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Channel Finds Relief in Microsoft Promise
By Kevin Fogarty

News Analysis: While the company’s channel partners weren’t screaming for IP protection, they say the announcement puts them much more at ease.

Microsoft’s decision to protect its channel partners and ISVs against any potential intellectual-property disputes won’t radically improve its market or credibility.

But if it had not stepped done so, both channel partners and end users would have become increasingly uncomfortable using products from a company whose products are so obvious a target.


“This is very much a top-of-mind issue in the reseller channel,” said Michael Schwab, vice president of purchasing at Harrisburg, Penn.-based D&H; Distributing Co., a national distributor that logged more than $1 billion in sales at a growth rate of 24 percent during 2004, according to Hoovers Inc.

“The reality is that distributors and resellers rely on the hardware manufacturers or the software publishers to ensure that proper intellectual property rights are observed,” Schwab said.

“Historically, everyone sold products under the assumption that the manufacturer would step up if there were any problems.”

“It’s always been a puzzle to me that people have been willing to take or resell Microsoft software without indemnity protection,” said Mark Radcliffe, a partner at DLA Piper Rudnick Gray Cary, a national law firm with an extensive intellectual property practice.

Pointer Click here to read more about how bad patents are threatening innovation in IT.

“Obviously it’s part of the continuing battle to differentiate Microsoft products from Linux,” Radcliffe said. “But Red Hat and some of the other Linux companies offer indemnifications already, so the differentiation won’t be as dramatic as Microsoft would probably like it.”

“It will make the distributors more comfortable,” he said.

Which isn’t a trivial issue, according to Schwab, who views the announcement as confirmation that Microsoft will stand behind its products and its resellers, as its customers expect it to.

“Then you can be confident that you are putting products in the hands of your customers that could in no way cause you any problems defending the intellectual property rights of what you’re selling,” Schwab said. Channel Insider Special Report: IT Spending in the Channel

But that said, Schwab admitted that having that protection probably won’t increase sales of Microsoft products through D&H;, or decrease sales of Linux.

Few if any customers have been avoiding Microsoft or Linux products because of intellectual property issues, said Stephen Graham, an analyst at International Data Corp. who has just finished a study of end-user companies and their rising concern about IP in technology products.

“One of the things we found is that IP isn’t positioned as a debate between open-source versus conventionally licensed software,” Graham said. “[End-user companies] see it more as a growing IT management issue.”

A growing number of IT mangers are adding IP concerns and IP audits to their procurement processes, Graham said. “They’re going through the rigors to make sure that what they bring in-house has sufficient protections that they know what will happen to them if an IP lawsuit emerges,” he said.

The SCO Group Inc.’s lawsuit against DaimlerChrysler—in which it charged that IBM had inserted code that was the property of SCO into open-source versions of Linux and that anyone using Linux would have to pay SCO a fee—turned IP from an abstraction into an immediate issue with a clear penalty, Graham said. Most of SCO’s charges were thrown out in a court hearing last January.

PointerClick here for some tips on staying out of the IP briar patch.

That concern on the part of end users is being felt by the resellers and VARs that work with them, and on up the channel chain all the way to the originating vendor, Graham said.

“There is a growing recognition that in the software industry, the number of patents is increasing. With the court system tending to fall on the side of the patent holder, you have a growing concern over the whole IP situation,” he said.

That may be so among larger organizations, but at the lower end of the channel, in the SMB (small and midsized business) segment of the market, there appears to be less concern.

“In the markets we serve, it has not been a large issue,” said Jane Cage of Heartland Technology Solutions, based in Joplin, Mo. “None of my customers have been sued; nobody’s asking about copyright infringements. But smaller companies are getting sued all the time, so you never know.”

Indemnity isn’t much of an issue in most government contracts either, according to Ray Morton, director of technical services at Clarksburg, Md.-based Daly Computers Inc., a reseller that focuses on government accounts.

“There’s always risk, but it isn’t something that’s been in the back of our minds,” he said. “One thing the indemnification doesn’t cover is embedded software customization. We’ve done a little bit of that for clients, but we stopped doing custom screens or help screens or whatever, just to be on the safe side.

“If they covered that, I’d feel a lot better,” Morton said.

The whole IP situation in the channel is important, but not critical right now, Radcliffe said. “It would have been a lot bigger last year for Microsoft to do this. Now you have Red Hat and HP and other Linux companies giving limited indemnity, so it’s less of an issue.”



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