!062394 Microsoft and STAC settle for less than $120 million jury award Microsoft and Stac have reached an agreement on their legal battles. Instead of paying Stac the $120 million that a jury awarded to them, Microsoft will pay $43 million and buy $40 million of Stac stock. Stac and Microsoft will cross-license all of their existing computer disk compression patents and any such patents either one receives over the next five years. Stac will receive the $43 million as a royalty at the rate of $1 million a month, and sell $40 million in preferred stock to Microsoft, which together really softens the blow of the judgement against Microsoft. I wonder why Stac settled so cheaply, since getting access to Microsoft's compression patents probably won't benefit it appreciably. ===================== I recently posted a message about STAC settling with Microsoft for less than the $120 million a federal jury awarded it. In the posting, I kind of rhetorically asked why STAC would do this. I got back a variety of responses, most quessing that Stac was afraid of Microsoft tying up the judgment in appeals court, which is what I guessed myself. One reader sent in the following observation, which had some tidbits I hadn't been aware of before. I think Stac made this deal because the appeal went through and the injunction issued was being held up. Stac knew that they were not going to see $120 million for quite some time and in the meantime, Microsoft had 100% circumvented the patents. Stac also knew that they would spend millions in lawyer fees. Lastly, Stac had a chance of losing - a good chance because I am aware of the Stac compression algorithm, their patents, and the Microsoft compression code. The jury was composed of one person who was familiar with computers and another had a college degree. This jury had no way of knowing what 'hashing' was and probably thought that Microsoft was trying to use technical jargon and semantics to explain why the code did not hash - but in fact, the Microsoft code clearly did not hash, and it was Stac's lawyers and expert witnesses who made ridiculous claims as to what hashing was and successfully convinced a technically ignorant jury. In an appeals court, my understanding is that the appeal decision is made by a judge? At least someone with a college degree! Also, I think Microsoft found some prior art as well. If so, then Stac's deal with Microsoft is about as good as it will get, but if so, the Microsoft could probably afford a few million dollars to play appeal court games and have a good chance of winning. Unless of course, Microsoft decided to be generous, though with a head counsel whose last name is Nukem (well Neukom), I doubt it :-) For those in a guessing mode, anyone know if Hughes is going to protest getting ripped off in its infringement settlement? ====================================== Here are some more observations on the Stac vs. Microsoft lawsuit. I too thought that Stac settled -- but look at it another way. Stac had a $16.5 million judgment against them in the same case as well. Additionally, they would have had to pay enormous taxes on $120 million in settlement money. An estimate might be between $60 and $65 million could have been kept by Stac. So in doing the Microsoft deal, they keep a job for life, get invested in (no taxes), and a smaller sum of money, presumably easier to write off against. So Stac, while they bent, did get more security, and perhaps even more money, by settling in the manner they did. ==================== > In an appeals court, my understanding is that the appeal decision > is made by a judge? At least someone with a college degree! > Also, I think Microsoft found some prior art as well. If only it were so! The appeals court is not allowed to consider issues of fact -- that's what the jury is for (i.e. was the defendent within the elements of a claim as taught by the specification). In fact, appeals of patent judgements very rarely prevail. The prior art isn't relevant in an appeal either; although obviously it may serve as grounds for reexamination. How about the fact that the investment was at a $600 million valuation for STAC (a major equity boost for shareholders)? Or the fact that the investment was for convertable stock that cannot be sold, recognize dividends, or convert until 2002? The legal issue that they avoided was an infirngement action by Microsoft based on the rights they purchased to other patents -- even if they are weak, Microsoft would still have a good chance of convincing a "jury of plumbers" that STAC was within the four walls of a claim. By the way, *everyone* in court over an IP issue must expect a jury of so-called "ignorant" people. Write your applications accordingly! ==================== I think it's true that part of STAC's motivation was to avoid an appeal, but they have even more reason for avoiding it than the last post to the news service suggests. Keep in mind that an appeals judge is not permitted to review or overturn factual determinations made by a jury (whether MS software hashes is an example of a factual determination). Thus the best MS could hope for is for the appeals judge to find an error in the way the trial judge applied the law, in which case MS would be granted a new trial. In this case, STAC would be forced to spend millions going through not only the appeal, but ANOTHER trial, and also would be exposed to the risk of the second jury finding it's patents invalid. If this were to happen and this result were upheld through appeal, STAC would have nothing to license to anyone. As it stands now their patents have been strengthened somewhat by a court determination of validity. ==================== This case illustrates a variety of aspects of patent infringement: appeals, jury competence, taxes, big vs. small companies, patent portfolios, etc. As distracting as all of this is from software development, it will become an increasingly bigger aspect of software engineering practices. Greg Aharonian Internet Patent News Service