The first argument pertains to asserted invalidity of the Eolas patent. Microsoft contends that certain evidence of prior art was excluded from the jury at the district court level. Microsoft is arguing an early web browser developed by Pei Wei and called Viola included the elements of Eolas' patent claim before the Eolas' application was filed. According to Steve Malone of PC Pro, Eolas states that, because Wei's innovation was 'abandoned,' it was never established.
In patent law, the concept of abandonment typically comes up in situations involving priority dates, wherein there is a conception of an idea, but a long period of time elapses before the idea is reduced to practice.
Malone also writes: "At first hearing, Microsoft looks like it might be onto something. Judge Randall Rader commented that, 'the district judge didn't even let this be considered as prior art' by the jury." [http://www.pcpro.co.uk/news/66856/microsoft-opens-appeal-against-eolas-ruling.html]
In the ongoing reexamination of the Eolas patent, the filing by Pennie & Edmonds on behalf of W3C also asserted art that was known during the district court litigation but was not considered as prior art in the litigation. In the reexamination, this art produced an initial rejection, which was withdrawn by the examiner in view of the response by Eolas. A different basis for rejection (for obviousness) was asserted by the examiner.
The second argument of Microsoft pertains to claim construction and is an argument of noninfringement. Microsoft will argue that the District Court improperly construed the claims of the patent. Microsoft contends that the patent examiner granted the Eolas/Berkeley patent only as the plug-in system related to standalone [independent] executable applications, and that only dependent programs are responsible for invoking plug-ins in Internet Explorer [IE].
"It is undisputed that ActiveX controls, applets and plug-ins are components and not standalone applications," Microsoft wrote in its brief to the appeals court. "This court--applying a proper construction of the claims--should therefore hold as a matter of law that the accused products do not infringe."
The third argument relates to the amount of damages. Whether or not consideration of foreign sales in U.S. patent infringement awards is appropriate has been recently discussed in the cases Pellegrini v. Analog Devices and NTP Inc. v. Research in Motion Ltd (the blackberry case).
The panel for Microsoft/Eolas case comprises Rader, Pflager and Friedman.