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Hi-tech Patent Licensing Trends

Ever since Software Patents have got easier to get a grant for, protection of computer-readable medium claims on a storable media has enforced the Intellectual Property Rights to a much higher level than a software company can have when compared with the counterpart System and Method claims. Although most countries, unlike the US, are still opposing in a great deal the grant of Software patents, practices in the US and shipping of software components from the US to the rest of the world pose lack of clarity on the rights of the companies using such a piece of code. Such software patentability issues are also gradually approaching the European Countries with certain courts giving indications of coming closer to US Software Patent grant practices.

Our mandate in this study is to understand the global software licensing trends and look at the kind of effects such licensing deals are making on competitors and open-source players. We would also try and understand the major attributes and/or pointers that motivate players to enter into the strategic licensing with complementary and/or supplementary players in the market. With no major success stories as yet in India in the recent past, our focus would be on recent global patent licensing agreements:

Microsoft and Patent Agreement

“Let only the Mammoths survive?”

On Feb. 22, 2010, Microsoft announced its signing of a patent cross-license agreement with Amazon. The agreement focused on allowing each stakeholder in accessing the other’s patent portfolio thereby covering a broad range of products and technology, including coverage for Amazon’s popular e-reading device, Kindle™, which employs both open source and Amazon’s proprietary software components and its use of Linux-based servers. The deal gives both

Companies’ access to each other’s patent portfolios and from a strategic perspective could well have been an initiative from Amazon to prevent a suit from Microsoft.

The agreement disclosed that Microsoft would be getting patent coverage for Amazon’s Kindle Ereader technology and Amazon’s proprietary software components deployed on Unix servers and that Microsoft would be getting an undisclosed sum of money from Amazon under the deal, which with quite a surety can be said to be for the IP that Microsoft holds for the user interface designs and OS/Non-OS based software components that the company owns.

Such a deal was a win-win for both the parties with access to Amazon’s technology on Linux-based servers can be used by the companies for furthering their interests, which in the case of Microsoft could be to strengthen its working and existing relationship with Novell. Microsoft and Novell signed a high-impact patent agreement in November 2006 to cover their respective products and ensure the easy and powerful virtualization of Linux on Windows and Windows on Linux. The agreement ensured Novell’s continued promotion of Linux as the premier platform for core infrastructure and application services and the company’s commitment to the community through leading-edge development projects as well as the continued promotion of Linux in the marketplace. The patent agreement signed by Novell and Microsoft was designed with the principles and obligations of the GPL in mind. Under this agreement, customers of SUSE Linux Enterprise know they have patent protection from Microsoft in connection with their use of SUSE Linux Enterprise, further encouraging the adoption of Linux in the marketplace.

The deal with Amazon and the aspect of taking in-license of Amazon’s improvement components of Linux-based servers, therefore, ensured that Microsoft made Windows more compliant and user-friendly for Linux Users.

Trendsetting from such Cross Licensing Patent Agreements:

ü Only large corporations with thousands or tens of thousands of patents are in a position to enter into cross-licensing agreements with their counterparts. Let’s go back and analyze all major cross-licensing deals including M/S with Panasonic, or M/S with LG, it has always been a story for the biggies.

ü If cross-licensing becomes more prominent and industry-wide practice, what happens to individual licenses that SME’s corporates and small players who essentially look out primarily for out-licensing opportunities

ü There might be more to cross-licensing than is made public by companies. The GNU General Public License states that “Finally, every program is threatened constantly by software patents. States should not allow patents to restrict the development and use of software on general-purpose computers, but in those that do, we wish to avoid the special danger that patents applied to a free program could make it effectively proprietary. To prevent this, the GPL assures that patents cannot be used to render the program non-free.” Such clauses along with rights conferred under S. 11 of the license agreement would surely not encourage such cross-licensing agreement, and in case parties do intend to make the systems more interoperable, a lot of such cross-licensing or access to patent information might be happening between corporates without coming onto the public front. It might well be the case that Microsoft has been going around and doing these patent cross-licensing deals with companies under NDA’s and they never see the light of days for years.

ü What happens if such deals strengthen relationships only among Software Major and they collectively initiate legal suits and create a huge entry barrier for start-ups or players having more effective products but have defensive IP strategies.

ü How do we answer the following questions also posted and considered by “IBM now owns around 40,000 patents worldwide? No one, and particularly no SME, ever has the chance to look at all of those and ensure that there is no conflict between one’s products and any of IBM’s patents. So IBM approaches companies and offers them a costly license agreement to the entire patent portfolio. Through those deals, IBM not only squeezes money out of the smaller company but also gets access to sensitive information on the business of the other company. In the spring of 2004, the press started reporting that Microsoft is now doing the same. They have already approached around 100 companies, some of which are European, and they said that open-source companies would also be targeted.”

Microsoft and TomTom Patent License Agreement

“Is FOSS Community the next Licensing Target for IP Focused Software Majors”

This story started in February 2009 with Microsoft filing a Patent Infringement Suit against the navigation device maker TomTom. The suit alleged infringing of several of TomTom’s products, including some Linux-based products, on a handful of Microsoft’s patents. With most patents in contention relating to car computing systems and navigation, but were two Patents namely #5,579,517 and #5,758,352 that claimed Microsoft’s FAT32 file system.

From a business perspective, even though denied by Microsoft, this could well have been a step taken by the Redmond based company to enforce its patents against the open-source community and have broader ramifications for the Linux platform and for mobile device makers.

Without going into much detail as regards the litigation and restricting to the licensing deal between the parties, Microsoft ensured that, as described by, Eben Moglen—a Columbia University law professor and the chairman of the Software Freedom Law Center, the FAT patents remains as a “proverbial Sword of Damocles hanging over the open-source community” and warned that Microsoft could use them to do immense damage to the Linux platform. In March 2009, TomTom settled the dispute with Microsoft with the terms of the agreement conforming with TomTom’s obligations under the GPL, the license under which Linux is distributed. TomTom has paid to license Microsoft’s patents, including those covering FAT.

The agreement also enforced TomTom to remove the functionality that is covered under the FAT patents to ensure that the code in TomTom’s Linux kernel can continue to be broadly redistributed downstream without patent encumbrances. TomTom’s agreement with Microsoft also provides a guarantee that M/S will not sue TomTom users in the interim period during which TomTom makes the requisite changes to the FAT code.

Trendsetting from such Patent Agreements subsequent to Patent Litigations:

ü Such an agreement was a completely different path taken by the licensor (M/S) when compared with the earlier mentioned huge cross-licensing agreements being done with Novell and Amazon. Is the size and scope of the party that differentiates the manner in which a litigation and post-litigation licensing agreement would be drafted and agreed upon by the parties

ü Not allowing FAT systems to be a part of the navigation devices of TomTom was such as an aspect of the agreement, which was completely different from how the agreement was devised and written down with Novell, wherein the licensing agreement with Novell was much more collaborative and technology sharing rather than prohibiting parties from using IP’s, which was evident in this case.

ü The major trendsetting in the present case was the manner in which software development might start reacting to the FOSS community. Even though M/S is giving an altogether different perspective by stating that lawsuit represents an isolated issue and that the company does not intend to broadly sue Linux users, the underlying intention might well be to identify all potential open source development companies, study their product development/functionality specification details, and to then identify potential infringement areas.

Fractus and Motorola sign Global Patent Licensing Deal

“IP Brokerage Firms do Matter”

April 7, 2010, Fractus S.A. of Barcelona, Spain announced that it has entered into a non-exclusive, worldwide patent license agreement with Motorola, Inc. The agreement includes a license under all of Fractus’ patents related to internal antennas and covers the sale of all Motorola products. More importantly, IPotential, LLC served as broker for Fractus in the negotiation of this license agreement.

A quick search at USPTO reveals that Fractus at the present moment has 41 Granted and 20 Published Patents in the antenna domain (multilevel, multi-band, etc) and have claimed directed towards both communication devices and antennas. The point to make is the manner in which relatively smaller companies when compared with telecommunication giants like Motorola when guided properly are able to license the technology in an anticipated manner and at attractive valuations.

Subsequent to the deal, in May 2010, the licensor filed a patent infringement case against ten cell phone manufacturers in the Eastern District of Texas, Tyler Division, Case No. 6:09-cv-203.

With not many details available on the commercials of the deal between the companies, it surely has some key takeaways for us:

ü Fractus is a small but an early pioneer in developing internal antennas for cellular phones and other industries. Founded in 1999, and along with being immensely innovative in the domain of antennas for multi-band cell phones, remains an active supplier of antennas and has shipped millions of antennas worldwide. The company for its innovative work has been named a 2005 Davos World Economic Forum Technology Pioneer and one of Red Herring’s top innovative companies for 2006. It has also won the 2004 Frost & Sullivan award for technological innovation and the 2007 Elektra European Electronics Industry R&D Award. The point to take home is for a focused yet small Indian and/or International Player on the strategy. It could well have been the case that the deal with Motorola majorly happened only because the company needed funds for suing other major companies in the concerned domain.

ü The second takeaway is the alliance with an IP Licensing and Commercialization partner who understands not only the industry operations and technologies in detail but also the manner in which licensing negotiations need to be held and potential licensees be approached. In the above-mentioned case, IPotential LLC who partnered with the licensor was a technology industry’s leading provider of complete intellectual property (IP) strategy and patent monetization services and has expertise in both patent sales and patent licensing.

About the Author: Mr. Tarun Khurana, Partner and Patent Attorney in the Institute of Intellectual Property Research & Development (IIPRD) and can be reached: [email protected]. Currently, He is Managing Patent Licensing Issues in the Hi-tech domain.

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