In a year that California grabbed headlines for its raucous gubernatorial recall election and devastating fires, the state could also claim credit for the patent controversy of the year.

Thanks to a patent owned by the University of California and licensed to one-man spinoff Eolas Technologies, Microsoft was slapped with a $521 million patent infringement judgment that could balloon to more than double that should UC and Eolas continue their string of court victories.

Because the patent covers a technology that has become fundamental to many Web sites--the ability to run external applications such as Macromedia Flash within a browser--Microsoft finds itself surrounded by competitors and former courtroom adversaries that are now offering their help.

As Microsoft prepares to appeal the case, individuals, companies and standards bodies have been dusting off old browsers and operating systems and offering what they believe to be prior art, or technology older than the patent and similar enough to invalidate it. And the World Wide Web Consortium (W3C), which had recently risked alienating Microsoft by severely restricting the use of patented technologies in its recommendations, launched a successful drive to get the U.S. Patent and Trademark Office to conduct a rare reconsideration of the patent itself.

Fellow standards body the Internet Engineering Task Force refused to follow the W3C's lead in restricting the use of patents in its specifications, but in a larger context the W3C was hardly alone in reining in patents. The U.S. Federal Trade Commission drafted new rules for challenging patents, and Europe spent much of the year engaged in a spirited debate over the value of software patents in an attempt to craft a uniform system for its member states. After protests and deliberations that pitted industrialists against scientists and software developers, the European Parliament approved a proposal that displeased critics on both sides. Patent opponents warned it would lead to U.S.-style corporate intellectual property warfare, while patent defenders claimed the restrictions on what could be patented would put Europe on a collision course with the United States

E-commerce had long fallen out of favor as a stock market and media buzzword by New Year's Day 2003. But over the course of the year patents applied for during the e-commerce craze came to fruition: Amazon, Google, Microsoft and others amassed patent after patent for online sales inventions. In the courts, companies including eBay and its PayPal unit sustained, and in some cases settled, e-commerce patent infringement accusations.

The search sector geared up for patent conflict as Google won a patent for its search method, and Yahoo acquired Overture and its sizeable patent portfolio. Streaming media firms eyed warily Acacia Research as it exercised its patents in shutting down a series of pornography Web sites, and San Francisco-based Friskit sued RealNetworks and Listen.com for their streaming services. Early patent skirmishes this year divided the founders of and co-investors in the nascent social networking sites Friendster, Tribe.net and LinkedIn.

For those interested in quantity over controversy, the year's biggest news will come when the players tally up the year's awards. For 2002, IBM laid claim to the biggest haul for the 10th consecutive year.

--Paul Festa