Microsoft offshores patent war - so goes the WTO?

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From: JM Tella Llop [MVP Windows] (jmtella_at_XXXmvps.org)
Date: 11/21/04 

Date: Sun, 21 Nov 2004 19:09:43 +0100

Microsoft offshores patent war - so goes the WTO?
By Andrew Orlowski in San Francisco
Published Friday 19th November 2004 01:33 GMT
http://www.theregister.co.uk/2004/11/19/microsoft_wto_winning_without_firing/

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.
[EXT]

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. ® 

-- 
Jose Manuel Tella Llop
MVP - Windows
jmtella@XXXcompuserve.com   (quitar XXX)
http://www.multingles.net/jmt.htm
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