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Loudon Owen, left, and Michel Vulpe met in 1996. 'We shook hands in a coffee shop, the Second Cup on Bloor,' says Mr. Owen, 'and I've regretted it ever since!'

Kevin Van Paassen

Nine years ago, an unusual and powerful alliance approached a tiny Toronto software company with a fateful proposition. Microsoft was helping U.S. intelligence sift through relentless mountains of documents relating to the 9/11 terrorist attacks but had few means to sort them out. This firm, i4i, had the software that could intuit crucial, revelatory patterns that its own software could not.

It wasn't long before Microsoft recognized the value of the firm's technology, and, as it is now famously alleged, pinched it.

In a stunning decision this week, a U.S. judge in Texas awarded the company, i4i, a judgment of $290-million (U.S.) and $40-million in damages, ruling that Microsoft infringed on the patent willfully.

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Moreover, he slapped a permanent injunction on the behemoth, based in Redmond, Wash., forcing it to erase i4i's technology from its software.

Some see the ruling as a pure victory for technological David; others frame it as a Pyrrhic victory that will have huge implications on the relationship between big and small business.

But on a sunny afternoon on Bay Street this week, the firm's two partners, Michel Vulpe and Loudon Owen, were neither locking horns over logarithms nor cursing out Bill Gates. They were bickering over the route to Scarborough, where they would appear on Canada AM .

If you ascribe to certain stereotypes about nerds, it's easy to tell who is who in the duo. If you're wondering which one handles the arcane world of database technology, just look for the gold Star Trek ring. It's on Mr. Vulpe's right hand.

He calls Mr. Owen, the money guy, "the grown-up in the organization."

Both men are wearing checkered dress shirts, blue short-sleeved for Mr. Vulpe and pink long-sleeved for Mr. Owen.

"The 401? At that hour? It'll be swamped," says Mr. Owen, the chairman of i4i.

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"My grumpiness factor is significantly higher before coffee," Mr. Vulpe says.

The two men will have to get up early for an appearance on the breakfast show the next morning, and it's clear Mr. Vulpe would rather spend an extra 15 minutes in bed than worry about getting to the studio on time.

"It's been non-stop," Mr. Vulpe says, though he can't complain after winning a two-year battle.

His relationship with his partner goes back to 1996, when Mr. Owen's Toronto venture capital firm McLean Watson Capital Inc. invested in Mr. Vulpe's ideas.

"We shook hands in a coffee shop, the Second Cup on Bloor," Mr. Owen recalls, "and I've regretted it ever since!"

Originally the two knew each other only through a mutual, accidental acquaintance.

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In 1995, in a dark alleyway in the Annex, Mr. Vulpe - quite literally - bumped into investment manager Neil Nisker.

"It was really dark," Mr. Vulpe explains.

The two fell to talking and Mr. Nisker immediately recognized the potential in Mr. Vulpe's ideas, so he called his friend Loudon Owen.

"[Mr. Nisker]said, 'This guy seems brilliant,'" Mr. Owen recalls.

A series of meetings followed in which the mustachioed computer geek would attempt to explain to finance types the technology he had invented.

"When you explained things, Michel, it was perfectly clear," Mr. Owen says. "And then you'd leave and we'd go, 'What did he say again?'" Tech language notwithstanding, Mr. Owen saw potential in the little company's big ideas, even though, at that point, i4i consisted only of Mr. Vulpe's brain, his home office, and a dog named Jack.

With McLean Watson's backing, the company expanded, albeit next to a massage-therapy training school.

"To get to us, people would have to walk by this locker room," Mr. Vulpe chuckles.

It wasn't long before i4i moved down the road to Spadina and King, also an odd fit.

At that time, Mr. Vulpe says, his was the only company in the area not involved in textiles, or what he calls "the rag trade." Walking into the loft-style offices today, it's a far cry from the signed George W. Bush photo and imported art of Mr. Owen's Bay Street digs. The decor sensibility is somewhere between techie and Trekkie: his computer is decorated with plastic spiders, and laptops and software boxes are stacked on his Ikea bookcase, next to a model of an assembly-line robot.

Their circumstances are more humble than they used to be, when i4i took up 21/2 floors of the building and employed roughly 200 people, with offices in Manchester, Paris, Amsterdam, Washington, D.C., and San Diego. "When Microsoft began offering their technology for free," Mr. Vulpe says, "all of our customers went away."

Microsoft's ubiquitous word-processing software, Word, couldn't read numbers or word patterns like humans can. For example, "2001-02-14," would track as an impenetrable jumble of numbers rather than a date. But this tiny firm, i4i, provided a software, XML, that created tags that could categorize and store information in a proto-human way. "You can't do that with Word. Word just knows how to make something bold," Mr. Vulpe says.

Now the company occupies half a floor and employs 30.

"Sure, it's David and Goliath," says Mr. Vulpe, also a former Ontario boxing champ who now dabbles in Brazilian jujitsu and mixed martial arts fighting. "David's been around for a while," he adds. "He's been training. He's got some moves."

Mr. Vulpe might have all the right moves, but the case could have implications for firms such as i4i.

Some experts worry that a settlement this large could rekindle debate over the legitimacy of lawsuits like this one. Lobbyists in the U.S. tech sector have been pressuring Congress to crack down on small companies suing bigger companies over patent issues.

A penalty such as the one levied against Microsoft could become a rallying cry to push even harder for those reforms, says Eugene Quinn, a U.S. patent attorney and founder of intellectual-property blog IPWatchdog.com.

"Many [small]companies are suing them just to try and get a settlement," Mr. Quinn says. "But a lot of times it is this exact dynamic, where a small company has good technology that is being infringed. There are a lot of these types of suits out there."

Mr. Vulpe defends their decision to protect their patent rights, while dismissing the notion that ideas should be free for use by everyone.

"Innovation without patents is like fishing without nets," he says. "It's great for the seals upstream, but not so great for the fishermen."

Translation? "We want to get paid," Mr. Owen says. "They're not going to use it unless we give consent. It's the right thing."

Editor's Note: An earlier version of this online article (and/or the version of this article published in today's Globe) incorrectly stated that i4i was approached by Microsoft six years ago. This online version has been corrected.

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