Microsoft Expands Intellectual Property Indemnification Coverage

By Peter Galli  |  Posted 2004-11-10

Microsoft Expands Intellectual Property Indemnification Coverage

Microsoft Corp. said it will expand its intellectual property protection policy and now cover all customers using current and earlier versions of its software, in a move designed to further differentiate its products from Linux competitors.

Until now, Microsofts large volume licensing customers were the only ones protected under its IP indemnity program, but this latest move, to be announced by the Redmond, Wash., software maker on Wednesday, extends that to all users running software covered under the program.

The IP indemnification program is designed to help shield users from exposure to legal costs and damage claims related to patent or other intellectual property disputes, and covers the four major forms of intellectual property disputes commonly associated with software: patent, copyright, trade secret and trademark.

The new IP indemnity covers the all versions of Microsofts software, including those to be released in the future, those current and all legacy versions except for Windows XP Embedded and Windows CE.

"Any of our products that people have licensed from us are covered. So, that dates all the way back to those old DOS systems, which are also in here," said David Kaefer, Microsofts director of Intellectual Property licensing, in an interview with eWEEK. "The easy way to look at this is that any software someone has licensed for a fee from Microsoft is covered except our embedded offerings—Windows XP Embedded and Windows CE—as we allow device manufacturers to change the code base for those products, and so we dont have full control over the code and the associated rights in some cases," he said.

The move was not just in response to customer concerns about whether Microsoft would stand behind them in the event of a dispute, but also a way to differentiate its products by offering comparatively stronger indemnification than some of its leading Linux competitors.

Click here for more on Microsofts latest anti-Linux campaign.

With intellectual property lawsuits on the rise in all quarters of the industry as well as with all platforms, IP indemnification is a growing business. Programs are now offered by a many large companies, including Hewlett-Packard Co., Novell Inc. and Red Hat Inc. A marker for the rise of the issue, this spring, New York-based Open Source Risk Management LLC became the first company to specifically target open-source IP risks for developers and enterprises.

John Loiacono, the executive vice president for software at Sun Microsystems Inc., of Santa Clara, Calif., told eWEEK that Sun also stands firmly behind its customers and currently indemnified Solaris users across the board and would continue to do that going forward.

"In fact I think we indemnify every piece of software that we manufacture and ship, subject to certain financial caps. We also have a patent agreement with Microsoft," he said.

Click here to read about how Microsoft and Sun ended their patent feud.

Microsofts Kaefer said that, historically, over any three-month period, Microsoft would get a handful of calls from customers who had been approached by people owning IP who were asking those customers to pay for IP they said was in Microsofts products.

"The good news is that a lot of these people do not have strong claims, we commonly refer to them as nuisance claims. We are now offering end-user indemnification across this vast array of our software and will now swing into action when these claims arise and see whether they have any merit or not," Kaefer said.

Before its latest announcement, Microsoft execs laid the groundwork on the issue of IP indemnification.

Late last month CEO Steve Ballmer sent an executive e-mail to customers, partners and subscribers. In that message he said that patent indemnification was a top issue for customers.

"No vendor today stands behind Linux with full IP indemnification. In fact, it is rare for open-source software to provide customers with any indemnification at all," Ballmer said.

Next Page: Finding the right level of indemnification

Finding the right level

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Microsoft officials also quote from an independent report on indemnification recently published by The Yankee Group, in which senior analyst Laura DiDio said: "To date, IBM, HP, Novell, Red Hat and other Linux vendors offer only limited indemnification against intellectual property legal claims with exceedingly low liability caps—or no protection against third-party legal claims at all—leaving companies with the risk of high-cost litigation."

But HP, Novell and Red Hat all have announced plans to protect their enterprise Linux customers. For example, Red Hats Open Source Assurance Plan is designed to protect customers Linux investments and ensure that they are legally able to continue to run Red Hat Enterprise Linux without any interruption.

Novell, of Provo, Utah, set up a Linux Indemnification Program for its SuSE Enterprise Linux customers, under certain conditions, to protect against IP challenges to Linux and help reduce the barriers to Linux adoption in the enterprise.

HP in September announced that it will indemnify its customers against any legal liability from the use of Linux.

Al Gillen, the research director for system software at IDC, also cautioned that IP indemnification is important and companies should ask their providers to be specific about the coverage they offer. "Customers should recognize that this coverage is not automatic, and if provided, will be spelled out by a corporate policy or licensing or use terms of use agreements," he said.

This year alone, Microsoft Corp. has paid out more than $3 billion to settle legal disputes around IP with long-time rivals like Sun, multimedia anti-piracy company InterTrust Technologies Corp., Linspire (formerly Lindows) and British cell-phone maker Sendo Holdings plc., among others.

Microsofts recent suit with Eolas Technologies Inc. is an another example of the complex and real nature of IP issues in the industry today, Kaefer said.

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