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Microsoft poses a similar argument as Transmeta and Rambus before it -- it invested money in smartphone research, now it should be able to force licensing and/or sue competitors to compensate for its sales shortcomings.  (Source: Wikimedia Commons)
Google is "standing on the shoulders" of others -- Horacio Gutiérrez, Microsoft General Counsel

In the smartphone market, Microsoft Corp. (MSFT) has undergone a transformation from a company that makes most of its money off facilitating the sale of physical products to end consumers and businesses, to a company that makes most of its money from pursuing intellectual property enforcement.

The approach isn't altogether surprising.  Microsoft has fallen from holding nearly a quarter of the smartphone market, to having less than 3 percent of the market locked down.  In short, a year into the Windows Phone 7.x project Microsoft is thus far lagging in sales in the smartphone market despite having very innovative -- but poorly marketed -- products.

Thus Microsoft has followed in the footsteps of past companies, such as Transmeta and Rambus Inc. (RMBS) and turned to a "forced licensing" approach of trying to force more successful competitors to pay to license its IP under threat of lawsuit [1][2][3].

Microsoft General Counsel, Horacio Gutiérrez, raises a familiar argument in an interview with the SFGate, commenting that Google Inc. (GOOG) is "standing on the shoulders" of Microsoft and other smartphone IP holders with its Android mobile operating system.

This is a familiar argument, as it's similar to the argument raised by Transmeta and Rambus -- quite successfully in fact.

Mr. Gutiérrez contends, there's essentially nothing wrong with the American intellectual property system, and that the spate of recent lawsuits is just the market "readjusting" itself to innovative new products.  

He comments:

Every time there are these technologies that are really disruptive, there are patent cases. People who lived in that particular time would look and say, "What a mess, we certainly must live in the worst time from an (intellectual property) perspective. The system is broken and something has to be done to fix it."

That's the situation we're in right now. If you think of a mobile phone or a tablet computer today, they're not your father's or your grandfather's cell phone.

The devices have evolved and become so much more powerful, because they've added a number of technologies that pre-existed the new devices. In general, they use software to become general-purpose computers.

As we've seen historically, there is a period of unrest and a period of readjustment, until the claims on the ownership of different pieces of technology are well known. There's a period of actually licensing and cross-licensing that makes these issues disappear into the background.

When you buy the device as a consumer, you get it out of the box and enjoy it immediately. What you don't see is an invisible web of licensing and cross-licensing arrangements that actually make it possible.

So licensing is not some nefarious thing that people should be worried about. Licensing is, in fact, the solution to the patent problem that people are reacting so negatively about.

Of course, again, this is precisely the kind of arguments Rambus and Transmeta made to justify their tactics.  But as the analogy to these firms shows, Mr. Gutiérrez is at least correct in that there's been a lot of historical precedence for this kind of use of IP.

Microsoft's perspective echoes that of Rambus and Transmeta.  It spent the money researching the technology, and now a more successful competitor is profiting off a similar implementation.  So it should be able to gain revenue secondhand by forcing licensing.  States Mr. Gutiérrez:

[T]here are all these other features that just make the phone much more efficient, things that are embedded deeply in the operating system. Microsoft has invested for decades more money than anyone else in research and development directed toward the efficiency of operating systems. These devices have moved from having a rudimentary phone system to being a full-fledged computer, with a sophisticated, modern operating system.

In doing that, they have really stood on the shoulder of companies like Microsoft who made all these billions of dollars in investments.

Mr. Gutiérrez defends even his company's most obvious patents -- such as two GUI patents, the first of which involve loading (and displaying) webpage content before images to load webpages faster, and the second of which involves displaying a loading animation as the images load.  These patents -- U.S. Patent Nos. 5,778,372 and 6,339,780 -- were used to force Barnes & Noble, Inc. (BKS), an Android tablet-maker, into a licensing deal.

Android Browser
Like Apple, Microsoft contends that patenting GUI features is acceptable.  Microsoft is suing or forcing licensing from Android manufacturers using a patent on displaying an animation for loading images in a browser.

He argues that patents only seem obvious because people aren't educated enough to understand them.  He states, "Many times when you express those ideas at a high level, they seem obvious to anyone who really doesn't understand the particular ways in which certain effects are achieved in software.  [W]e believe they're solid patents."

This could be a good approach for Apple, Inc. (AAPL) to take.  While Apple's goals are a bit different than Microsoft's (Apple wants to ban Android from sales, rather than profit off forced licensing like Microsoft), it also has a fondness for patenting GUI animations [1][2] and then using them to sue Google.

With Microsoft and Apple are seemingly in a race to patent seemingly obvious GUI components and sue or ban anyone who outsells them in the market, the validity of software patents will likely face increasing scrutiny.

But Mr. Gutiérrez says that software patents are similar to hardware patents, so they either are both valid, or both invalid.  He comments:

But I think the most important part here is that a lot of the innovation that is happening today is really happening in the software space. Many things that earlier were implemented in hardware - think of telephone switching and circuits - are now implemented in software.

So the question of whether software should be patentable is, in a sense, the same as asking whether a significant part of the technological innovation happening nowadays should receive patent protection.

But what if Microsoft used its GUI patents to sue Apple?  Well that's unlikely as the companies have essentially a patent "truce" -- they cross-license their IP to each other.  As a result they can focus their efforts on suing or banning other parties, without having to worry about attacks from each other.

As an interesting side note, a company that has been labelled the world's largest patent troll -- Intellectual Ventures -- was founded by Microsoft's former chief technology officer Nathan Myhrvold.  Mr. Myrhvold played a pivotal role in directing the future direction of intellectual property efforts at Microsoft, during his time with the company in the 1990s.

Source: SFGate



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This article is over a month old, voting and posting comments is disabled

By Tony Swash on 11/1/2011 6:30:24 AM , Rating: 2
Three companies, three business models, three IP strategies.

Microsoft's strategy, which dates back to MS-DOS and early Windows, is to commoditise hardware by licensing a cross cutting operating system which it establishes as a standard. Over time this tends to reduces profits levels for OEMs and ensures the bulk of revenues flows to Microsoft. This strategy, which was hugely successful in the desktop PC era, was exactly Microsoft's approach to the new mobile device market where it has been much less successful (so far) because Microsoft have not been able to establish a large OS footprint. Microsoft will continue to try to get traction in the mobile space but is unlikely to ever achieve a Windows like dominance and thus it will probably be unable to secure the bulk of mobile revenue via that route. Hence Microsoft's approach to IP which is to hitch a ride on the popularity of Android with OEMs and secure licence revenue: it's better than nothing. Microsoft is all about licence income.

Google's strategy is to insert itself into all global internet activity, monitor that activity and use that data to sell advertising. It's value to advertisers is dependent on having the best user data which means that Google has to try to be everywhere and will resist being shut out of anywhere. In Google's view all the world's data belongs to Google and anybody else generating user activity data which Google is not privy to is a threat. Google's strategy is to use it's high income from search related advertising to either buy competitors and add them to the Googleplex or offer free alternatives which are just good enough to undermine and thus destroy competitors business models. Either way it secures what it's business model requires which is to insert Google services into all internet traffic and user activity. Other than it's core search related algorithms (which is will defend to the hilt) Google's approach to all IP matters is the same - to reduce all IP value to zero.

Apple's strategy is to build devices that are distinctive and which will offer the end user a perceived very high value experience. It does this by striving to totally control the hardware, software, service stack and distribution system of all it's devices in order to create a distinctive brand associated with high end user value that will differentiate it's products from those of it's competitors and allow high margins and thus high profitability. In addition it has used it's high net revenues to build a best of class supply chain and to secure monopoly supply options, this ensures that across a significant range of it's devices it cannot be significantly undercut on price and often in some crucial areas (flash memory, unibodies, etc) it's competitors cannot actually access critical components. Apple's business model is not dependent on having a monopoly (other than sometimes in the supply chain) and it can position itself in markets (for example laptops and desktops) so that with a minority market share it can secure a disproportionate share of the revenue. Apple is keen to bundle content as part of it's product value stack and will work to ensure that content providers find it's approach to IP protection attractive but it is not focussed on generating value from content so Apple is happy to push down prices where it can (music, software) as from it's perspective content is just a way to sell devices. Apple's strategy is vulnerable to the commoditisation of hardware and it's products and brand can only retain value so long as it's product value stack remains distinctive and is perceived by consumers to be high. Apple is thus not interested in licensing it's IP (to do so would run counter to it's core business strategy) and it will ruthlessly defend what it perceives as its IP whenever it can.

So three corporate strategies, three approaches to IP.




"It looks like the iPhone 4 might be their Vista, and I'm okay with that." -- Microsoft COO Kevin Turner














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