Microsoft's New Plan to License Patents Has Linux Fans Worried

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Microsoft's New Plan to License Patents Has Linux Fans Worried

By DON CLARK 
Staff Reporter of THE WALL STREET JOURNAL
June 4, 2004; Page B1

Microsoft
<http://online.wsj.com/mds/companyresearch-quote.cgi?route=BOEH&template=com
pany-research&ambiguous-purchase-template=company-research-symbol-ambiguity&
profile-name=Portfolio1&profile-version=3.0&profile-type=Portfolio&profile-f
ormat-action=include&profile-read-action=skip-read&profile-write-action=skip
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-p-sym&nvp-companion-p-type=djn&q-match=stem&section=quote&profile-end=Portf
olio&p-headline=wsjie>  Corp., rarely the aggressor in legal affairs, has
adopted a new approach to the use of its patents. Some fans of Linux and
other open-source software are starting to worry that they could end up as
targets.

Microsoft now holds about 4,500 patents, covering its inventions in fields
such as how computers store files and how text is displayed on a screen. In
December, Microsoft announced a new policy to begin licensing its patents,
citing requests from customers, regulators and others, though it is unclear
how many of the patents cover techniques already in use by other companies.

The Redmond, Wash., software giant says it has more than 100
patent-licensing discussions under way. It's offering royalty-bearing
licenses both to partners and competitors -- even to sellers of open-source
products that have emerged as the company's biggest threat.

"We have said that we are prepared to license our patent rights to all
comers," says Brad Smith, Microsoft's general counsel. "That, by definition,
includes open-source products."

But some proponents of open-source software see an implicit threat in such
moves. They believe Microsoft may press for royalties from the distributors
or even users of open-source programs including Linux, and they fear that
Microsoft could resort to patent-infringement suits if they don't agree to
licensing deals. Such a move could disrupt the open-source world, where many
products are free or sold at low prices.

"Microsoft hasn't started suing anyone, but we don't think that's far off,"
says Daniel Ravicher, executive director of a nonprofit group called the
Public Patent Foundation. "If they don't, people will know they are just
bluffing." In April, the group asked the U.S. Patent and Trademark Office to
revoke a Microsoft file-system patent that it believes could be used against
open-source programs.

 [chart]
<http://online.wsj.com/public/resources/images/MK-AC799B_MSPATENT06032004213
600.gif> 

Larry Rosen, general counsel of the Open Source Initiative, a nonprofit
group that certifies open-source software, says a senior-level Microsoft
employee he declines to identify told him privately about a year ago that
"it would not be unreasonable of Microsoft to assert its intellectual
property against Linux or any other open-source software."

Marshall Phelps, former chief of
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pany-research&ambiguous-purchase-template=company-research-symbol-ambiguity&
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ormat-action=include&profile-read-action=skip-read&profile-write-action=skip
-write&transform-value-quote-search=ibm&transform-name-quote-search=nvp-set-
p-sym&nvp-companion-p-type=djn&q-match=stem&section=quote&profile-end=Portfo
lio&p-headline=wsjie> International Business Machines Corp.'s
intellectual-property unit, joined Microsoft a year ago to start a similar
operation. While he was at IBM, that company saw a marked increase in
patent-licensing revenue.

Two people who recently attended a Microsoft gathering for venture
capitalists in Silicon Valley, hosted by Microsoft Chief Executive Steve
Ballmer, say Mr. Phelps privately complained that some open-source programs
violate Microsoft patents.

Mr. Phelps declines to comment. But a Microsoft spokesman stresses that the
company's policy is to license technology, not litigate, noting that Mr.
Phelps never initiated a suit in his IBM post. The spokesman says the
accounts of the Microsoft executives' remarks aren't accurate.

Dan'l Lewin, a Microsoft vice president who attended the gathering with
venture capitalists, says the message was that Microsoft is trying to help
potential licensees, not girding for battle. He notes that Microsoft
recently cut a deal to license its Windows Media technology to Turbolinux
Inc., a Linux distributor in Japan.

"We respond to inquiries about our [patent] portfolio and typically have
private collaborative discussions with companies about using our
technology," says Mr. Smith, the general counsel. "Consistent with practice
throughout our industry, we don't believe it's constructive to identify
specific products and start labeling them as infringing or noninfringing."

But patents already are playing a role in Microsoft's marketing battle with
Linux, which has been taking sales from Windows software in server systems
and consumer devices, and is used on some desktop computers. Microsoft last
year began offering to pay legal costs for its customers in the event they
are sued by other companies for patent infringement involving Microsoft
products. In doing so, it noted that open-source products don't offer the
same protection.

"In the case of Linux, you don't get indemnification," Bill Gates,
Microsoft's chairman, said in an interview. "You have to know there will be
a series of people who have IP [intellectual property] that you have to deal
with."

Open-source programs get their name because they share programming
instructions usually kept secret in commercial software. Such programs are
created and improved by global groups of programmers and users, which would
be difficult for a patent holder to sue. That means distributors and users
of these products would be more likely the targets.

The Linux world already is worried about copyrights, which emerged as an
issue last year in high-profile lawsuits filed by SCO
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pany-research&ambiguous-purchase-template=company-research-symbol-ambiguity&
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ormat-action=include&profile-read-action=skip-read&profile-write-action=skip
-write&transform-value-quote-search=SCOX&transform-name-quote-search=nvp-set
-p-sym&nvp-companion-p-type=djn&q-match=stem&section=quote&profile-end=Portf
olio&p-headline=wsjie> Group Inc. The Utah software company, which holds
rights to the earlier Unix operating system, sued Linux-backer IBM over
allegations that Linux includes copyrighted Unix code, among other issues.
IBM denied the charges and countersued.

SCO says some big Linux users have agreed to license its technology.
Microsoft paid SCO $16.5 million in a licensing deal that Microsoft says was
designed to help it make products that work with SCO software and provide
patent indemnification to its customers. But SCO hasn't reported much other
revenue from licensing.

One hurdle for SCO's strategy is it must show evidence of deliberate copying
to win its suits. In contrast, patents, which protect inventors' ideas, can
be infringed accidentally and a company can be found guilty of violating one
without knowingly doing so. To avoid suits, companies must compare their
work against a pool of patents that rises by the day. Linux backers IBM, Red
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pany-research&ambiguous-purchase-template=company-research-symbol-ambiguity&
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ormat-action=include&profile-read-action=skip-read&profile-write-action=skip
-write&transform-value-quote-search=rhat&transform-name-quote-search=nvp-set
-p-sym&nvp-companion-p-type=djn&q-match=stem&section=quote&profile-end=Portf
olio&p-headline=wsjie> Hat Inc., Novell
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pany-research&ambiguous-purchase-template=company-research-symbol-ambiguity&
profile-name=Portfolio1&profile-version=3.0&profile-type=Portfolio&profile-f
ormat-action=include&profile-read-action=skip-read&profile-write-action=skip
-write&transform-value-quote-search=novl&transform-name-quote-search=nvp-set
-p-sym&nvp-companion-p-type=djn&q-match=stem&section=quote&profile-end=Portf
olio&p-headline=wsjie>  Inc. and Hewlett-Packard
<http://online.wsj.com/mds/companyresearch-quote.cgi?route=BOEH&template=com
pany-research&ambiguous-purchase-template=company-research-symbol-ambiguity&
profile-name=Portfolio1&profile-version=3.0&profile-type=Portfolio&profile-f
ormat-action=include&profile-read-action=skip-read&profile-write-action=skip
-write&transform-value-quote-search=HPQ&transform-name-quote-search=nvp-set-
p-sym&nvp-companion-p-type=djn&q-match=stem&section=quote&profile-end=Portfo
lio&p-headline=wsjie>  Co. responded to the SCO suits with some legal
protection for customers, but offer no broad patent indemnification.

Microsoft once paid little attention to such issues, using patents mainly as
bargaining chips or ammunition for countersuits if the company was sued. But
as part of its recently stepped-up efforts, it has negotiated rights from
other patent-holders to head off suits and help the company and competitors
make products that work better together.

Microsoft has reached intellectual-property agreements with rivals that
include Sun
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pany-research&ambiguous-purchase-template=company-research-symbol-ambiguity&
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ormat-action=include&profile-read-action=skip-read&profile-write-action=skip
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-p-sym&nvp-companion-p-type=djn&q-match=stem&section=quote&profile-end=Portf
olio&p-headline=wsjie> Microsystems Inc., SAP
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pany-research&ambiguous-purchase-template=company-research-symbol-ambiguity&
profile-name=Portfolio1&profile-version=3.0&profile-type=Portfolio&profile-f
ormat-action=include&profile-read-action=skip-read&profile-write-action=skip
-write&transform-value-quote-search=sap&transform-name-quote-search=nvp-set-
p-sym&nvp-companion-p-type=djn&q-match=stem&section=quote&profile-end=Portfo
lio&p-headline=wsjie>  AG and InterTrust
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pany-research&ambiguous-purchase-template=company-research-symbol-ambiguity&
profile-name=Portfolio1&profile-version=3.0&profile-type=Portfolio&profile-f
ormat-action=include&profile-read-action=skip-read&profile-write-action=skip
-write&transform-value-quote-search=ITRU&transform-name-quote-search=nvp-set
-p-sym&nvp-companion-p-type=djn&q-match=stem&section=quote&profile-end=Portf
olio&p-headline=wsjie> Technologies Corp. Some $900 million of Microsoft's
$1.95 billion settlement in April with Sun, for example, is designed to
preclude suits for damages from any past patent infringement, though the
companies failed to reach a cross-license that would forestall all future
patent litigation.

While Microsoft may hold patents relating to aspects of Linux, open-source
backers speculate that a bigger issue for them may be patents that cover
ways that open-source products exchange information with Microsoft software.
As part of a settlement with the Justice Department, Microsoft began
charging royalties for use of some communications protocols needed to make
products work with Windows. Microsoft also has begun requiring royalty-free
licenses to make programs that exchange files using patented technologies it
calls Office Schemas.

Vendors of Linux are watching closely. "We are aware of some of the patents
they have," says Matthew Szulik, Red Hat's CEO. "Their arsenal is rich and
large."

Write to Don Clark at don.clark@wsj.com