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Microsoft aiming IBM-scale patent program at Linux?

Just at the little fish, we reckon

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While attention has been focused on The SCO Group's IP suit against free software, Microsoft itself has prepared the ground for a full scale patent licensing program in which smaller vendors will be the most vulnerable.

In June, Microsoft hired Marshall Phelps from IBM, the executive who began IBM's patent-based revenue program in 1985. Seeing growth from its traditional businesses taper away IBM turned to patents (and financial instruments such as mainframe leasing) as a way of increasing revenues. Microsoft has been granted 3,000 patents and applied for over 5,000 more.

"From 1935 to 1984, IBM did not ever enforce a patent for license revenue," says Eben Moglen, pro bono counsel for the Free Software Foundation. "They simply said acknowledge it." Moglen, who knew Phelps while he was at IBM, said that Phelps was the leader in developing a strategy to exploit IBM's huge arsenal of patents.

"You don't just get patents for the sake of getting patents," Phelps himself told a roundtable in May, Intellectual Property Today reported. In fact, Phelps is credited with making technology companies aware of how valuable a patent portfolio could be, if astutely monetized. Author and CEO Kevin Rivette said Phelps' work had "shocked the world" at the time.

Last week, for the first time, Microsoft crossed a historic line by monetizing its FAT and Cleartype patents. While the FAT file system is maybe a legacy technology in personal computers, it's ubiquitous in the removable media used in digital cameras. Knowledge of FAT is essential for non-Microsoft computers to be able to exchange data with Windows machines. While the fee represents a peppercorn rent for large consumer device manufacturers (it caps at $250,000) it's a toll nevertheless. The industry has come to regard FAT as a ubiquitous standard.

Flash money

"Microsoft is deciding that there's money to be made and control to be had by exercising patents, so first they said they'd spin it as if it was a good thing," says Sun Microsystems' chief technology evangelist Simon Phipps. "It's a pre-emptive strike that makes Microsoft look like victims rather than perpetrators."

And the low ceiling offers hardware manufacturers a simple economic choice, says Moglen.

"Compact Flash manufacturers can add a quarter to the cost of the card. A 256MB memory for sells for $119, so there's 25c in there. Similarly the digital device manufacturers would rather license this than redesign the firmware - it's cheaper than redesigning their file systems, which would disrupt auxiliary programs."

"They're not posturing and appearing aggressive, " Phipps told us, "but the potential for harm is on a par with the SCO suit.

So why now?

Revenue ramp

"When MSFT begins a revenue based licensing scheme, it intrinsically thinks that its antitrust troubles are over," thinks Moglen. Microsoft has reached a point, he says, where the company can no longer enjoy the same annual revenue growth that it did in the 1990s. Like IBM in the eighties, it's now looking for 'creative ' ways to keep the shareholders happy.

There's some justification for Microsoft's concerns. The boom in desktop revenue that followed the adoption of Windows 3.0 (which more than doubled Microsoft's desktop license income from $28 for DOS alone to around $70 a seat) and Windows 95 (which saw competitors such as IBM itself eliminated and Apple shrink to a third of the size it once was) resulted in impressive annual leaps on the balance sheet. Server revenues haven't proved to be as lucrative as once promised, but they're there, and these revenues weren't there ten years ago.

However developing countries don't show the same appetite for Microsoft software as Redmond had expected. Tomorrow's economic powerhouses India and China are very keen on Linux, and Microsoft has been forced to slash prices in markets such as Thailand to compete with very popular low-cost government-sponsored programs which bring Linux computers to the masses.

"When Microsoft had a kind of growth curve that suggested it had not yet reached maturity, patent revenue was more trouble than it was worth," says Moglen.

Microsoft's efforts to transplant the horizontal PC business model into other businesses - cable TV, cellphones, games consoles, and handhelds - have so far been less than successful, as the balance sheet shows. Apart from the Office and Windows businesses, every other part of Microsoft loses money.

"Microsoft executives are aware they have crossed a maturity threshold - they can't grow as quickly as they have before; and even blockbluster products won't change this dramatically. So patent revenue is a significant assistant to maintaining something like traditional forms of growth," Moglen points out.

Who hurts?
Sun's Phipps says the company performed due diligence before releasing its Linux Desktop, Java Desktop System, to ensure it knew who had the rights to every piece of code in the distribution. Not without a small hint of a sales pitch - but justifiable, as we'll see - Phipps argues,

"Because of the evil of software patents there are people out there who would probably want your money. You have to accept it personally, or get a vendor to accept it on your behalf. When you buy a Windows or a Solaris you're assuming that they will. Now people are taking responsibility for development in house, they should be aware of the risks," he says.

"Writing software isn’t about doing cool stuff, it's about watching your back."

Moglen is even more blunt.

"US firms with substantial patent portfolios, an HP or an IBM, can swing back," he says. They have both deep pockets, and deep retaliatory patent portfolios. "But the free world will respond with great anxiety to measures that appear to be against free software."

"Garage inventors don't have liability."

He doesn't characterize it as a "doomsday machine" against the free software movement just yet, but he says some should be more concerned than others.

"There are companies, such as Novell/SuSE and Red Hat who will be concerned about patent defense," he told us. "There will be places where concern will be at a local maximum."

Who's next?
Microsoft's actions so far don't constitute a full frontal attack on free software. It's often been rumored that Microsoft has a number of patents - the number varies - on the Linux kernel itself. But it has chosen not to pursue such an inflammatory tactic, just yet, and may not even need to at all in order to succeed.

By eliminating independent distributors such as Novell and Red Hat, it forces it into a straight fight with large competitors such as IBM and HP, who happen to be Windows licensees, dependent on PC revenue, and bargaining from a position of weakness. And therefore unlikely to pick a fight. Sun, of course, isn't a licensee, but only two manufacturers have the global reach to make a decisive difference: Nokia and Sony, and of those two, only Nokia isn't a Windows licensee.

(Red Hat declined to comment for this article).

So there's no mistaking a rhetorical campaign from Redmond to "delegitimize" free software, and a parallel campaign to "legitimize" use of Microsoft IP under an approved license, under certain conditions. Microsoft would far rather you run untamed Linux code on its partitioned Windows servers hosting UNIX™ services. At some point in the future, we suspect, having convinced the world that Linux is a nasty but necessary virus, it will generously offer to host it all on giant Windows clusters. (Earlier this year, Microsoft bought Connectix's VM software to do just that job).

So the shooting hasn't started, and it might not start at all, but it's worth heeding the words of Kurt Vonnegut's Kilgore Trout (1946-1,001,986), who warned us - "In this era of big brains, anything that can be done will be done - so hunker down." ®

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