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Michael Vulpe, CTO for i4i Inc. (R), and Loudon F. McLean Owen, lawyer for the company. Canadian software company i4i Inc. won a battle against Microsoft who were ruled to have infringed on i4i's patent.Fred Lum/The Globe and Mail

A tiny Canadian technology firm is on the verge of handing the world's biggest software company a humbling defeat, after a U.S. court upheld a ruling that some of Microsoft Corp.'s popular Office products infringed on a patent by Toronto-based i4i Inc.

After the United States Court of Appeals confirmed a $290-million (U.S.) judgment against Microsoft Tuesday, the software giant now has until Jan. 11 to remove certain pieces of code from its ultra-successful Microsoft Word software - specifically, the 2007 version of the program - or stop selling it.

Although Microsoft is still weighing another appeal, possibly to the U.S. Supreme Court, it appears poised to meet the January deadline, possibly ending a legal drama that began in March of 2007.

Microsoft public relations director Kevin Kutz said in a statement the firm has been "preparing for this possibility" since August, when a district court made the original ruling in favour of i4i. Microsoft has "put the wheels in motion to remove this little-used feature from these products. … Therefore, we expect to have copies of Microsoft Word 2007 and Office 2007, with this feature removed, available for U.S. sale and distribution by the injunction date."

The code in question relates to extensible markup language, or XML.

In very general terms, XML refers to information about information. For example, a document may contain a word, but an XML tag will tell the computer whether the word should be highlighted or put in italics, for example. XML tags may also identify the word as a certain piece of information, such as a name or a place.

This kind of information, sometimes described as "meta-information," can be extremely important because it tells the computer how to process data. The dispute between i4i and Microsoft centres on custom XML tags, a feature some businesses find very useful. In essence, i4i's business strategy focuses on custom XML.

"In this case, the district court properly considered strong circumstantial evidence that Microsoft's infringement rendered i4i's product obsolete for much of the custom XML market, causing i4i to lose market share and change its business strategy to survive," the federal court said in upholding the district court's ruling.

Because very few people outside Microsoft have actually seen the code used to create Word and Office products, it is unclear how much of an overhaul the company will have to perform in order to adhere to the court's decision. Microsoft and i4i differ on just how vital the code in question is. Microsoft describes it as a "little-used feature" that has already been removed from early versions of Word and Office 2010. I4i chairman Loudon Owen, who has not seen the source code, views custom XML as "a very important and fundamental feature of Word and of Office."

Tim Bray, a Canadian who co-invented XML, said the feature in Office that is apparently affected by the ruling isn't very significant. Custom XML is something that may be utilized by some IT departments, and almost never by an average user, he added - so many customers won't notice when Microsoft alters the feature.

For i4i, Tuesday's ruling marks what the company hopes is the beginning of a rebuilding process. The nearly three-year-long legal process has consumed much of the firm's time, and i4i is trying to translate its high profile from the Microsoft case into new customers.

Still, Mr. Owen is waiting to see if the software giant will try to appeal once more before the Jan. 11 deadline.

"What we do now is under a very strict timetable," he said. "I guess time will tell what path they choose."

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