Microsoft's Patent Problem

[InfoSec News <isn () c4i org>]

http://www.fortune.com/fortune/technology/articles/0,15114,466180,00.html

By Roger Parloff 
FORTUNE
July 22, 2003 

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?) [1]

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?"

[1] http://www.fortune.com/fortune/technology/articles/0,15114,400412,00.html



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