Microsoft Lawsuit Could Mean Big Trouble for Salesforce.com

 
 
By Nicholas Kolakowski  |  Posted 2010-05-19
 
 
 

Microsoft filed an intellectual property suit against Salesforce.com May 18, alleging infringement on nine of its patents. Patent-infringement suits are a regular occurrence in the tech industry, and larger companies often use this type of suit as part of a broader strategy. The question is, What sort of motive lies behind Microsoft's legal action against the cloud-based software provider?

According to Microsoft, the case is straightforward patent infringement.

"Microsoft has been a leader and innovator in the software industry for decades and continues to invest billions of dollars each year in bringing great software products and services to market," Horacio Gutierrez, Microsoft's corporate vice president and deputy general counsel of Intellectual Property and Licensing, said in a May 18 statement. "We have a responsibility to our customers, partners and shareholders to safeguard that investment, and therefore cannot stand idly by when others infringe on our IP rights."

A Salesforce.com representative had no comment on the lawsuit.

While Microsoft offers cloud-based solutions such as its xRM platform, the company continues to invest heavily in on-premises software and hybrid environments. By contrast, Salesforce.com-which has the corporate tagline, "No Software"-has aggressively pushed cloud-based platforms as the way of the future. Given the two companies' focus on the business audience, and their radically different philosophies on software, a collision was perhaps foreordained.

Salesforce.com's recent strategic moves include the launch of AppExchange 2, the next generation of its online enterprise-application storefront, which will include a new ChatterExchange with social enterprise applications built by third-party developers. The company's Chatter platform, which allows Facebook-style social collaboration among enterprise workers, is currently undergoing a round of private beta testing.

Salesforce.com's push to enlist third-party developers also includes its partnership with VMware to create VMforce, a platform that 6 million enterprise Java developers can potentially use to work with the cloud environment. That sort of maneuvering puts Salesforce.com even more at odds with Microsoft, which encourages developers to build applications based on .NET.

While the amount of damages sought remains unspecified, Microsoft's patents in the lawsuit cover specific areas such as, "Method and system for mapping between logical data and physical data," "Method and system for stacking tool bars in a computer display" and "System and method for providing and displaying a Web page having an embedded menu."

But what lies behind Microsoft's decision to pursue a lawsuit now?

"It may be there's a tactical angle to this-where Microsoft puts a stick in Salesforce's spokes," Roger Kay, an analyst with Endpoint Technologies Associates, told eWEEK in a May 19 interview. "But I don't think Microsoft's motive here was, 'Hey, how can we mess these guys up?'"

Instead, Kay said, Microsoft may be seeking ways to "monetize" its large patent portfolio, by exploring where a rival company's technology potentially conflicts with its existing intellectual property.

Kay added: "It doesn't seem as if Microsoft is challenging the core intellectual property of Salesforce. It's really about Microsoft having looked over Salesforce's operations and seen some pieces of plumbing that looked like it could belong to them."

Nonetheless, other analysts suggest that the patents cited by Microsoft are particularly valuable.

"Microsoft considers these to be core patents, ideas that differentiate Microsoft's offerings broadly," Rob Enderle, principal analyst of the Enderle Group, wrote in a May 19 e-mail to eWEEK. "They won't license these and approached Salesforce and Salesforce evidently [blew] them off, likely thinking that Microsoft wouldn't litigate because they rarely do."

According to Enderle, that move could translate into a protracted legal battle.

"Microsoft uses the threat of litigation, and to use that threat effectively and not have to litigate broadly it has to be real and frightening," Enderle wrote. "This means from time to time they have to make an example of a company so that the threat works and they don't have to incur massive legal fees every time there is a problem like this."

Salesforce.com, Enderle added, "will not be that example and Microsoft's investment in this effort will be significant. They've been doing this for decades."

In any case, this isn't the only intellectual property battle engaging Microsoft's attention. The company's current legal woes include a patent-infringement lawsuit leveled against it by i4i, which alleges a violation of its custom XML-related patents; on May 11, the U.S. Patent and Trademark Office confirmed the validity of the patent in question, limiting Microsoft's options after months of judgments and appeals.

In addition, Microsoft announced on March 17 that it would pay $200 million to settle a patent-infringement suit leveled against it by VirnetX, which builds communication and collaboration technologies. In March, a Texas jury found that Microsoft had infringed on two U.S. patents held by VirnetX, and ordered the software giant to pay $105.7 million.

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