Microsoft's Patent Problem

[Imran Siddiqui]

Uh oh... this could be the BIGGEST court problem MS has faced yet:

http://www.fortune.com/fortune/technology/articles/0,15114,466180,00.html

Microsoft's Patent Problem
In the biggest patent case ever, the tech giant is getting trounced.
FORTUNE
Tuesday, July 22, 2003
By Roger Parloff


Last month, when Microsoft announced its bellwether decision to award employees restricted stock instead of options, it also made news in a federal courtroom—the kind of news you keep quiet about.

Microsoft suffered utter defeat at a crucial pretrial hearing in what appears to be the highest-stakes patent litigation ever—one in which a tiny company called InterTrust Technologies claims that 85% of Microsoft's entire product line infringes its digital security patents. (See Can This Man Bring Down Microsoft?)

InterTrust's engineers developed and patented what they say are key inventions in two areas: so-called digital-rights management and trusted systems. The technologies are essential to the digital distribution of copyrighted music and movies, and to maintaining the security of e-commerce in general. At its prebubble height, InterTrust (founded in 1990) employed 376 people and marketed its own software and hardware products; today it consists mainly of a patent portfolio, 30 employees, and this lawsuit. An investor group led by Sony Corp. of America and Royal Philips Electronics bought the company in January for $453 million, hoping to convince consumer electronics and tech companies—beginning with Microsoft—of the need to license its patents.

Microsoft argued in court that crucial phrases in InterTrust's patents were too vague to be enforceable, and that others required such narrow interpretation that they would have been hard for Microsoft to infringe. But in her July 3 ruling, an Oakland judge resolved 33 of 33 disputed issues against Microsoft and rebuked the company's lawyers for wasting her time by promising proof that never materialized—legal vaporware, in essence.

"This is simply another step in a long legal process," says a Microsoft spokesman, putting the best face on it. "Microsoft will continue to defend itself against what we believe are groundless and overbroad claims."

As agreed before the hearing, the parties now enter a round of settlement talks. Though InterTrust declines to place a pricetag on the suit, it's hard to imagine the company settling now for any sum that does not have a "B" in it. InterTrust claims that its inventions cover technologies that Microsoft has been weaving into its Windows XP operating system, Office XP Suite, Windows Media Player, Xbox videogame console, and .NET networked computing platform, to name just a few. If settlement talks fail and InterTrust prevails in court, it would be entitled to a court order halting sales of all those products. InterTrust CEO Talal Shamoon asks rhetorically, "How much would that be worth to Microsoft?"

[mrmitchell]

Asher in 10...9...8....7...

However, the best thing would be for "trusted systems" (one of the disputed items) to burn in Hell.

[Agathon]

If this guy wins then I think I'll send Asher a smiley face card each day for a whole year.

[Drake Tungsten]

If this guy wins then I think I'll send Asher a smiley face card each day for a whole year.

Don't be so crass. If this guy wins, Asher will probably lose his job. You should send him condolence cards instead, or maybe a nice hi-fi system.

[mrmitchell]

Asher works at Microsoft? I just thought he was a regular nut.

[Imran Siddiqui]

mitchell, it's a running joke among the Mac-heads.

[Q Classic]

after all, nobody can say all those shining things about microsoft unless they work there, right?

[JohnT]

Sony and Philips bought the company based upon the percieved value of its lawsuit - and still shelled out $440 million? How did Larry Ellison not get a piece of this action?

This is simple - they'll want X return for their lawsuit, the longer they draw it out the higher X will be... why not pay them X asap and be done with it. I think that is what MS will do... I'd offer them $1.5 billion, with $750 mil coming now and the other over the next few (3-5) years. Put a time limit on their right to press this claim, and voila! Case closed.

[MichaeltheGreat]

The amounts are small potatoes for M$. And getting a judge to issue an order banning the sale of those products will never happen.

Just a greedy little Remora feeding off the M$ shark.

[Sarxis]

So its basically Sony vs. Microsoft. Xbox vs. Playstation. Japan vs. US.

Didn't that already happen? Time for the nukes.

[Urban Ranger]

Nah, M$ will just keep dragging the whole thing through the courts until the other side goes belly up. Good riddence, too.

[:) Smiley]

Not just Japan vs. US. With Philips, a major European country involved, it's the rest of the developed world vs. the US. Sound familiar?

[Wraith]

--"Just a greedy little Remora feeding off the M$ shark"

It's not quite that cut and dried. From what I've read, MS used to be partners with this company, which is how they got a look at the tech. They just didn't bother buying or licensing it before it started turning up in Microsoft products ^_^

Just business as usual for Microsoft, of course, but they may get called on it for once. I noticed the bit about the Judge not getting evidence from MS she was promised, so it sounds like they're on pretty shaky grounds to start with. It's not like a company like MS doesn't have ream of patents they can use for counter-suits. If they haven't done it yet they may not be able to.

This isn't a new case, btw. It's been going through the courts for a couple years now.

I wouldn't expect the stop-ship order, but considering who owns InterTrust right now it'd probably take them a huge chunk of change to settle this.

Wraith
Cry Cheeble and let loose the hamsters of war!

[MichaeltheGreat]

Originally posted by Wraith
--"Just a greedy little Remora feeding off the M$ shark"

It's not quite that cut and dried. From what I've read, MS used to be partners with this company, which is how they got a look at the tech. They just didn't bother buying or licensing it before it started turning up in Microsoft products ^_^

And if you're smart, you never fully trust your partners. License agreements in case of a split or use of the technology should have been embedded in NDA's and any JV agreement.

My point about the remora / shark comparison is two-fold: The present owners of InterTrust bought it based on perceived litigation value, not anything the company is actually doing outside of litigation. Legit, but still parasitic. The other reason is the scale. M$ can afford a couple of billion or so - just look for a $5-10 increase in the cost of Windows. It's not like the rest of the world is gonna go flying off and buy the alternative.

Just business as usual for Microsoft, of course, but they may get called on it for once. I noticed the bit about the Judge not getting evidence from MS she was promised, so it sounds like they're on pretty shaky grounds to start with. It's not like a company like MS doesn't have ream of patents they can use for counter-suits. If they haven't done it yet they may not be able to.

They got called for it with STAC and the reverse engineering of Stacker or whatever that evil little DOS compression thingy was that M$ reverse engineered and turned into drivespace.

In that case, M$ delayed the case until they could develop an alternative, and they limited their damages by agreeing to settle on license fees for existing units sold, and not for any going forward. Hence we got DOS 6.22 with doublespace instead of drivespace.

In this case, I would be hugely surprised if M$ was looking at the same thing, and keeping it very close to their vest. Litigating infringement that has already occurred is a separate issue entirely from licensing the technology going forward, so M$ has to at least bluff they've got a functional alternative, or InterTrust can try to hold them over a barrel.

I wouldn't expect the stop-ship order, but considering who owns InterTrust right now it'd probably take them a huge chunk of change to settle this.

Wraith
Cry Cheeble and let loose the hamsters of war!

A stop-ship order (if granted) would be stayed for years, but it's unlikely in the extremet (since there's litte more than theoretical legal support) that it would be granted. M$ sales and downloads of products with the violated patents would just be audited for resolution of a per-unit license fee. Since InterTrust was and is virtually inactive other than this litigation, they can't argue that they've got some great widgets of indeterminable value that will be killed off by M$ use of their technology. As long as economic damages can be calculated, that is a huge barrier to injuctive remedies.

[Az]

The amounts are small potatoes for M$. And getting a judge to issue an order banning the sale of those products will never happen.

Just a greedy little Remora feeding off the M$ shark.

reminds me of one thread.....