Subj: The May Report: 2/3/99: Little Chicago-based Eolas sues Microsoft. Date: 2/3/1999 1:01:16 PM Central Standard Time From: RONALDMAY To: themayreport@themayreport.com February 3, 1999 The May Report by Ron May 312-670-6336 Phone ronaldmay@aol.com Eolas sues Microsoft for patent infringement: In the early morning hours of December 5th, I received a short, cryptic e-mail note that could prove to be the most important piece of e-mail I will ever get. It's a funny thing, how little things really matter. I am always reminded of the famous quote from the architect Ludwig Mies Van Der Rohe, "God is in the details." Subj: FYI Date: 12/5/1998 1:39:44 AM Central Standard Time From: miked@eolas.com (Mike Doyle) To: RONALDMAY@aol.com Ron, Take a look at: http://www.pbs.org/cringely/pulpit/pulpit19981203.html --Mike ______________________________________ I read the article by Robert Cringley, and even reprinted part of it in my December 18th article, but had no notion then just how prophetic this would prove to be. After all, the topic of any licensing deal with Microsoft for technology as big as this seems almost like science fiction. How could a little company like Eolas really get the behemoth Microsoft to come to its knees? And I figured that this was a topic of general discussion. It turns out that it was not. That little article by Robert Cringley was the only press on the subject of Eolas' patent and its potential impact until yesterday, when Eolas filed suit in Federal Court against Microsoft for patent infringement. Let's start with the article, which while wrong about what Eolas or Microsoft was planning, is fundamentally sound in its analysis. Here again is the excerpt I took from the article by Robert X. Cringley. I reprint part of it here, without permission, of course. It starts with a general discussion of the Microsoft legal problem. "How will Microsoft beat this rap? Certainly not in court. The DOJ is wiping the floor with Microsoft, troubled only by that little problem of proving that consumers have been hurt by Bill Gates' success. It will take a backroom deal to save Microsoft and just such a deal is in the works. But forget about consent decrees and voluntary corporate dismemberment. This deal isn't between Microsoft and the Feds, but between Microsoft and a little startup company in Chicago called Eolas Development Corporation. Little Eolas on November 17th came into effective control of U.S. patent number 5,838,906 for an invention called a "Distributed hypermedia method for automatically invoking external application providing interaction and display of embedded objects within a hypermedia document." Say that fast three times. The patent is held by The University of California in the name of inventors Michael Doyle, David Martin, and Cheong Ang. Doyle is the CEO of Eolas, which is the exclusive licensee of the patent. Read the patent and you'll see it covers the use of embedded program objects, or applets within Web documents. The patent also covers the use of any algorithm that implements dynamic, bi-directional communications between Web browsers and external applications. Every Web browser you can name currently supports embedded applets, and is therefore in violation of the Eolas patent But wait, there's more! The Eolas patent covers the whole concept of executable content, which is at the very foundation of Java. So it looks like Java, too, is in violation of the patent. For that matter, so is Microsoft's Internet Explorer and ActiveX. The patent stems from work done in 1993 by Doyle & Co. at the University of California at San Francisco, where they built an interactive 3-D medical visualization. These guys showed working applets and plug-ins in their enhanced version of Mosaic to NCSA, Microsoft, and Sun a couple of years before any similar products like Navigator 2.0 or Java appeared on the market. It's not like these outfits can claim to have developed their products ignorant of Eolas' work. What does this have to do with the various Microsoft legal cases? In the case of Sun versus Microsoft, it looks like Eolas is in a position to put Java out of business, if it likes, not to mention big parts of Netscape and AOL. Now I am definitely NOT a lawyer, but there seem to be a couple important legal principles at work here. One has to do with the apparent conflict between patent law and antitrust law. Patent law is intended to encourage the development of intellectual property by granting to its developer a time- limited monopoly on the use of that property. Antitrust law is intended to protect the public against illegal monopolies. But a patent is a legal monopoly and apparently exempt from antitrust control. Even further, the government cannot induce infringement of a U.S. patent even if it is to correct an antitrust problem. The other issue is control of technology and, by extension, control of industry. Microsoft doesn't control Eolas, so it can't effectively control the technology that is encompassed by the Eolas patent. And little Eolas is hardly going to be accused of antitrust. So Microsoft needs Eolas, but needs it to remain independent. What's missing in all this is the inevitable licensing deal between Microsoft an Eolas. There is always the prospect, of course, that Eolas could license its patent broadly to all comers, but it is worth much more on a more exclusive basis. Or Eolas could license its patent just to Sun or AOL, but that's unlikely, too. The simple fact is that Microsoft has more money than any of these other companies and Microsoft will pay ANYTHING for this license. This is an instance, I believe, where having deeper pockets is not, in itself, illegal. Congress could take action to change the playing field, but a Republican Congress likes Microsoft and is unlikely to do anything. So I would expect a sweetheart licensing deal to be announced soon between Microsoft and Eolas, after which Eolas will take legal action against AOL and Sun. Microsoft, hiding behind Eolas, will file for a dismissal of at least the Sun suit and probably the DOJ suit, too. And it will probably work. Eolas shareholders will rejoice, as will the University of California. The rest of us I'm not so sure about." _____________________________________________ Now comes the lawsuit, which was filed yesterday. Here is the Reuters article which has the best information on the subject written thus far, according to Mike Doyle, and I might add that it beats out the Tribune coverage by a long shot: NEW YORK (Reuters) - Microsoft Corp. was sued Tuesday by a small research and development firm in a patent infringement case tied to key technologies used by Microsoft and other leading Internet software makers, attorneys for the plaintiffs said. The federal lawsuit, filed on behalf of plaintiffs Eolas Technologies Inc. of Chicago, claims Microsoft's products infringe Eolas' U.S. patent for the technology that makes Web ''plug-ins'' and ``applets'' possible, the attorneys said. Such technologies help give Internet users the ability to download music, video or animated graphics via the Web. The complaint was filed against Microsoft Tuesday in U.S. District Court for the Northern District of Illinois, Eastern Division by Robins, Kaplan, Miller & Ciresi LLP. A Microsoft spokesman declined to comment immediately on the complaint saying he had not seen the lawsuit and would need to review it before possibly commenting on the matter. The suit opens a new legal front for Microsoft as it faces an ongoing antitrust trial in Washington and appeals a federal judge's order backing rival Sun Microsystems Inc. in a dispute between the two over the Java programming language. The suit asks the court for both unspecified damages from Microsoft for the infringing on the Eolas patent and for an injunction to force Microsoft to cease all future manufacturing, use and sale of infringing products. Robins, Kaplan, a veteran litigation firm, has tried several high profile patent cases in the past decade, including Fonar Corp.'s successful magnetic resonance imaging intellectual property suit versus General Electric Co. The Minneapolis-based firm also was the lead plaintiffs' firm representing the State of Minnesota and Blue Cross/Blue Shield in their suit against major tobacco companies. Martin Lueck, lead lawyer in the tobacco case, heads the Eolas team. Eolas said in a statement its U.S. Patent 5,838,906 is infringed by Microsoft's Web-enabled software, including Windows 98 and Windows 95, two versions of its core operating system, and Internet Explorer, its browser software. Eolas said it holds exclusive commercial rights to a patent -- granted Nov. 17, 1998 -- that covers the first browser system to allow small interactive programs, such as ``plug-ins,'' ''applets'' or ``scriptlets'' to be embedded into the graphical Internet software known as the World Wide Web. The company said in a statement its patent covers a version of such programs from Microsoft known as ActiveX Controls. The research team that built the system was led by Dr. Michael Doyle, founder and chief executive of Eolas, a privately held research firm with ten employees. The company, based in a Chicago neighborhood known for its high-technology development work and nicknamed ``Silicon Prairie,'' describes itself as a maker of tools and applications to help make the Web a more interactive medium. In a phone interview, Doyle declined to comment on whether his company had held talks to license the technology to Microsoft or other Web software developers. He would not say if Eolas was considering filing similar patent suits against other software developers, which might include Netscape Communications Corp., or Sun Microsystems Inc., makers of other widely used Internet software that also rely on plug-ins or applets. Doyle said he put together a team in 1994 to create medical imaging software for doctors and medical students that would allow them to send and receive low-cost, three-dimensional medical images and data over the Internet. Current zMap software from Eolas allows computer users to create what it calls ``imagemaps'' with moving hotspots that follow objects in Web-based animations and video clips. For example, the software system allows a user to rotate an image of a human body and click a computer mouse to specify body parts and uncover information about them. Ken Adamo, a partner with law firm Jones, Day, Reavis & Pogue of Cleveland, Ohio, said U.S. courts and juries have become more open in recent years to awarding plaintiffs large verdicts in patent infringement cases. Adamo, who represents a range of major clients like Texas Instruments and IBM in patent cases, had no specific knowledge of the details of the Eolas charges but vouched for the track record of the plaintiffs' attorneys in such cases. ``Every American jury wants to believe that they have Thomas Edison standing before them,'' Adamo said of the potential for Eolas to prevail, despite the dispute with Microsoft appearing to be what he called ``a true case of David and Goliath.'' Internet patent cases are only beginning to find their way into the courts as the idea that software is patentable has gained legal footing and intellectual property case law in the area has strengthened in the last two to three years, he said. In heavy trading, Microsoft stock tumbled $5.31 to close at $167.62 Tuesday on the Nasdaq stock exchange amid concerns the government's antitrust case against the company was making headway and a wave of selling in technology stocks." ____________________________________________________ My turn at bat: I spoke to Mike Doyle for about twenty minutes this morning and here is the essence of our conversation. He cannot comment on many key issues as you might well imagine. Nonetheless, he tried to be helpful and he did call me back within an hour. I believe my conversation with him did bring out some additional insight (OK, that is a self-serving claim). You judge it. On the general issue of patent law, Mike did say that "You can't sue on a patent until a patent issues and this has been pending since 1994. That this took so long is a special case. We were highly publicized back in 1995, if you'll remember, when we put out a press release saying that we had acquired the license to the patent (from the University of California. Eolas has exclusive rights.) It was worldwide news then. Nikkei News sent a reporter from Japan to do a feature on us. So, it got put under a microscope and as a result we got very very thoroughly examined by the patent office." He went on to say that "the patent takes legal effect the day it issues, even though it may have been applied for several years prior. The only thing that is retroactive is the priority date on whether you are prior to other things out there. Mosaic wasn't even released until 1993 and we were demonstrating our stuff in 1993." I am still unclear about the matter of whether Microsoft or anyone else can be held accountable for things they did before the patent took effect. I asked Mike about the argument in the Cringley article that he could sue Sun or Netscape and others as well, but he said he cannot comment on this issue. Could Microsoft claim that if they are in violation of the patent, so are others? Again, no comment. I asked him if they approached Microsoft or others on this. Doyle said that "they all knew that the patent was pending. It was all over the press and they had plenty of opportunity to contact us if they had wanted to do this." This will no doubt be a bone of contention in the lawsuit. It became evident in my conversation that because of the lengthy waiting period for the patent, Mike and his associates had been planning this suit for some time. Prior to yesterday's lawsuit there has been no other press about the patent than the Cringley article. So, to make the point: news that now is worldwide was first made known to the Chicago community right here in The May Report. Mike explained that it was no accident that he did not comment on the article in his e-mail to me. At that point, he could not say anything because this suit was well into the planning stage. He added that "Cringely is a very sharp guy. He basically found out somehow about the patent and did some research and correctly assessed the fact that this could impact things like the Justice case. The only area where he is really off base is where he is assuming things about what we were going to do." I asked Mike what might happen. Could the Cringely scenario come to pass, in other words, a license agreement with Microsoft at this point? He said that again, he cannot comment here, but added that "We have all the resources we need to take this case all the way to completion no matter what they throw at us." He could not elaborate, adding that "We are prepared and fully expect that this will go to trial." Microsoft will not cave in "given the importance of this to their future," he maintains. He also pointed out that such a high percentage of Microsoft's market cap is tied to this and the DOJ case is all about this as well, that the numbers are staggering. Microsoft has a market of cap of $422B as of yesterday. The other two co-inventors are in on the suit. I asked Mike for a sense of the size of this thing and he said "The reason there aren't any numbers mentioned is that any calculation of numbers, it's so large that is that is sort of silly to even speculate now." I asked him how he found the law firm, Robins, Kaplan out of Minnesota. He said that he went to the people at his corporate law firm here, Baker McKenzie (their lawyer is Mike Swords) and "they looked for the best firm they could find and there was actually a competition and these guys won." He would not say what the basis for competition was and who the other law firms are. OK, that is something no one else reported. Without any prompting from me, Mike volunteered that "I feel very strongly about the Chicago software community and I have been doing what I can to put this place on the map." I asked Mike how he expects his life to change over the next six months. He said, "this is a pretty busy docket in the Federal Court system and it will probably be a couple years before it gets to trial." "I will be mostly writing more patents. I have five others pending. Despite how large this appears, our focus is on new technologies. The stuff in the can is potentially as large or larger than this." "Coming very soon will be the "spynergy" web platform which we expect to be the successor to Java in terms of being the dominant platform for developing applications on the web," he adds. Did I hear that right? You have to understand. Mike is a very soft spoken man, who seems to be very humble. At times he is hard to hear, he speaks so softly (a problem I don't suffer from). You have to listen really carefully. He can just nonchalantly drop a bomb on you like this one and you might miss it. Not all big egos come packaged with loud and blustery people. This man has a sense of inner confidence about what he has accomplished and what he is about to accomplish. Mike developed "spynergy." Is Eolas a virtual company? Is it a one-man band? Not quite, but close. "We have roughly ten people and some overseas consultants. Yes, in effect, you could call Eolas a virtual company in that actual employees versus people who are working on Eolas projects are two different numbers," he acknowledged. Before working at the University of California, Mike was director of the Biomedical Visualization Lab at UIC. His Ph.D. is from Urbana. It pays to be inquisitive. Here's a trivia fact that will appear in my next trivia quiz. What is Mike's Ph.D. in? Answer: "Biology." Mike chuckled when I exclaimed disbelief. Mike will be 40 in two months. He started on the faculty at UIC in 1989. How did he get into computers? In grad school he landed in "a lab that had just gotten a computer image analysis system and nobody knew how to run it, so I started reading manuals. It turned into a hobby and then a hobby that basically took over my life." I told Mike that I know what that is like. "Back then in the mid 80s, the research I was doing was very heavy in the area of image analysis, quantitative measurements of things, and the software I needed didn't exist, so I had to learn to program to write the software," he explained. I don't want to get on a soapbox here, but this comment relates to a conversation I had recently with Charlie Athanas of Burning City who spoke at the Technology Executives Roundtable in Evanston. I interrogated Charlie on why he is in Chicago and his answer sounds like an echo of what Mike just said. There is an awful lot more here than most people realize. Charlie mentioned the Caves, the 3-D visualization labs, and other things like pattern recognition software research. The work in AI and at the Learning Sciences Institute at Northwestern, etc. Mike Doyle is a living example of what Charlie Athanas is saying. Here he is, a biologist, running a lab here and he gets into path breaking computer research!! Needless to say, we will continue to follow this case.