Barnes & Noble Backed by U.S. Agency Staff in Microsoft Case

Barnes & Noble Inc. should win a patent-infringement case brought by Microsoft Corp. (MSFT) that threatens to halt imports of the bookseller’s Nook e-reader, according to staff of the U.S. trade agency hearing the dispute.

Jeff Hsu, a staff attorney at the U.S. International Trade Commission, said today in an interview he is recommending that ITC Judge Theodore Essex find there was no violation by Barnes & Noble of three Microsoft patents. The recommendation came in a trial beginning today in Washington.

Essex is scheduled to release his findings April 27, and a decision in Microsoft’s favor could lead to a ban on imports of Nook readers made outside the U.S. The staff acts as a third party in the case, and there’s no requirement that the judge follow the recommendation.

The case is part of a strategy by Redmond, Washington-based Microsoft to push Barnes & Noble into paying patent royalties for the Nook, which runs on Google Inc. (GOOG)’s Android operating system. Microsoft claims all Android devices use its technology and has said it collects fees on 70 percent of Android smartphones in the U.S.

Microsoft, the world’s largest software maker, said the staff’s recommendation was made before the presentation of evidence, and it may change after the trial, according to an e- mailed statement.

Barnes & Noble, based in New York, denies infringing the patents, and contends they are invalid because they don’t cover new inventions. The three patents apply to a way to select text to make it larger or smaller; a way to put highlights or footnotes on copyrighted documents; and faster downloading of text from Web pages that have background images.

‘Exorbitant’ Fees

Barnes & Noble has refused to pay Microsoft and complained to the government about its adversary’s tactics. Microsoft “uses these patents to demand that every manufacturer of an Android-based mobile device take a license from Microsoft and pay exorbitant licensing fees,” Barnes & Noble said in a trade commission filing.

Essex has thrown out the patent misuse claim, leaving only the question of whether the patents are valid and have been infringed.

The bookstore chain is banking on the Nook as consumers turn from traditional publishing. Sales of Nook devices surged 70 percent during the holiday-shopping period, and revenue in the Nook division may total $1.5 billion in the fiscal year ending April 30, the company said Jan. 5.

The trade agency has the power to block imports of products that infringe U.S. patents. The Nook is made in Asia, and Microsoft is counting on the threat of the reader being stopped at the border to force Barnes & Noble into a licensing deal.

Amazon.com Agreement

Barnes & Noble said Microsoft first approached it two years ago about an agreement, and in meetings and e-mail exchanges that began in July 2010, Microsoft contended that its patents had the power to block Android devices. The bookseller said in an ITC filing that Microsoft was demanding “shockingly high licensing fees” and requirements that would have limited Barnes & Noble’s ability to upgrade its Nook devices.

“The Android-based Nook devices infringe Microsoft patents,” Microsoft said in its statement. “Barnes & Noble has refused to license Microsoft’s intellectual property on commercially acceptable terms, a decision which has left us with no choice but to file this action in the ITC.”

Amazon.com Inc., whose Kindle reader is the Nook’s top competitor, has a license with Microsoft for at least one of the patents in the case, Microsoft said in its March 2011 complaint. That filing occurred before Seattle-based Amazon.com introduced its Kindle Fire, which also runs on a version of Android.

The case is In the Matter of Certain Handheld Electronic Computing Devices, 337-769, U.S. International Trade Commission (Washington).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Michael Shepard at mshepard7@bloomberg.net

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