Microsoft offshores patent war - so goes the WTO?

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Microsoft's decision to offshore its war against the free software movement to the World Trade Organization may save it some domestic embarrassment, but it may ultimately cause more problems for the WTO than it will for software libre.

By adopting the WTO as its intellectual property enforcement proxy, Redmond believes it has a tactic that allows it to prevail without filing a single lawsuit. This has many advantages for Microsoft, as we'll see. But without filing a lawsuit, it's going to prove extremely difficult to convince anyone that the GPL poses a risk to their way of doing business: so many people now depend on it.

Let's outline the big picture. Microsoft's dilemma is that in the long run it can't compete with free (as in beer) software without a severe impact on its margins, and this problem is most acute in the developing world, where it doesn't have a paid-up legal installed base. We need to remind ourselves just how slim these margins already are. In China, Linux is considered more expensive than Windows (a pirate copy of Windows, of course) because Linux comes on three CDs rather than one. For Microsoft to compete effectively in a fair market competition against Dragon Linux, it's going to have to produce a version of Windows much cheaper than the $26 cut down version offered in Thailand. It'll have to cut this by an order of ten, or fifty.

So it's in Microsoft's long-term strategic interests to make writing GPL software and using it illegal. Microsoft has already indicated that it can build up its IP patent stream without opening fire. In an interview published last week, Microsoft's director of licensing David Kaefer noted that Microsoft could no longer "look the other way" when companies used its IP, [here] But Kaefer also "... noted that [Marshall] Phelps built IBM's intellectual property business without filing a single lawsuit." [our emphasis] Phelps is the IBM attorney who built up its patent revenues from zero to a billion dollar business in the 1980s. He joined Microsoft last summer.

So how can Microsoft win a patent war without suing anyone? It's hard to conclude that it can, but perhaps that's not the goal. We can certainly see how hard the company wants to avoid a legal fight over the GPL. Tacking the GPL's validity head on in court carries lots of dangers.

For a start, there's the negative publicity. It would quite dramatically draw attention to the fact that Microsoft wanted to kill free software, and no one likes a bully. Fewer ordinary people now use Linux than were using Netscape or Java in the last round of DoJ-backed antitrust litigation, and fewer people understand what software libre is than understood what a browser did. But attacking a social movement is quite different to two corporations fighting, or a government suing a successful business, and Microsoft would clearly be perceived to be the aggressor, rather than the plucky, set-upon entrepreneur.

Secondly, Microsoft could take the GPL to court and quite possibly lose, as Eben Moglen has pointed out here. Far from being an IP-eating virus, the GPL is entirely founded on the courts upholding the rights holder's privilege to do exactly what he wants with his intellectual property. The GPL doesn't do lots of things people suspect it does: it doesn't stop you making money, it isn't designed to torpedo capitalism, and of course, it's no guarantee that the software is any good. But it does exactly what it says on the tin: which is to prevent developers hoarding code.

Let's remember too that many software patents are thrown out by the judge. Microsoft's first foray into patent licensing was thrown out by the USPTO itself, when its right to the FAT patents was nullified on the basis of prior art. The explosion of patent filing activity at Microsoft doesn't necessarily indicate an explosion of creativity; and many may be even more fatuous than the FAT patent. For example today (thanks TheoDP) Microsoft has applied to patent the IS NOT operator.

And in any case, as Dan Ravicher noted here, the winner doesn't keep all. "It's rare for a patent holder to get an injunction, especially against a smaller competitor, just because of anti competitive terms."

Thirdly, a frontal assault would likely generate huge retaliation from IBM, which needs Linux - a nice earner for its consultancy and integration services division. IBM has deep pockets and an even deeper patent portfolio, which Microsoft's Marshall Phelps knows very well. Microsoft this week offered its customers "protection" against such retaliatory suits in the form of an indemnification program.

So like Mutually Assured Destruction, the true value of Microsoft's patent arsenal lies in the threat of their use, not their actual use. In any case, what Microsoft seems to be counting on is that the momentum behind the GPL will falter as companies become wary of deploying it.

WTO as IP enforcer

The option of dragooning the World Trade Organization into the proceedings gives Microsoft extra muscle. Here's what rights' holders can do, and here's the section on patents, according to the TRIPS. But if Microsoft can convince the TRIPS enforcers that massive patent infringement is taking place, it doesn't need to convince a court.

There's much irony to this. The anti-globalization movement arrived in the United States with the extraordinary Seattle protests at the height of the dot.com boom. Panglossian dot com sages huffed and puffed and did their best to ignore it: after all, politics was dead: entrepreneurs were the revolutionaries, and any lessons that conventional economics could tell us were useless in the New Economy. Both markets, and the internet itself, they believed, were "self-correcting".

But the protesters weren't so much against trade, as they were for fair trade, and against a Washington Consensus that sees financial capital ride over the interests of labor everywhere, and developing economies in particular. This is the logic that reduces technically skilled white collar workers in the first world to the state of indentured coolies, and orders developing countries to institute "cost recovery" programs where poor parents must pay for their kids' education. (Former Nobel Prize Winner, and chief economist of the World Bank, Joseph Stiglitz describes how Uganda rebelled against this imposition, with the result that a generation of daughters received an education for the first time, rather than being forced to work on the land as child labor).

So Microsoft's adoption of the WTO as its enforcer may be the moment when the technical community realizes that everything is political, perhaps encouraging them to send their Ayn Rand novels down the crapper.

Which leaves us with the issue of when and where Microsoft will choose to apply pressure. It's much more likely to target weaker economies, as they have less bargaining power. Look out, Nepal! Microsoft would be foolish to force the issue in China, the largest holder of US dollars. If China were to retaliate, the dollar would be a junk currency and US shoppers could be looking at empty shelves. Er, Steve - you ought to think this one through.

So Microsoft's patent 'war' may amount to no more than a psyops exercise designed to exploit the abundant paranoia in the open source community. But it could also serve another useful purpose. Microsoft has plenty of time and money to diversify beyond its Windows franchise, just as IBM diversified beyond its original typewriter franchise. But it isn't too prudent to tell the shareholders this until one if its current diversifications scores a hit. ®

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