Microsoft opens IP in licensing push

Microsoft opens IP in licensing push

Microsoft is expanding its efforts to move from a "trade secrets" company to one that banks on sharing its intellectual property (IP) and benefits from being seen as a more cooperative and open-industry player.

Almost a year after announcing a new IP licensing policy and the formal licensing of two technologies, the software giant is set to announce new formal program licenses within the next two months, according to David Kaefer, director of business development, for Microsoft's Intellectual Property and Licensing Group.

The move comes amid an overall effort to even up the amount of technologies the company offers through licensing and those it licenses, Kaefer said during an interview in London on Friday.

"We licensed over a billion dollars in patent rights last year yet we make relatively little from our licenses," Kaefer said.

It also comes in response to prompting by governments worldwide to loosen up its proprietary grip on the software market, analysts say.

Indeed, money is not what's driving Microsoft's current approach to IP. The company hopes to increase its industry cooperation so that it can be seen as fair player as well as meet customer demand for further transparency and interoperability in its products.

"Six years ago we had a trade secrets strategy but we realized that that's not the way to operate today," Kaefer said. "We don't invent everything so to build a robust product you have to license a whole lot from other companies," Kaefer said. "We are a platform company and the value of a platform is how much you can plug into it."

While Microsoft is highly unlikely to hand over its crown jewels, such as the source code for its Windows and Office software, it is willing to share more information in situations where it sees potential benefits, said Neil Macehiter, research director at Ovum.

"If Microsoft can see that the opportunity is bigger by virtue of making their IP accessible, they will do that, like with Web services," Macehiter said.

Microsoft officially announced its new licensing policy last December, simultaneously introducing programs for its ClearType technology for improving the readability of text on LCD (liquid crystal display) screens, and its FAT (file allocation table) file systems storage format.

The U.S. Department of Justice's antitrust case against the company proved a key driver in convincing Microsoft to open up, Kaefer said.

"There was a lot of handwringing (over the U.S. antitrust case) but we learned we could do it," he said. Last year the company began offering its Office 2003 XML Reference Schemas under a royalty-free program and has been offering governments added access to source code through a shared source program.

In perhaps a further effort to show its largesse, Microsoft earlier this year ended its long-standing legal battle with rival Sun Microsystems in a nearly US$2 billion settlement that saw the companies agreeing to license each other's technology. The Sun deal not only jolted industry watchers who thought the two companies might never come to terms, but also signalled a more mature approach by the companies to heed customer demand for further interoperability.

While Microsoft is offering some licensing under formal programs, this kind of large, cross-company licensing is what it is focusing on, Kaefer said. He added that the Sun agreement is still on track and that within the next few months they will be making more interoperability announcements.

In addition to offering selective IP licenses, the company is simultaneously looking to protect more of its IP by extending its patent portfolio.

"We invest some $7 billion a year on R&D (research and development), yet we hold relatively few patents," Kaefer said. "We will be increasing the number of patents we hold because we are underdeveloped in this area."

Earlier this year Microsoft founder and Chief Software Architect Bill Gates announced that the company would file 3,000 patent applications this fiscal year alone.

Microsoft currently holds 5,000 global patents, with the majority -- 3,500 -- held in the U.S. and some 1,000 held in Europe, according to Kaefer. Its patent holdings are small when compared to those of companies with big IP profit centers, such as IBM. Microsoft's hiring last year of IBM veteran and IP licensing guru Marshall Phelps as corporate vice president and deputy general counsel of intellectual property is further evidence of how the software maker is changing its approach to IP.

Marshall helped convince former IBM chief Louis V. Gerstner to the importance of IP licensing, and he is doing the same for Microsoft, Kaefer said.

"Marshall's view is that the way you do business is to license in and license out," Kaefer said. "Trade secrets aren't a very good currency to exchange, but patents are a way to signify that we are open for business," Kaefer said.

An emphasis on intellectual property can bring as many slings and arrows as opportunity, however, especially in the software industry, which appears to be growing more litigious. On Thursday, for instance, Sun settled a patent dispute with Eastman Kodak for $92 million, after the photo company claimed that Sun violated three of its patents when it developed its Java programming language.

Microsoft has not been foreign to these disputes, and last month the U.S. Patent and Trademark Office (PTO) decided to re-examine the FAT patent after it was contested by a group claiming that other patents already covered the technology. Kaefer didn't see this as a setback, however, saying that nine out of 10 times the PTO will decide to re-examine a disputed patent, putting the onus on the patent holder to defend its claims.

While the FAT patent case is still under review, Kaefer said the company is still committed to the business of selectively growing its IP.

"We're aiming for quality, not quantity," he said.

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