Uniloc USA, Inc. v. Microsoft Corporation

Case Overview & Background

This seminal patent infringement case involved plaintiff Uniloc, a prolific patent assertion entity (PAE), and defendant Microsoft Corporation, a global technology operating company. Founded in Australia, Uniloc began as a security software developer but evolved into a prominent PAE, acquiring patents to generate revenue through litigation and licensing. Microsoft was sued over its "Product Activation" feature, a digital rights management (DRM) technology integral to its dominant Windows XP operating system and Office software suites. This anti-piracy tool required users to activate their software online or by phone, which generated a unique hardware-based ID to ensure a single license was not used on multiple machines, a process Uniloc claimed infringed its patent. The sole patent-in-suit was U.S. Patent No. 5,490,216, which covers a system to prevent software piracy by creating a unique user ID to license the software for use on a specific computer platform.

The lawsuit was filed in the U.S. District Court for the District of Rhode Island and presided over by Judge William E. Smith. The choice of venue is not clearly documented in public records, but at the time of the 2003 filing, plaintiffs had more latitude in forum selection before later Supreme Court decisions tightened venue requirements. This case is notable for several reasons. It represents a high-stakes battle between a major PAE and one of the world's largest technology companies over a feature central to Microsoft's flagship products. The litigation produced one of the largest patent verdicts in history at the time—$388 million—which was ultimately overturned and then reconsidered on appeal.

Most significantly, the case's journey to the U.S. Court of Appeals for the Federal Circuit resulted in a landmark 2011 decision that reshaped patent damages law. The Federal Circuit forcefully rejected the long-standing "25 percent rule of thumb," a common heuristic for calculating reasonable royalty damages, deeming it a "fundamentally flawed tool" inadmissible in court. The court also strictly limited the use of the "entire market value rule," clarifying that damages could only be based on the total revenue of a complex product like Windows or Office if the patented feature itself was the primary driver of customer demand. This ruling had a profound and lasting impact on patent litigation, making it more difficult for plaintiffs to secure massive damage awards based on speculative calculations.

Key Legal Developments and Outcome

The litigation between Uniloc and Microsoft over U.S. Patent No. 5,490,216 was a protracted and consequential legal battle. It progressed from a district court filing through a jury trial, a multi-million dollar verdict, and ultimately to a landmark appeal at the Federal Circuit that reshaped the landscape of patent damages law.

Initial Proceedings & Pre-Trial

• 2003-09-29: Complaint Filed: Uniloc USA, Inc. and Uniloc Singapore Private, Ltd. filed a patent infringement lawsuit against Microsoft Corporation in the U.S. District Court for the District of Rhode Island. The complaint alleged that Microsoft's Product Activation feature, used in its Windows XP and Office XP software, infringed on Uniloc's U.S. Patent No. 5,490,216, titled "System for software registration."
• 2006-02-08: Summary Judgment Motions: After discovery, both parties filed motions for summary judgment. Microsoft sought summary judgment of non-infringement, while Uniloc moved for summary judgment of infringement.
• 2006-09-29: Summary Judgment Ruling: Chief Judge William E. Smith denied both parties' motions for summary judgment on the issue of infringement. However, the court granted Microsoft's motion for summary judgment of no willful infringement, finding that Microsoft had presented evidence of a good-faith belief that its technology did not infringe the patent or that the patent was invalid. This ruling was critical as it removed the possibility of treble damages for Uniloc.
• Claim Construction (Markman Ruling): The court held a Markman hearing to construe the disputed claims of the '216 patent. One key term was "licensee unique ID," which the court construed to mean an identifier "generated to be unique to a particular licensee." This construction was later a central issue on appeal.

Patent Reexamination

• 2007-03-21: Microsoft Requests Reexamination: Concurrent with the district court litigation, Microsoft filed a request for an ex parte reexamination of the '216 patent with the U.S. Patent and Trademark Office (USPTO). This is a common defensive tactic used to challenge the validity of a patent-in-suit.
• 2008-01-23: USPTO Confirms Patentability: The USPTO concluded the reexamination process and issued a certificate confirming the patentability of all 21 claims of the '216 patent over the prior art cited by Microsoft. This decision strengthened Uniloc's position heading into trial.

Trial and Verdict

• 2009-03-23: Trial Begins: The case proceeded to a jury trial in Providence, Rhode Island.
• 2009-04-08: Jury Verdict: After an eight-day trial, the jury found that Microsoft had infringed claims 1-13 and 15-21 of the '216 patent. The jury awarded Uniloc $388 million in damages. The verdict was one of the largest patent awards in U.S. history at the time.

Post-Trial Motions and District Court Judgment

• Post-Trial Motions: Microsoft filed post-trial motions for Judgment as a Matter of Law (JMOL) on infringement and damages, and alternatively, for a new trial. Microsoft argued that its activation process did not meet the "licensee unique ID" limitation of the patent claims and that the damages award was unsupported by the evidence.
• 2009-09-29: District Court Ruling: Judge Smith denied Microsoft's motions for JMOL on infringement, upholding the jury's finding. However, he vacated the jury's $388 million damages award, finding it to be "grossly excessive" and not supported by the evidence presented by Uniloc's damages expert. Judge Smith criticized the expert's reliance on the "25 percent rule of thumb" for calculating a reasonable royalty and a flawed application of the entire market value rule. While vacating the award, the court did not order a new trial on damages, instead entering a final judgment of non-infringement in Microsoft's favor, a move that was later questioned on appeal. The court also granted Uniloc's motion for an ongoing royalty of $0.15 for infringing products sold between the verdict and judgment but denied its request for a permanent injunction.

Federal Circuit Appeal and Final Outcome

• 2011-01-04: Federal Circuit Decision (Uniloc I): Both parties appealed to the U.S. Court of Appeals for the Federal Circuit. In a landmark decision, the appellate court affirmed the jury's finding of infringement, reversing the district court's grant of JMOL of non-infringement. Most significantly, the Federal Circuit took the opportunity to definitively reject the "25 percent rule of thumb" for calculating patent damages, stating it was "a fundamentally flawed tool for determining a baseline royalty rate." The court also found that Uniloc had not presented sufficient evidence to tie the value of the patented feature to the entire market value of Microsoft's multi-component software products (Windows and Office). The court vacated the damages award and remanded the case for a new trial solely on the issue of damages.
• 2012-07-20: Petition for Rehearing En Banc: Following the initial appellate decision, Microsoft petitioned for a rehearing by the full court (en banc).
• 2012-09-25: Federal Circuit Decision on Rehearing (Uniloc II): Upon rehearing, the Federal Circuit panel reversed its earlier position. In a new opinion, the court vacated its prior judgment and held that no reasonable jury could have found that Microsoft's product activation sequence met the "licensee unique ID" claim limitation as construed by the district court. The court determined that the algorithm used by Microsoft generated an ID tied to the hardware, not the licensee. Therefore, the Federal Circuit reversed the district court's denial of Microsoft's motion for JMOL of non-infringement.
• Final Outcome: The Federal Circuit's final decision vacated the infringement verdict entirely. This ruling concluded the nearly decade-long litigation in Microsoft's favor, wiping out the massive jury award and establishing critical new precedent that raised the bar for proving patent damages. The judgment was vacated, and no damages were ultimately paid by Microsoft.

Plaintiff Representatives

Uniloc was represented by a combination of attorneys from national intellectual property litigation firms. The counsel listed on the key appellate filings provide the most definitive record of representation.

Lead and Appellate Counsel

Uniloc's representation, particularly at the crucial Federal Circuit appellate stage, was led by attorneys from Finnegan, Henderson, Farabow, Garrett & Dunner, a prominent IP specialty firm, and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, a large full-service firm with a strong IP practice.

• Name: Donald R. Dunner
  Role: Lead Appellate Counsel
  Firm: Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Washington, D.C.
  Note: A legendary and highly respected Federal Circuit advocate, Dunner argued the case for Uniloc on appeal.

• Name: Paul J. Hayes
  Role: Trial and Of Counsel
  Firm: Mintz, Levin, Cohn, Ferris, Glovsky & Popeo P.C., Boston, MA
  Note: Hayes led a trial team that secured the $388 million jury verdict for Uniloc against Microsoft.

• Name: Dean G. Bostock
  Role: Trial and Of Counsel
  Firm: Mintz, Levin, Cohn, Ferris, Glovsky & Popeo P.C., Boston, MA
  Note: Bostock has nearly 30 years of experience in patent, trademark, and copyright litigation and was on the brief for the Federal Circuit appeal.

• Name: Don O. Burley
  Role: Of Counsel
  Firm: Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Washington, D.C.
  Note: Burley was on the brief for Uniloc's successful Federal Circuit appeal.

• Name: Erik R. Puknys
  Role: Of Counsel
  Firm: Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Palo Alto, CA
  Note: Puknys was listed on the Federal Circuit appellate brief.

• Name: Aaron J. Capron
  Role: Of Counsel
  Firm: Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Palo Alto, CA
  Note: Capron was listed on the Federal Circuit appellate brief.

Defendant Representatives

Microsoft Corporation was represented by a team of highly regarded trial and appellate lawyers from national firms known for their expertise in high-stakes intellectual property litigation. The in-house legal team also played a significant role.

Lead and Appellate Counsel

Microsoft's defense, particularly at the trial and appellate levels, was handled by attorneys from Fish & Richardson P.C. and Keker & Van Nest LLP (now Keker, Van Nest & Peters), both top-tier litigation firms.

• Name: Frank E. Scherkenbach
  Role: Lead Appellate Counsel
  Firm: Fish & Richardson P.C., Boston, MA
  Note: Scherkenbach argued for Microsoft before the Federal Circuit in the appeal that ultimately vacated the infringement judgment.

• Name: John W. Keker
  Role: Trial Counsel
  Firm: Keker & Van Nest LLP, San Francisco, CA
  Note: A nationally recognized trial lawyer, Keker was involved in the district court proceedings and is known for representing prominent figures and companies in high-stakes litigation, including the prosecution of Oliver North.

• Name: Robert A. Van Nest
  Role: Trial Counsel
  Firm: Keker & Van Nest LLP, San Francisco, CA
  Note: A founding partner of his firm, Van Nest is a renowned trial lawyer specializing in intellectual property and complex commercial litigation for major technology companies like Google and Qualcomm.

Of Counsel

A substantial team supported the lead counsel at both the trial and appellate stages.

• Name: Kurt L. Glitzenstein
  Role: Of Counsel
  Firm: Fish & Richardson P.C., Boston, MA
  Note: Glitzenstein was on the brief for the successful Federal Circuit appeal.

• Name: John W. Thornburgh
  Role: Of Counsel
  Firm: Fish & Richardson P.C., San Diego, CA
  Note: Thornburgh was part of the appellate team that represented Microsoft before the Federal Circuit.

• Name: Laura R. Braden
  Role: Of Counsel
  Firm: Fish & Richardson P.C., Washington, D.C.
  Note: Braden was listed on the successful appellate brief for Microsoft.

• Name: Steven M. Bauer
  Role: Trial Counsel
  Firm: Proskauer Rose LLP, Boston, MA
  Note: Bauer, co-chair of his firm's Patent and Intellectual Property Group, is a veteran patent litigator with extensive experience in complex technology cases.

In-House Counsel

Microsoft's internal legal department was also directly involved in managing the litigation.

• Name: Richard L. DeLucenay
  Role: In-House Counsel
  Firm: Microsoft Corporation, Redmond, WA
  Note: DeLucenay was listed as in-house counsel for Microsoft on court filings. His involvement signifies the direct oversight the company maintained in this high-profile case.