Microsoft's Patent Problem

Fortune.com ^ | Tuesday, July 22, 2003 | Roger Parloff

[glorgau]

Last month, when Microsoft announced its bellwether decision to award employees restricted stock instead of options, it also made news in a federal courtroom—the kind of news you keep quiet about.

Microsoft suffered utter defeat at a crucial pretrial hearing in what appears to be the highest-stakes patent litigation ever—one in which a tiny company called InterTrust Technologies claims that 85% of Microsoft's entire product line infringes its digital security patents. (See Can This Man Bring Down Microsoft?)

InterTrust's engineers developed and patented what they say are key inventions in two areas: so-called digital-rights management and trusted systems. The technologies are essential to the digital distribution of copyrighted music and movies, and to maintaining the security of e-commerce in general. At its prebubble height, InterTrust (founded in 1990) employed 376 people and marketed its own software and hardware products; today it consists mainly of a patent portfolio, 30 employees, and this lawsuit. An investor group led by Sony Corp. of America and Royal Philips Electronics bought the company in January for $453 million, hoping to convince consumer electronics and tech companies—beginning with Microsoft—of the need to license its patents.

Microsoft argued in court that crucial phrases in InterTrust's patents were too vague to be enforceable, and that others required such narrow interpretation that they would have been hard for Microsoft to infringe. But in her July 3 ruling, an Oakland judge resolved 33 of 33 disputed issues against Microsoft and rebuked the company's lawyers for wasting her time by promising proof that never materialized—legal vaporware, in essence.

"This is simply another step in a long legal process," says a Microsoft spokesman, putting the best face on it. "Microsoft will continue to defend itself against what we believe are groundless and overbroad claims."

As agreed before the hearing, the parties now enter a round of settlement talks. Though InterTrust declines to place a pricetag on the suit, it's hard to imagine the company settling now for any sum that does not have a "B" in it. InterTrust claims that its inventions cover technologies that Microsoft has been weaving into its Windows XP operating system, Office XP Suite, Windows Media Player, Xbox videogame console, and .NET networked computing platform, to name just a few. If settlement talks fail and InterTrust prevails in court, it would be entitled to a court order halting sales of all those products. InterTrust CEO Talal Shamoon asks rhetorically, "How much would that be worth to Microsoft?"

[Salo]

I really think MS is not behind the SCO thing: I would look to Sun. While MS is certainly feeling the pinch because of linux, Sun is getting beaten to death by it.

I agree with you on the precedent that will be set in the SCO matter: if IBM buys them out, pays them off or loses, look out! SCO needs to be crushed, very quickly, very fatally and very publicly. I'm talking rape their secretaries, kill their employees, burn their buildings and plow salt into the earth where their buildings once stood (for GE, this is hyperbole for humorous effect).

If this stuff has the effect of showing the need for reforms in our legal system, that would be great, but too many legislators are lawyers, and lawyers own the Democratic Party outright. This will not lead to a fix for the legal system, but has the potential to wreck all other parts of our economy, especially the tech sector.

[microgood]

I wonder who patented the for loop or do while loop? They should be able to make big bucks. Or maybe we could go back to logic itself, and descendants of Aristotle could have a field day.

[glorgau]

I wonder who patented the for loop or do while loop?

IBM had a patent for the Line Feed character (or was it the carriage return or the combination of the two) back in the 60s. It was a radical new concept that said you pressed a single key and then the teletype would advance one line and the print head would move from the end to the beginning!

[Nick Danger]

I really think MS is not behind the SCO thing:

I doubt they had anything to do with filing the lawsuit, or planning it, or anything like that. Hell, they just got stung for $120 million or so by these same shysters.

But the press... the FUD... the sheer volume of it... the endless columns in ZDNET, the endless commentary from Gartner and Yankee Group...

... that stuff does not just "happen." It is being flogged, by somebody with enormous industry juice and a very good and very large press relations operation. That does not describe SCO. Even Sun doesn't have the juice to make these endless stories, hanging on McBride's every word, pop out.

This case is every bit as potentially damaging, and it is farther along legally, to the point that the judge has heard the first round and made some rulings. All of them went against Microsoft. The case is still years from settlement if Microsoft wants it to be, but it is no less significant a case. Yet there will be nothing like the SCO hurricane in the trade press over this case. There will be no Gartner warnings telling people to stay away from Windows. Not a peep from Laura DiDio except to congratulate Microsoft for indemnifying its customers, as though that had anything to do with this case.

In the SCO case we are watching a FUD blast from somebody with a really big FUD gun. They may not be behind the suit, but they are almost certainly behind the amount of noise it is making. Hell, just watch the Munchkins right on this forum. In theory, our resident Munchkins should have no axe to grind in the SCO case, or if they do, they should want SCO to take a punch in the nose as the guys who hit them for some 9-figure sum. But they are in here every day, hailing SCO as the poor downtrodden victim, who is sure to win billions and put linux out of business. It may be SCO's lawsuit, but the FUD is coming from somewhere else.

[Charles H. (The_r0nin)]

Just damn. You really are the man, Nick. You know that, right?

[zeugma]

I see this as a bad trend: bankrupted companies being purchased solely so their patents can be used as lawsuit fodder. *This* will hurt the software industry much more than the free/open vs. proprietary/closed software squabbles.

And it doesn't matter if it American lawyers/companies doing the suing. We will lawyer ourselves into a tech depression like this.

As much as I despise microsoft and all the crappy software they produce, I must say that this case is really bad news. From looking at the patent claims, this is a really broad patent that puts a lock on many avenues of security.

As much as I'd like to see microsoft get taken to the cleaners and beaten to a bloody pulp, I hope they prevail in this.

[microgood]

IBM had a patent for the Line Feed character

Amazing. The thought that you may want to go to the beginning of the line independent of going to the next line(in case you want to underline) was in typewriters. Of course IBM made typewriters.

[zeugma]

Dude. Excellent post. Bump fer ya.

[boris]

"I wonder who patented the for loop or do while loop?"

Many years ago, I ran a small business that sold computer graphics software. I received a letter from Evans & Sutherland: "We are aware of your activities in computer graphics," it began, which sort of made me feel good. It then announced that E&S had "a strong patent position" on ideas such as: drawing a vector on a screen, placing a character on a screen, etc.

They offered to license the technology for $100K and up.

I wrote back:

"I don't believe you are serious. Do you really think you can patent drawing a line on the screen?...anyway I am grossing only $10K per year; if you want to pursue this, I'll just fold my business. I got the algorithms from standard texts; here is my source code--you will see it infringes not at all."

They responded: "Yes, we really do think we can patent these ideas. We are suing IBM, Apple, Sun, ComputerVision, et al. As for the standard texts, we wrote them. But you are too small; we'll get back to you when you start to make some real money." (I am paraphrasing.)

I could not resist: "I guess it is easier to make money by lawsuit than by actually innovating and selling products."

No response to that one.

I never heard how the thing came out; I imagine most of the suees settled.

--Boris

[Southack]

"Nested policies within a single item: Allows association of multiple rules sets to different portions of information, such as a medical record having certain portions editable by a doctor, and different portions editable by nurses."

Look, it's easy to make lots and lots of claims, but the way that patent law works is that you have to file for a patent before anyone else ever sells, describes, or publishes what you've filed in your patent.

Now, that doesn't mean that you won't get a trial. In fact, that's how the system is supposed to work. You get a trial, and you show that you're the first to file a specific claim before anyone else so much as published the concept.

And the other guy gets to either show that what you've done is "common knowledge" to people in the industry, or that what they've done doesn't infringe on your patent claims, or that what they've done is an **enhanced** (i.e. better) way of performing your claim.

The better mousetrap defense has always worked (at least, for those who have had the better mousetrap).

Now take a look at what InterTrust is claiming in the quote above. How strong do you think that their case is based upon a 1995 filing date (i.e. has anyone published such texts or sold such methods prior to 1995)?

[Salo]

Paging Dr. Penguin....

[Nick Danger]

Now take a look at what InterTrust is claiming in the quote above.

Are you possibly confusing a PR blurb with an actual claim in the patent? It looks to me like your text above is from Note 15, which is a bunch of plain-language blurbs about where their patents might be applicable. The claims themselves relate to a specific method of accomplishing the task in a distributed environment.

[rdb3]

The Penguin Ping.

Wanna be Penguified? Just holla!

Got root?

[Southack]

If you'll notice, I posted both the actual claims of the patent as well as a link to the patent itself. Yes, I did quote the PR blurb, but suffice it to say that even that PR blurb will be brought up and hammered in the trial.

The specific example used in the PR blurb of doctors having access to one set of data while nurses only have access to another set will NO DOUBT serve as an opening for MicroSoft's lawyers to demonstrate pre-1995 code that already did that very thing. At the very least that will harm the credibility of InterTrust to the jury, and it could even go so far as to get the case tossed.

Ditto for every other claim in the patent as well as in the PR blurb. InterTrust will have to show that their concept is unique, original, first, and superior to whatever the industry has done as well as to what the specific defendnts have done.

And having claim after claim ridiculed by their opposing attroneys who can bring forth pre-1995 code that does precisely what their claim asserts will harm their case every step of the way.

Making it worse for InterTrust is that the patent is bizarre. It goes for over 300 pages (including drawings), and is at various points overly narrow (i.e. no one else would be doing something to infringe) and at other times enormously broad (which makes it tough to prosecute).

[Nick Danger]

Did somebody give the Munchkins the night off? They seem to stay away together; I wonder if they'll arrive together.

[Nick Danger]

suffice it to say that even that PR blurb will be brought up and hammered in the trial.

If you say so.

[UnBlinkingEye]

Microsoft suffered utter defeat at a crucial pretrial hearing in what appears to be the highest-stakes patent litigation ever—one in which a tiny company called InterTrust Technologies claims that 85% of Microsoft's entire product line infringes its digital security patents.

Microsoft needs to pay up. The have been aggressively seeking software patents, if InterTrust Technologies beat them to the concept they have no case. BTW if Microsoft knowingly infringed they owe InterTrust Technologies treble damages plus attorneys fees.

[Southack]

"When an electronic appliance 600 receives a component assembly, an encrypted part of the assembly may contain a value that is known only to the party or PPE 650 that supplied the assembly. This value may be saved with information that must eventually returned to the assembly supplier (e.g., audit, billing and related information). When a component supplier requests that information be reported, the value may be provided by the supplier so that the local electronic appliance 600 can check it against the originally supplied value to ensure that the request is legitimate. When a new component is received, the value may be checked against an old component to determine whether the new component is legitimate (e.g., the new value for use in the next report process may be included with the new component)."

The quote above is the methodology in the patent itself (the number 600 is patent-ease lingo for item number 600 on one of their included schematics).

Now consider that they will have to show that no one else did that all-inclusive style of verification prior to 1995, either in practice or in a published article, with every sentence getting hammered one at a time.

And **if** InterTrust manages to prove that they were the first (above), then they've got to show that the defendnts used that precise method, thereby infringing on the patented claim.

[dark_lord]

How strong do you think that their case is based upon a 1995 filing date (i.e. has anyone published such texts or sold such methods prior to 1995)?

I have no I idea, not being a patent lawyer. I do know that while the technologies underlying the Web have been around in various forms since the late 70's and early 80's, it wasn't until '94 and '95 that web servers and web browsers burst onto the scene. So patents that would focus on the idea of digital content being shipped over the web would naturally arise around then.

Since Sony is big time in this space, and so is Philips in Europe, there is no question that this is why Sony and Philips bought these guys out. And that is an aspect that people haven't really thought of yet. This is not some little company sueing Microsoft. This is really Sony and Philips, both GIANT megacorps, sueing Microsoft behind the shield of this company -- which is wholly owned by them.

Read this article from last fall for a perspective on this. From that article I quote: "...this move by Sony and Philips is yet another attempt to block the software giant from completely controlling the lucrative digital rights market."

[Southack]

You don't need to be a patent attorney to understand if the patented claim is strong or not. The patent has to be written such that **anyone** skilled in the industry can understand and duplicate the patented process.

If the patent can't be understood by those skilled in the industry (in this case, us techies), then it will be invalidated by the courts, per patent law.