Microsoft Flat-out Lied, Inventor Says

MANHATTAN (CN) - Microsoft misled an inventor for 12 years to keep him from suing over a fraudulent contract for DVR technology, the man claims in court.

Invellivision and Paul Hoffman sued Microsoft in New York County Supreme Court.

Hoffman claims that he and two colleagues, nonparties John Daniels and Bruce Adams, formed Intellivision in 1999 to develop interactive TV technologies, which they sold to Microsoft in 2001.

"Before and after forming Intellivision, Daniels, Adams and Hoffman were engaged in the commercial development and exploitation of pioneering advancements in interactive television technology, including the Digital Video Recorder," the complaint states.

Hoffman say the technology's "enormous commercial value" caught Microsoft's attention.

"In 2000, Microsoft representatives expressed interest in plaintiffs' technology and invited Daniels and Hoffman to visit Microsoft's Web TV campus in Mountain View, California for that purpose. In response to questioning by Daniels and Hoffman, Microsoft executives, including Anthony Faustini, explicitly stated Microsoft had not developed, was not engaged in the development of, and had no plans to release a television set-top box product or related software that incorporates the foregoing technology (namely, a DVR)," the complaint states.

The Microsoft executives are not parties to the lawsuit.

During this meeting, Hoffman claims, Faustini told him and Daniels that Microsoft was facing an increasing number of patent infringement claims by consumer electronics manufacturers, and it wanted to buy their patents for "defensive" purposes.

Hoffman claims they entered into negotiations about up-front cash payments and royalties. He claims that he and Intellivision, an unincorporated joint venture, abandoned their demand for royalties after Microsoft misled them into believing that it had no intention to enter the DVR market.

"This was an important consideration to plaintiffs and induced plaintiffs to forego royalty payments and to execute an agreement with a reduced up-front payment," the complaint states. "If plaintiffs knew that Microsoft was planning to introduce a DVR, they would not have executed the parties' agreement."

Under the final agreement, Microsoft agreed to an up-front payment of $1 million and a contingent payment of $850,000, the complaint states.

A copy of that agreement, signed in early 2001, is attached to the lawsuit.

"Despite Microsoft's repeated representations to the contrary, and on information and belief, approximately one week after the parties' agreement was fully executed, Microsoft launched a national advertising campaign for its 'Ultimate TV' DVR," the complaint states.

"Also, on information and belief, at the same time Microsoft made repeated representations to the contrary, Microsoft was also developing and/or had already developed a software-based DVR for incorporation into its PC operating system and software for incorporation into cable/satellite TV head-end equipment and subscriber set-top boxes."

The agreement allowed the plaintiffs to prosecute the patent applications for their usual fee, but Microsoft unilaterally rescinded this part of the agreement after it was executed, Hoffman claims.

"For the purpose of convincing Daniels, Adams and Hoffman to refrain from suing for rescission and/or damages based on Microsoft's fraudulent misrepresentations, Microsoft and its attorneys lulled Daniels, Adams and Hoffman into inaction by pointing out that its Ultimate TV DVR had been discontinued and was a tremendous financial loss to Microsoft," the complaint states.

But Microsoft neglected to mention that other products using the plaintiffs' technologies were in development, Hoffman claims.

He seeks punitive damages for breach of contract, unjust enrichment and promissory estoppel and a ruling invalidating the old contract as fraudulent.

He is represented by Bruce Katz.

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