Microsoft Plays Intellectual Property Licensing Catch-Up

By Darryl K. Taft  |  Posted 2003-12-03

Microsoft Plays Intellectual Property Licensing Catch-Up

Microsoft on Wednesday debuted its new, streamlined intellectual-property (IP) licensing strategy with the announcement that it is now offering, for a fee, its file allocation table (FAT) file system and ClearType font-rendering technologies to any interested licensees.

At the same time, the Redmond software company also launched a one-stop IP licensing Web site, where it displays the various software and specifications it is offering to license under various royalty- and royalty-free plans. Currently listed, in addition to FAT and ClearType, are Microsofts Office 2003 XML schemas (the bulk of which are set to go public this Friday) and a number of standards specifications, including broadband Sockets; WS-Security; and Business Process Execution Language for Web Services, or BPEL, 1.1.

This isnt the first time Microsoft has licensed its IP, said Marshall Phelps, Microsofts corporate vice president and deputy general counsel for intellectual property. "Weve done a number of one-off patent licenses and cross-licensing patents with leading IT vendors in the past. But before, it typically was one-off and ad-hoc propositions," he said.

For more of Marshall Phelps comments on Microsofts IP licensing strategy, click here.

Phelps and other Microsoft execs also denied that Microsofts decision to expand its IP licensing is related to any of its antitrust problems in the U.S. or abroad, or was done in response to pressures from customers or partners whove been evaluating the more relaxed licensing terms offered via the GNU General Public License or other open-source licensing mechanisms.

During a conference call with reporters and analysts held Monday, Microsoft general counsel Brad Smith told participants that Microsofts announcement on Wednesday was "not directly related to legal issues in the U.S. or Europe." He said, instead, the new policies are "a step that will promote and enhance interoperability" between Microsoft and the rest of the industry.

Nonetheless, "reasonable and non-discriminatory (RAND) IP licensing has been a major issue in the DOJ and EU cases against Microsoft," noted Burton Group VP and research director Anne Thomas Manes. "I view Microsofts past history of discriminatory license practices to be one of its most egregious actions. The DOJ settlement requires Microsoft to provide RAND licensing of its system protocols. Id be very happy to see Microsoft adopt RAND policies for a lot more of its IP.

Next page: In the Fine Print.

Page Two

According to Smith and others, Microsoft execs spent the past year talking to a number of IT industry players about IP licensing. In addition to speaking with venture capitalists, Microsoft worked with 30 companies to come up with a more streamlined licensing policy that is based on "industry norms," Phelps said. Microsoft officials studied a number of key software licensors, including IBM, Intel, Fujitsu, Hewlett Packard, Philips and Xerox, and learned from their policies, they said.

This announcement, however, marks the first time that Microsoft is licensing some of its patented technologies simultaneously to multiple parties under a common license. Of the 4,000 existing Microsoft patented technologies (and additional 5,400 for which patents are pending), the company chose FAT and ClearType as its first two to make available under the expanded program.

The FAT file system, the 32-bit version of which debuted as part of Windows 95 Service Pack 2, is no longer Microsofts own file system of choice. Both Windows XP and Windows Longhorn (as well as Windows Server) are centered around the NT file system (NTFS).

"FAT is a popular technology with a huge installed base," said David Kaefer, director of business development with Microsofts IP and licensing group. But where the company is currently seeing demand for FAT is among Asian consumer electronics companies, who want to embed it in flash memory, digital camera and camcorders, he admitted.

The first licensee of FAT under the new licensing terms is consumer-electronics vendor Lexar Media Inc. of Fremont, Calif., Microsoft announced today. SanDisk Corp. of Sunnyvale, Calif., also issued a statement expressing interest. Microsoft said a half dozen companies have expressed interest in licensing the FAT spec and IP rights. Microsoft licenses the FAT technology for a fee of approximately .25 per device.

"A lot of these devices already have FAT included," Kaefer pointed out, "but its reverse-engineered," not based on a spec licensed from Microsoft. The result? There are many "imperfect connections" between consumer devices and Windows, he said.

William Hurley, senior analyst with the Portland, Ore.-based researcher Enterprise Application Group, noted that FAT also could be licensed by third party ISVs interested in building FAT-based migration tools.

"With tens of millions of Windows NT systems still in use, Microsoft needs get upgrades in high gear. Allowing third parties to innovate FAT-based tools that will allow older, legacy applications and their data to be migrated to NTFS is critical," Hurley said.

Another benefit to Microsoft: By licensing FAT to others, "Microsoft also need not be in the business of solving FAT problems as they solidify the NTFS install base while preparing WinFS in Longhorn," he continued.

Meanwhile, Microsoft also offered licensing arrangements for its ClearType font-rendering technology developed in the late 1990s. The technology is baked into a number of Microsoft products, such as Windows, allowing a number of independent software vendors running on Windows already have been able to take advantage of ClearType. Officials said the ClearType licensing fee will cost between $1 and $3 per device.

"But if you want ClearType on a non-Windows device or on a cell phone or PDA," you might want to license it under the new IP licensing program, said Kaefer.

Wilmington, Mass.-based Afga Monotype Corp. announced its plans to license ClearType on Wednesday. Officials with Adobe Systems Inc. of San Jose, Calif., which offers a head-to-head competitor to ClearType called "CoolType" said that while they were aware of the Microsoft announcement today, they had no comment.

Wednesdays IP licensing announcements were just the first round and officials offered some hints regarding what it plans to add to its portfolio in the future. Company officials said to expect Microsoft to add more Web services specs to its royalty-free, licensable options in the future. And Phelps said that Microsoft has talked with venture capitalists about the best way for it to make some of the Microsoft Research technologies it has developed, but not used itself, available to startups and other software vendors.

"I think Microsoft is definitely on the right track, and as weve long suspected, they realize that adding any roadblocks to the continued development of Web services (a k a royalties on SOAP) would be detrimental to the whole industry," said Ronald Schmelzer, senior analyst with industry think tank ZapThink of Waltham, Mass.

"It makes little, if any, sense for major vendors to put royalties on technologies that are still trying to gain adoption. Theyd be shooting themselves in the foot, more than gaining any revenue from that activity. After all, would Microsoft rather sell millions of dollars of Windows 2003 licenses or collect a few hundred thousand dollars of SOAP licenses while cannibalizing their capability to sell new servers? I think theyd rather sell software than be a toll booth," Schmelzer said.

Discuss This in the eWEEK Forum

Rocket Fuel