The notoriously plaintiff-leaning US District Court for the Eastern District of Texas issued a permanent injunction Tuesday prohibiting Microsoft from selling any Microsoft Word products in the United States that “have the capability of opening .XML, .DOCX or DOCM files (XML files) containing custom XML.”

Microsoft, which means to appeal, must comply with the injunction within 60 days.

The decision impacts the current Word 2007 as well as the Professional Edition of its predecessor Word 2003 and the upcoming Office 2010 (and affects, in turn, SharePoint server and SQL Server database) and implicates the feature, often demanded by the federal government, for creating custom tags to search files for specific information.

Custom tags, as you might suspect cover stuff other than the “name, rank and serial number” covered by standard XML tags.

PC World says custom XML lets people “create forms or templates such that words in certain fields are tagged and then can be managed in a database.” The devil of course is in the details.

According to Bloomberg Merck and Bayer use i4i’s widgetry to ensure people get the most up-to-date information on their medicine labels. But how widely the feature is used is debatable. From i4i’s web site, it looks like a pharma thing.

i4i chairman Loudon Owen, one of the financiers of the lawsuit, said the estimates submitted at trial are under seal, as is most of the suit, and he couldn’t say whether the number represented “2% or 10%” of Word’s installed base but it’s the growth rate he’s most interested in anyway. He can’t talk about that either since it’s “strategic” but it’s on the rise.

Anyway, Microsoft has also been ordered to pay Toronto-based i4i Inc $290 million after failing to persuade the judge to overturn the decision.

The judge Tuesday upheld the verdict a jury came down with in May awarding i4i $200 million after it found Microsoft willfully infringed an i4i patent covering a document system that relies on XML custom formatting.

The judge braced the decision by ruling that Microsoft should pay i4i an additional $40 million for its willful infringement plus slightly more than $37 million in pre-judgment interest, including an additional $21,102 a day until a final judgment is reached in the case and $144,060 a day until the date of final judgment for post-verdict damages.

The $40 million was more than the $25 million i4i suggested for willfulness.

Software covered by the 1998 patent removed the need for individual, manually embedded command codes to control text formatting in electronic documents.

Microsoft claims it did not infringe and that the i4i patent is invalid.

However, in 2001 when asked by the federal government for the ability to create custom tags in Word, the company brought i4i into the conversation and said i4i could supply the function. Microsoft then started its own development and i4i lawyers entered Microsoft e-mail into evidence that said it would “obsolete” i4i.

i4i lawyer Doug Cawley expects Microsoft to rush to the appeals court in New Orleans seeking an expedited stay of the injunction. One can imagine them arguing the state of the economy and the fact that Office 2010 is soon to make an appearance and nudge that economy along.

If Microsoft can’t get a stay, it will have to strip out the feature, disable it or come up with an acceptable workaround – or, heck, even license the darn thing – because in 60 days it can’t test, demonstrate or market any future Word product that opens an XML containing custom XML.

The injunction does not apply to any Word product that opens an XML file as plain text or when it opens an XML file “applies a custom transform that removes all custom XML elements.” The injunction does, however, allow Microsoft to continue to support existing custom XML users of products licensed or sold before the injunction takes effect.

An appeal is likely to take a year, Cawley said. He said he is confident i4i will survive the appeal.

The patent at issue, No 5,787,449, was invented by i4i founder Michel Vulpe but is owned by i4i LP, a licensing entity affiliated with i4i Inc. McLean Watson Capital, chaired by Owen, and Northwater Intellectual Property Fund are investors in i4i LP.

i4i has spent around $10 million on the litigation so far, according to Cawley. It could never have done it without investors. God only knows what Microsoft spent.

McKool Smith represented i4i.