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"God, this is going to be good," we thought on spotting Sony's name on the DoJ's 'major contributions' list of public comments.

And Sony hasn't disappointed. This quite sensational document opens up a new chapter in the competitive saga, and means Microsoft has a new, wealthy public opponent of a kind it's not encountered before.

Sony is the only Microsoft Windows licensee - in other words, the only Microsoft customer - who's felt brave enough to complain about the service, that the food was cold and that the menu keeps getting more expensive each time they come back.

But Sony is also a competing superpower, which owns areas (consumer playback devices such as TVs, Walkmans, cinemas, consoles) where it wants to deny a new market player from coming in and exerting any leverage.

If you can't compete in this market physically - and there's big money in these consumer devices - you have to send a proxy: and ensure the players who are there are paying you for something: a wee tax. Licenses and royalties are the proxies, and they work either because the technology on offer is fabulous, and the buyer really needs it; or through expediency, and the patent holder is holding a gun to your head: pay us, or else.

Mars attacks

In its comment, Sony accuses Microsoft of using the Seattlement condition for a uniform Windows license (Section III.B) to renegotiate Sony's license in Microsoft's favor.

Sony makes explicit its fear that: "Microsoft will use its monopoly power to force its OEM licensees to give up intellectual property rights, thus affording Microsoft the opportunity to expand its power."

From the document we learn that Sony had already anticipated this, ensuring that three specially negotiated "non-assertion convenants" exist in Sony's current Windows license which was only signed last year.

"Sony must agree to new 'uniform' non-assertion covenants that may weaken previously negotiated protections for Sony's intellectual property," writes the company.

"This raises the possibility that Microsoft will use its monopoly power to force its OEM licensees to give up intellectual property rights, thus affording Microsoft the opportunity to expand its power.

Sony proposes a kind of telephone tree, an early warning system for other OEMs. First, it wants a "baseline" set of T&Cs, with leeway for individual non-assertion covenants. Second, it wants the IP covenants - even unsuccessful covenants that don't make it into signed OEM agreements - made available to other OEMs, to protect them all from "coercion and retaliation."

What intellectual property?
As we point out above, Sony competes at both ends of the pipe in the movie and music business, generating content and controlling the playback devices.

Microsoft currently doesn't have a significant interest in the content (it's got Slate and the MSNBC
JV, but no studios or labels), and until recently didn't really care for doing anything more ambitious than try to replicate the good old DOS franchise all over again, because it knows it worked the first time. So it's been fighting using proxies.

But the appearance of the Xbox and recent promises to expand the console into a do-it-all home playback device (playing all kinds of content) have escalated the war. We're pretty sure the Xbox remains the exception - it's been a hugely expensive venture and Microsoft doesn't want to build boxes of all varieties, preferring to take a royalty rather than become a hardware design and manufacturing company.

Sony meanwhile does very nicely out of its content thank you, and doesn't see why it should pay a royalty tax when it's developed so much of the hardware and software technology in a playback device by itself. Thanks all the same.

Things get messy, though on converged devices such as the Xbox. If rivals aren't using a Microsoft operating system, they ought to be using some other Microsoft technology which now or in the future, could provide a royalty-stream, The Beast figures.

The Sony statement specifically mentions "non-operating system" intellectual property, and the smoking pistol points to file formats and share-denial technology (DRM). Allowing Microsoft to impose its own DRM technology on playback devices would put Bill Gates right into the diaries of the movies studios. It could potentially commoditize the device business and guarantee revenues from several individual markets.

Bill has never wanted to own the world, he'll settle for the the whole world to pay him a royalty, and that's an important distinction.

Now the chances of this happening are probably zero. Consumer devices, as we've seen with phones, are fiendishly specialized technology and integration, and obey their own marketing rules too.

But that isn't going to stop Microsoft trying to escalate its presence in the entertainment technology markets, or stop Sony from fearing its higher profile.

So this long litigation, which started in 1997 with the BrowserWars, is moving into really really serious territory, where the big money has always been made. ®

Related Link

Sony's public comment

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