Microsoft Assembles Hefty Patent Arsenal

Is Microsoft burying the intellectual-property hatchet, or is it moving to build up a powerful patent portfolio it can use to reap billions in future licensing revenues?

In the wake of two recent, major, intellectual-property-related pacts involving the Redmond software giant, the answer may be both.

In one of the intellectual-property (IP) cases, Microsoft on Monday agreed to pay $440 million to InterTrust Technologies Corp. to license the latters antipiracy patents and to settle outstanding litigation.

Resource Library:

In the second case, Microsoft last week signed a 10-year pact with Sun Microsystems Inc., under which it will pay an initial $900 million to resolve patent issues between the two companies and as much as $450 million more over the next 10 years.

That Microsoft ended up paying out money to other companies to settle on patent issues shouldnt obscure the fact that the company has spent the past decade securing its own intellectual-property holdings. During the past two years alone, according to the U.S. Patent and Trademark Offices online search server, Microsoft has received about 1,000 patents, or an average of 10 a week.

David Kaefer, Microsofts director of business development for intellectual property, said the company has strongly taken up the licensing mantle. "Weve provided people with a clear sense that we are willing to do outbound licensing. This is now a significant focus for us," he said. In many cases, Microsofts licensing model will likely take the form of cross-licensing, rather than simply paying out or taking in cash, Kaefer said.

For example, in the case of InterTrust, he noted that the multimedia antipiracy company didnt ship products and earned most of its income through its patent portfolio. But Kaefer added, "If we were going to go to a company like [Hewlett-Packard Co.], youd be talking about a cross-licensing agreement because both of us have large portfolios."

"The bigger users of IP are often going to end up paying out money," said Jonathan Zuck, president of the Washington, D.C.-based industry lobbying group the Association for Competitive Technology, in a discussion of the two recent Microsoft deals. "But Microsoft has a big portfolio of its own."

Indeed, Microsofts list of patents is surprisingly varied.

For example, Microsoft in January was awarded two U.S. patents for a proprietary method of packing a high-definition video signal onto a hard drive: one for a system and method for layered video coding enhancement, patent No. 6,510,177; and another for a system and method for compressing data, patent No. 6,683,980.

Microsoft in February locked up a patent relating to XML, the cutting-edge scripting language. The patent, dubbed XML script automation, describes a method for unpacking multiple scripts contained within a single XML file.

Next Page: Patent-licensing deals could signal new transparency trend.