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Microsoft Indemnifies Its OEM Partners Against IP Attacks
By Peter Galli

The litigation between the SCO Group and IBM is having repercussions in the most unexpected place: at Microsoft.

Microsoft Corp. announced Thursday that it is strengthening the IP (intellectual property) protection, or indemnification, it provides to all the PC manufacturers it works with, from the larger OEMs and smaller OEM System Builder partners, to OEM distributors and ISV Royalty partners.


The enhanced indemnification, which will be effective on Thursday, is designed to help shield partner companies from exposure to legal costs and damage claims related to patent or other IP disputes.

It includes protection for patent, copyright, trade secret and trademark disputes, which are the four forms of disputes commonly associated with software.

David Kaefer, director of business development in Microsoft’s Intellectual Property and Licensing group, told eWEEK in an interview that the IBM-SCO suit, regardless of its legal merits, has reminded people of the risks associated with IP.

“The IBM-SCO case has raised this front and center for our channel partners,” he said.

PointerClick here to read more about the battle between SCO and IBM over the UNIX IP.

Essentially, this latest indemnity covers all those Microsoft products currently being shipped, from the Windows Server System, which includes Microsoft SQL Server and Exchange Server, to Microsoft Office System and Windows client software. But Microsoft’s embedded offerings are excluded, given that some OEMs are allowed to modify that code, which complicates the issue of indemnification for those products, he said.

PointerRead more here about Microsoft’s plans for the next generation of Windows Servers.

eWEEK.com Special Report: Microsoft Trials

Microsoft has more work to do regarding indemnification for the embedded space and will continue working on that, Kaefer said, adding that indemnification is as valuable and important an issue for channel partners as it is for users, given the large volumes of the Microsoft’s software products that they ship.

In 2003, the company removed monetary caps for volume licensees, while last November it extended its IP protection for customers by taking coverage previously available only to volume licensees and making it available to all end users. As these OEM and ISV partners account for more than $18 billion of Microsoft’s annual software revenue, it is clearly in Microsoft’s interest to indemnify them against potential IP disputes.

As Kaefer said, “IP claims historically have been against the channe,l as they don’t always have the defensive capabilities, like their own patent portfolios, to properly defend themselves. Our channel partners have been approached in this regard in the past, and the channel has seen some high-profile IP disputes.”

Recent high-profile cases have brought greater industry awareness of the importance of IP management, and, when IP disputes arose, it was all too common for a technology company’s channel partners to be pursued for the alleged IP violations, Kaefer said.

Microsoft’s willingness to help protect Dell Inc. and Gateway Inc. when Lucent Technologies filed a patent suit against their use of Microsoft software is one such example of the complex and real nature of IP issues in the industry today, he added.

PointerTo read more about Microsoft’s suit against Lucent, click here.

Another example of channel-partner patent litigation is the case in which Multi-Tech Systems Inc. sued several Microsoft OEMs in 2000, including Compaq Computer, Dell and Gateway.

Multi-Tech also sued 10 Internet telephony companies, including Net2Phone Inc. and VocalTec Communications Ltd. It asserted patents related to Internet voice communications, but Microsoft ultimately stepped in on behalf of the OEMs and prevailed at the Appeals Court level last year, Kaefer said.

Microsoft believed it was important to send a clear signal to the market that it would stand behind its software and defend any of its partners and customers in this regard, Kaefer said, adding that PC makers have already lived through the myriad of corporate compliance issues and, as IP legal disputes are on the rise, “They have started a drumbeat of wanting the vendors to stand behind their own products.”

IP claims overall had doubled globally between 1990 and 2000, with litigation in general having also risen, he said.

Next Page: Microsoft’s offer beats Linux companies’ protection, Kaefer says.

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