Microsoft Offers Improved Legal Protection

PCWorld.com ^ | 23 July, 2003 | Joris Evers

[Joe Bonforte]

Subtitle: Software giant will pay the bills if its products cause customers legal woes.

Microsoft is ready to take the heat if its products land customers in trouble.

The Redmond, Washington, software maker will pay its customers' full legal bills if they get sued over intellectual property issues relating to its products. Also, Microsoft no longer limits its liability when a customer suffers damages due to gross negligence or intentional misconduct on Microsoft's part, said Morris Kremen, associate general counsel at Microsoft, in an interview on Tuesday.

The improved legal protection on Microsoft products are part of changes the company made earlier this year in its volume licensing program, according to Kremen.

In older contracts, Microsoft only agreed to pay legal fees and be accountable for charges of gross negligence or intentional misconduct up to the value of the software a customer bought. Software buyers did not care for that and often protested those provisions in contract negotiations, Kremen said.

"Customers were not happy with that as a fair allocation of risk and they thought it was too protective of Microsoft," Kremen said.

Around the World

The changes to the licensing policies went into effect first in the U.S. in March and were introduced in the rest of the world in the months after that. "It is about risk and giving the customer the peace of mind they were asking for," Kremen said.

Customers in the U.S., widely seen as a litigious society, were worried most about the limited liability. "We certainly heard the concern most frequently from U.S. customers, but I also heard this from customers in Germany and in France," Kremen said.

Although the changes expand Microsoft's legal exposure, Kremen does not expect the company to actually have to start writing checks. He can't recall a single instance in which a customer had to call any of the now updated contractual provisions into play, he said.

Microsoft reworked its volume licenses and got rid of the sticking points as part of a broader company effort to be nice to its customers and better its image, Kremen said. "There is not a person here that has not heard the message that we have to get a lot better at listening to customers and show them that we are listening," he said.

Ongoing Battle

The updated license policies also give Microsoft some ammunition in its battle against open source. In May, The SCO Group warned commercial Linux users they may be liable for intellectual property violations because, it alleges, the Linux source code contains illegal inclusions of SCO Unix intellectual property.

SCO's move followed a March 7 lawsuit it filed against IBM, charging IBM used proprietary Unix code for the open-source Linux operating system, violating the Unix license agreement it has with SCO.

Some big Linux vendors do not offer indemnification the way Microsoft now does. Red Hat, for example, has said it does not indemnify customers and Yankee Group Senior Analyst Laura DiDio blasts IBM for not protecting customers.

"This new indemnification plan Microsoft came out with is a model for the industry and certainly raises the bar. I don't think it is sufficient or responsible for a company as large as IBM to just tell their customer that this lawsuit is going nowhere," she said.

"The big issue about this SCO lawsuit is the indemnification of customers. Whether or not SCO fades into the woodwork, the indemnification issue is not germane just to SCO," she said. "Indemnification is a huge issue. Microsoft is trying to win back customer confidence and what they have now is a model for the rest of the software industry."

[Joe Bonforte]

Okay, you Microsoft haters. Tell us how this demostrates how evil Microsoft is. Be creative, please.

[isthisnickcool]

Kremen does not expect the company to actually have to start writing checks. He can't recall a single instance in which a customer had to call any of the now updated contractual provisions into play, he said.

It looks like they are providing something that nobody will use anyway.

[Reaganwuzthebest]

Okay, you Microsoft haters.

Not a Microsoft hater at all, but I do think stiff competition pressures from Linux might have something to do with the positive changes. If any of those distributions become popular on the desktop, that could potentially cut into their customer base. Especially if it hurts Office sales.

[Joe Bonforte]

It looks like they are providing something that nobody will use anyway.

Presumably because they don't have to. So if other software companies also don't have any liability issues, they should offer the same coverage, right? After all, it should a no-brainer to give something to clients that costs you nothing and the clients want it.

[Question_Assumptions]

Please note that Microsoft previously limited damages in their contracts and only changed their practice due to complaints and seeing a publicity angle to their changes. While they deserve some applause for this move (it is the right thing to do), their motives are hardly pure. In other words, Microsoft is doing a good thing but not for altruistic reasons.

Please note that I own several Microsoft Office licenses, one for every version I have installed, purchased at full prices on my Macintoshes and have a very high opinon of Microsoft's software development and project management tools. There is a whole lot of space between being a Microsoft Kool Aid drinker and a Microsoft hater.

While I think a lot of the GPL nuts go way too far in their ideas of free software, I also think it is pretty silly that people can't use free software without fear of being sued. The obvious solution would seem to be for the IP owner to prove in court, in an action against the party responsible for releasing the code and claiming it is their code, that an IP infringement has taken place. If so, than a cease or pay solution would be fine. In other words, if Linux violates SCO, they should take the author of the modules in question (IBM?) or Linus Torvalds (the copyright holder) to court to prove the violation. If there is a violation, then it is reasonable for SCO to demand that users cease using Linux with the violation or buy a license.

Just consider real property. A group of people come upon a box full of CDs laying in front of someone's house that says, "Free! Take one!" and they each take a CD, making the reasonable assumption that the CDs are being given away. The next day, a stranger shows up at each of their houses and demands not only the CD but their arrest for theft. What has happened is that an irate lover put the CDs on the curb as revenge but never owned them to give them away. Should the people who picked up the CDs have to defend themselves in court? Should they turn over the CDs without any proof of ownership? I don't think so. I do think that if the owner can prove that the CDs are there that they should be returned and I think that any legal action for theft or damages should be borne by the irate lover. Apply to open source software.

It is horrible that you can never really know if you are violating someone's IP or not until you've been dragged into a courtroom. Knowing whether you are breaking the law or not should not be ambiguous -- at least not that ambiguous. That's not rule of law -- that's random law.

Now admittedly this would still leave a company using free software liable to pay a licensing fee or to stop using that software if it turns out to contain stolen IP. But there is nothing in Microsoft's guarantee that could protect you from Microsoft losing a legal judgement on an IP matter and having to pull their software off the market for a period of time, either. Microsoft is willing to protect its customers from a direct lawsuit but I don't think they should have to do that.

[Question_Assumptions]

In theory, an Office port to Linux would be quite successful. That's the role I'd like to see Microsoft in -- writing applications in a competative environment, not controlling the infrastructure and standards of computing. I think they'd be very good at it, too, but they don't want to compete -- they want a sure thing.

[Question_Assumptions]

By the way, I don't think Microsoft is evil. I think it has a history of practicing anti-competative behavior and I think that anti-competative behavior is bad. I have no problem with Bill Gates getting rich off of selling software in a competative environment and I have no problem giving Bill Gates my money for good software (as I have many times). That competition from Linux is driving Microsoft to make moves like this simply demonstrates that competition is important to keeping prices down and service and quality up.

[Reaganwuzthebest]

In theory, an Office port to Linux would be quite successful. That's the role I'd like to see Microsoft in -- writing applications in a competative environment, not controlling the infrastructure and standards of computing.

With some distributions like Xandros, they incorporated CodeWeavers CrossOver now which allows you to run Office 97 and 2000 on them. I heard that works well. But I do agree with you, back when Microsoft released Windows 95, they were more interested in writing good code than anything, that was their priority, and it's what put them on top.

[Nick Danger]

So if other software companies also don't have any liability issues, they should offer the same coverage, right?

This could become very popular very quickly, or it could blow up in their faces. It could go either way.

It's a terrific place to hide earnings from the tax man. We have this potentially huge liability exposure, so prudence requires that we set up a reserve against that. Poof! Earnings disappear from the income statement and pop up on the balance sheet, where the tax man can't get at them. I like that.

Those aren't the only accounting implications, though. A single contract out there that looks like that could — in theory — turn the entire net worth of the company into a zero, depending on how some judge rules. That's an extremely low-probability event, but accountants, lawyers, and securities regulators get paid to worry about that sort of thing, because sometimes the unlikely happens. I'll bet the company lawyers went screaming to their graves saying 'no' to this, but they were overruled... probably by Mr. Gates himself. I doubt that anyone else there would have the hair to make this size bet with his money.

My gut tells me that some people will jump on this idea because it looks like a freebie feature with positive tax consequences, but many could live to regret it. You talk about a fat target for a hungry lawyer... Microsoft with unlimited liability! There are probably trial lawyers passing out just from reading about this in the news. Hell, some lawyer will probably sue them now just for being an attractive nuisance to other lawyers. If other Deep Pockets follow, I can see Much Bad coming from this.

It could also get funny. SCO & Co. could be sitting around a table right now, deciding that $3 billion from IBM is chump change, and what they should do now is claim that Windows infringes on their IP (they have already made that claim to the press). It's the Carl Sagan Memorial Jackpot — billions and billions and billions.

I dunno... to me the idea of waving unlimited access to the balance sheet in front of a nation of lawyers who strip entire industries for fun, is kind of nutty. If it turns out not to be the marketing advantage that Gates thinks it will be, he could be very sorry he did this.

[HAL9000]

So Microsoft will agree to protect their customers over intellectual property issues - just like they agreed not to modify the Java language in their contract with Sun Microsystems?

[adam_az]

Question your assumptions about the GPL by reading it, please. Your post makes a lot of allegations that are not supported by he GPL.

If you want to criticize he GPL please criticize specific sections, instead of just using rhetoric unrelated to the thing you are criticizing.

[adam_az]

The Redmond, Washington, software maker will pay its customers' full legal bills if they get sued over intellectual property issues relating to its products.

Microsoft promises something that they know they will never have to deliver on, as per usual. ;)

[Question_Assumptions]

Question your assumptions about the GPL by reading it, please. Your post makes a lot of allegations that are not supported by he GPL.

I've read the GPL, thanks. It might help if you tell me what allegations I'm making that aren't supported by the GPL. Please note that the universal commercial codes adopted by most states (also, UCITA has been adopted by at least one) are read into all contracts and may impose restrictions and limitations not spelled out or even intended by the GPL. Have you read the parts of the UCC and UCITA that govern software licenses? Have you looked at the case law governing indemnification? I have.

[Paul C. Jesup]

I think this is the largest 'I put my money where my is statement' in the history of the human race. Not let's see if they can deliver on it.

[adam_az]

Just consider real property. A group of people come upon a box full of CDs laying in front of someone's house that says, "Free! Take one!" and they each take a CD, making the reasonable assumption that the CDs are being given away. The next day, a stranger shows up at each of their houses and demands not only the CD but their arrest for theft. What has happened is that an irate lover put the CDs on the curb as revenge but never owned them to give them away. Should the people who picked up the CDs have to defend themselves in court? Should they turn over the CDs without any proof of ownership? I don't think so. I do think that if the owner can prove that the CDs are there that they should be returned and I think that any legal action for theft or damages should be borne by the irate lover. Apply to open source software.

Which section of the GPL are you comparing this example to?

While I think a lot of the GPL nuts go way too far in their ideas of free software

GPL is a license, GPL licensed software is by definition copyrighted. Who are you to decide what is "too far" with regards to the license on software decided on by it's author?

I also think it is pretty silly that people can't use free software without fear of being sued.

How do you figure? I know lots of people who use GPL software, even in commercial enterprises, and none have been sued for it. Free Republic runs on Linux and hasn't been sued for that.

[supercat]

It is horrible that you can never really know if you are violating someone's IP or not until you've been dragged into a courtroom. Knowing whether you are breaking the law or not should not be ambiguous -- at least not that ambiguous. That's not rule of law -- that's random law.

Thanks to the Berne Convention, increasing amounts of material are effectively leaving the public domain and will never return.

[Question_Assumptions]

Which section of the GPL are you comparing this example to?

I'm not talking about any part of the GPL, per se, but about the problem of indemnification with respect to intellectual property that is given away. That falls under the UCC and case law. As I've said, that effectively gets read into every contract that is written.

GPL is a license, GPL licensed software is by definition copyrighted.

I think that falls into the "no duh" category. In what way do my statements say anything different?

Who are you to decide what is "too far" with regards to the license on software decided on by it's author?

And who are you to lecture me about the GPL? I said that "I think a lot of the GPL nuts go way too far in their ideas of free software". Do you really think that Linux would be as popular as it is without the less "grabby" GNU Library License that allows commercial software to run against GNU libraries without having to adopt the GNU license? I don't. Do you really think that all software that runs on Linux should be required to be GPL? That's the hard-core "GPL nuts" position that I'm talking about.

How do you figure? I know lots of people who use GPL software, even in commercial enterprises, and none have been sued for it. Free Republic runs on Linux and hasn't been sued for that.

Read the UCC and related case law dealing with liability when no money has changed hands. IBM has been sued. SGI has been sued. SCO is apparently going after others. Go beyond the GPL and look at the law. Intellectual property law is not nearly as settled as many people seem to think it is. No, I don't think you should drop Linux. I'm a Linux user, commercially, and have been since the 1.0.9 kernel. Indeed, the whole point of my post was that I don't think that open source software users should be held liable for using illegally copied code, a point which is not clear in the case law. Do you disagree?