage, Michel was concerned about the intellectual property rights behind their ideas. By 1998, i4i had patented their XML technology and when Microsoft had approached them, i4i was able to fall back on their intellectual property protection.

When i4i first suspected that Microsoft had been using their invention, it was difficult for them to know for certain if their patent was infringed until they were able to compare the source code. However, the dilemma for i4i (and for all software entrepreneurs) was that the access to the source code and the certainty of infringement were not available until a lawsuit was actually put forth. Thus, there is always a large risk involved in litigating a suspected patent infringement in regards to software.

The first thing i4i did was to ensure that all of their communication and deliberation was protected under solicitor-client privilege to allow them to speak and analyze freely. The second step was to go out into the market and engage in an in-depth review of the products that might have been infringing on their invention, doing their due diligence in acquiring market information. The third step was to consult with various prospective advocates.  i4i approached both U.S. and Canadian lawyers regarding what proof was required to bring the case, the potential costs and time requirements of such a litigation, what the key elements would be for their case, and what the expected outcomes would be. Owen noted that it was important for i4i (and in fact all prospective patent litigants) to consult various types of IP lawyers, as filing a patent and litigating a patent are very different and require different lawyers. Thus, i4i attributes much of their preparation and careful planning to the success of their litigation against Microsoft.

Owen and Vulpe also provided suggestions to entrepreneurs on how to better protect their intellectual property. In regards to patents, they advise that corporations need to first know and decide exactly what kind of business they are in. If they are in the business of providing a service and it is a fairly generic service, they are better off avoiding patent protection. The costs and complexity of patents are often significantly higher than what people may realize when contemplating patenting their product.

On the other hand, if they are in the business of making dramatic changes within an industry, they should be extremely attentive to investing in patents and other IP protection tactics (i.e. non-disclosure agreements and other strategies to deal with both small and large companies). One has to keep in mind, however, that patents are often a trade-off. The deal is that you disclose everything in exchange for a monopoly, but there are often ways for others to get around that monopoly. It is only a certain type of patent that can withstand the challenges of the courts and the U.S. Patent Office (which processes over half a million patent applications a year).

Vulpe also warned entrepreneurs that the process of acquiring patents can be a very expensive proposition and entrepreneurs must undertake that process with the belief that they will fight to enforce it, or otherwise risk losing the $50-100,000 invested in getting the patent in the first place. If entrepreneurs are unwilling to invest in the patents, they will be much better off using their money to invest in other elements of their business (e.g. more programmers, engineers, or a better marketing plan, etc.) However, if they are willing to invest in a patent, then they need to develop a proper patent strategy. This would include a patent strategy in the U.S. (even for Canadians) as it is the big market and the centre to a lot of innovation. An international patent strategy is also important to protect your invention internationally. Finally, it would also be a good idea to secure funding for the patent before starting the patent application process as it can be a very expensive endeavour, especially for smaller entrepreneurs.

All in all, Owen and Vulpe provided well rounded advice to interested entrepreneurs and laid out some of the potential pitfalls of the patent process. Their decade-plus of experience with patents and their recent win against Microsoft give hope to the small entrepreneurs that the incentives of the IP system are still accessible to the underdog if they have properly planned their strategies ahead of time.