Microsoft Expands Protection For Partners

Microsoft said it will strengthen protection it offers PC manufacturers and channel partners from intellectual property lawsuits.

Microsoft’s indemnification program will now cover the partners’ costs and damages for with claims related to patent infringement, copyright infringement and trade secret disputes based on the amount of business they do with Microsoft, the software giant said.

“This is a part of our ongoing efforts to respond to the requests of customers and partners,” Brad Smith, senior vice president and general

counsel at Microsoft, said in a statement. “Our partners are telling us that

IP issues are becoming increasingly complex, and they appreciate that

Microsoft stands behind them and our products.”

The increased protection could have a big impact on the largest manufacturers

of PCs, including Dell , Gateway and HP , who, along with independent

software vendors, account for more than $18 billion of Microsoft’s annual


“We’re proud of our strong IP indemnification, and we encourage our

partners and end users to ask their IT vendors about the level of protection

they provide for their products,” Smith said.

IDC analyst Stephen Graham said that indemnification is rising in importance. “The context of this announcement, he said, is “the trend of increased granting of software patents and concern about the quality of the patents, the rise in international patents, and the impression that the courts tend to defend the rights of patent holders. We’re seeing an increased level of concern about implication of all of this on the software industry at home and abroad.”

A February 2005 survey of 200 companies by research firm IDC found that more than half either had at least an informal policy of requiring software vendors to provide indemnification or were in the process of drafting one.

Graham said IT executives and Microsoft partners definitely are looking at the risks as part of their overall intellectual property strategies.

For example, Ken Spencer, CTO of 32X and a Microsoft regional director, said that his company, which builds or customizes software on the Microsoft platform, is definitely concerned about such intellectual property issues. He found Microsoft’s army of lawyers reassuring.

“Microsoft is doing an incredible amount of due diligence to make sure they’re following the right guidelines and honoring the patents of other people. They have a huge legal force trying to do things correctly,” Spencer said.

Illuminata analyst Gordon Haff pointed out that the announcement was as much about sniping at Linux as about imminent legal wrangles. Microsoft has repeatedly warned about the potential legal dangers of proprietary code that SCO alleges found its way into Linux. It’s a game both sides play, he added. “While HP launched an indemnification program for its Linux distribution, IBM pretty much consistently refused. And HP has used that against IBM,” Haff said.

Several recent cases have brought increased awareness of the importance

of IP management. Microsoft says it was the largest PC makers which

requested an increase in coverage because of the steady litigation involving

intellectual-property rights.

Microsoft has expanded the protection it offers various customers several times. In 2003, it lifted the cap on monetary damages it would reimburse volume licensees and extended protection to end-user customers. In November 2004, it extended coverage retroactively to customers that already had purchased software.

Indemnification became a hot issue — and a competitive differentiator — when SCO Group began suing Linux vendors and users for copyright infringement.

SCO claims IBM breached a contract and included proprietary SCO code in its AIX version of Unix. In September 2003, HP offered indemnification to its Linux customers in the event SCO came after them.

In January 2004, Novell announced it would indemnify its customers against potential intellectual property challenges to its SUSE Linux version.

But Microsoft has been as hard hit with copyright issues as the open source sector. In 1999, Sun Microsystems won summary judgment that Microsoft had infringed its Java copyright. In April 2004, Microsoft and Sun entered into a joint agreement that included a $900 million payment by Redmond to resolve the patent issues.

The enhanced indemnification will include protection for the four basic

disputes commonly associated with software: patent, copyright, trade secret

and trademark, Microsoft said. It extends to current and future

versions of software, such as the Windows Server System, Microsoft Office

System and Windows client software.

“We found in end use research that it’s being taken seriously,” IDC’s Graham said. “It’s about innovation, not just legal fees. The people that are taking a look at this issue — and it is an issue — are software vendors who see their intellectual property and experience as an asset.”

Tim Gray contributed to this story.

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