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07.28.08

A Turning Point for Software Patents? (Video)

Posted in Law, Patents, Videos at 2:55 am by Dr. Roy Schestowitz

Ogg Theora

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If Larry Lessig’s experiences are anything to go by, expecting change in the USPTO is just as unlikely as stopping massive lobbying.

On the issue of Microsoft and software patents, see this post from last night.


   Message-ID: <df912e69-c174-4e09-88a2-e560a50a0320@m44g2000hsc.googlegroups.com>
   From: Rex Ballard <rex.ballard@gmail.com>
   Newsgroups: comp.os.linux.advocacy
   Subject: Re: On Microsoft’s Business Model After Loss of $90,000,000,000 in Value
   Date: Sun, 27 Jul 2008 14:13:28 -0700 (PDT)

On Jul 27, 11:26 pm, Roy Schestowitz <newsgro…@schestowitz.com>
wrote:
> A prayer for Microsoft
> ,—-[ Quote ]
> | Microsoft did not invent proprietary software. It may well benefit from
> | proprietary lock-in, but is not the cause of it, and it’s unreasonable to
> | expect Microsoft to unilaterally disarm to the detriment of its shareholders.

The irony is that it was Microsoft who sought very aggressively
through the 1970s and early 1980s to PREVENT the patenting of
software, because they didn’t want to have to worry about big guns
like IBM, DEC, HP, Sperry, Harris, Lotus, and AT&T patenting software
and then using that as leverage to either extract profits from
Microsoft or prevent Microsoft from competing in their markets.

Imagine if IBM had been able to patent all of the software used in OS/
2 before giving the technology to Microsoft. If IBM had been able to
do that, there wouldn’t be a Windows NT, there probably wouldn’t be a
Windows 3.1 or a Windows 95 either.

Imagine if Xerox had been able to patent all of their object oriented
technologies and all of the devices in the Xerox Alto back in 1978.
Microsoft and Apple wouldn’t have been able to reverse engineer the
technology and sell it without paying a dime to the Xerox or Palo Alto
Research Center.

Imagine if HP had been able to patent their vector graphics algorithms
and scalable vector graphics back in the 1970s, when the were doing
plotters. Microsoft and Adobe would have had to pay a premium price
to HP.

Imagine if Tektronics had been able to patent it’s interactive
graphics software back in the 1960s and 1970s. Much of the technology
used in PowerPoint, Excel charts, and might have been locked up by a
company that didn’t want to be put out of business by $1000 PCs.

Imagine if SCO had been able to patent their OpenDesktop – No Windows
9x or NT 4.0 or XP desktops.

How about Sun and NetView and OpenView – if Sun had held patents on
that technology, they could have locked Microsoft out of the market.

What if the contributors to Motif (HP, IBM, DEC, CMU, MIT,…) had
been able to patent that technology. They could have prevented HP
from selling the technology to Microsoft without giving those
companies and contributors control over Microsoft’s licenses. My
guess is that the MIT graduates would not have been so willing to let
Microsoft lock out UNIX and Linux in their software licenses.

Imagine if the Open Source community as far back as the 1960s had been
able to patent their technology, mandating that all who use it, in ANY
FORM, use it under the terms of the GPL. Most of Microsoft Office
would be GPL, and even much of Windows might have been under GPL.
It’s a sure bet that Marc Andreeson wouldn’t have let Microsoft
produce anything even remotely like a browser without either having
complete control over Microsoft’s software licenses or being able to
force Microsoft to publish the NCSA licensed source code.

Even Microsoft’s media players is based on software developed by Kodak
for image management and media management back in the 1980s and early
1990s. Software that Kodak was not allowed to patent (applied for and
rejected), because the patent office would not permit the patenting of
an algorithm or recipe or “software device” unless an identically
functioning software device could be implemented entirely in discreet
logic. Ironically, for many of the software devices that were
patented, the “hardware” device was often implemented using
programmable gate arrays rather than actual discrete integrated
circuits and transistors.

About 90% of the value of Microsoft today is a direct result of their
ability to legally reverse engineer and steal algorithms and
intellectual property from former partners, competitors, and Open
Source, and remarket it as Windows and Office, unfettered by the
desires and requirements of others.

> | No, our work is to change the industry, not the behavior of but one of its
> | participants.

Yes, now that, for the first time in 25 years, we have a competitor we
can’t buy, bankrupt, or control, and that competitor is continuing to
expand market share and erode our 85% profit margins down to 45%,
Microsoft must resort to trying to sneak as many patents past the
patent office as possible, providing as little prior art as possible,
in order to get patents that Microsoft can use to prevent OEMs,
corporate customers, and government regulators from making a mass
exodus from Windows and Office to Linux and Open Office, not to
mention thousands of other competitor and third party products that
Microsoft will no longer be able to “lock out” through it’s exclusive
OEM contracts.

> | The place to start (and end?) is patents, which most everyone
> | seems to hate,

Especially Microsoft. Microsoft hates patents more than anybody,
especially when the only way to nullify a patent and win a judgement
in Microsoft’s favor, is to trot out dozens of Open Source devices and
prior art, and admit that they used that code and technology as their
model. It would nullify the patents, but it might also nullify
hundreds or thousands of Microsoft patents as well.

> | yet most everyone also seems to continue arming themselves
> | with patents in a mad race to mutually assured destruction. A Cold War, all
> | over again.

Most of the rest of the industry, including IBM, HP, Sun, and Kodak,
some of the companies who consistently file the highest number of
patent applications and are granted the greatest number of patents,
tend to use these patents DEFENSIVELY. They combine with other patent
portfolio holders in order to establish a huge patent “umbrella”
designed to protect them from unethical lawyers representing naive
clients. An “inventor” reads some articles in some magazines, comes
up with an “idea” based on those articles, and then goes to one of
those 1-800-PATENTME lawyers, who files a very poor quility patent,
keeps publicity to an absolute minimum, and then waits for the Patent
and Trademark Office to award the patent. Then they find a big
company, like IBM, HP, Sun, Kodak, or Microsoft, and file a lawsuit
for hundreds of millions of dollars, along with a barrage of about
2,000 initial disclosure filings. Many of these lawyers even use Mail-
Merge documents to print up the canned forms.

The defendant knows that this is only the beginning, and that every
motion will cost thousands of dollars to satisfy, so they offer a
“settlement” for the entire portfolio held by the lawyer, including
lots of useless inventions, that typically amounts to what the company
would have spent satisfying the disclosure orders for this one case,
often just 3-4 million dollars.

Since the lawyer is working on contingency, and gets a third, and they
are a partner in the patent portfolio and entitled to half the
remaining royalties, and may have qualified the inventor as an
“employee” based on token consideration paid in advance of the patent
filing, the inventors may not see a dime of the settlement for any of
their inventions.

> http://news.cnet.com/8301-13505_3-10000366-16.html

> Yesterday:
> Microsoft loses 90 Billion Dollars [in less than a year]
> http://slated.org/microsoft_loses_90_billion_dollars

Microsoft has been trying to maintain the value of their stock through
buy-backs and dividends which effectively set a “floor” price for the
stock. In addition, even though Gates has been selling as much as 1
million shares a day, he’s been selling that stock directly to
Microsoft, which again looks better on paper than if he “dumped” that
stock on the open market.

The problem is that the real value of the stock is still based on the
fundamentals, including revenues, expenses, net profit, and earnings
per share, as well as profit margins.

For several years now, Microsoft has been boasting of their 85% profit
margins, 20-25% top-line growth, and nonexistent debt.

This most recent quarter has shown profit margins dropping to 45%, and
top-line growth in core business only growing by 10-15% and much of
that seems to be as a result of “Double Dipping”, selling OEMs Vista
Home Premium, then selling them Vista Business Edition, for almost as
many computers.

These lucrative contracts expire at the end of July or the end of
August depending on the OEM or CIO involved. The OEMs are willing to
offer slightly higher rates per license, but only on condition of more
flexibility in how the final system is configured (Windows as VM,
Windows XP images, and Vista “Lite” images. They are also insisting
on a single rate single license which can be either Vista Home Premium
OR Vista Business, either of which can be “downgraded” even to Vista
Home Basic if the customer wants a “Lightweight” image for VM
configuration..

The other thing the OEMs seem to be demanding is the ability to
control the boot sequence, including the ability to boot Linux first,
then start Windows after that. The user can then “switch” between
Windows and Linux, or put Windows in one of the Linux windows and have
the “best of both worlds” the same way Mac users do.

For HP, Dell, Acer, and Lenovo, the competitor to beat is no longer
one of the Windows OEMs, it’s Apple, who offers both a high-quality
UNIX environment, AND a low-cost Windows environment, in a single
computer, with both systems running concurrently.

Keep in mind that Microsoft offered this to Mac because OS/X was doing
so well on it’s own that Microsoft was afraid of being knocked
completely out of the Apple marketplace, followed by a rapid expansion
of OS/X UNIX WITHOUT MICROSOFT. Had this formula succeeded, even if
it took slightly longer, Microsoft was at risk of becoming completely
irrelevant.

At least this way, the OEMs still pay for a copy of Vista on every
desktop and laptop, and they even pay a slightly higher price. In
addition, Corporate and Institutional customers who want to stick with
XP rather than Vista will still be able to have “dual-mode” capability
with XP, and Microsoft can still charge them for transferable licenses
if the institution hasn’t already purchased them.

> Recent:
> Microsoft sees slide in profits
> http://news.bbc.co.uk/1/hi/business/7366106.stm

Keep in mind that a slide from 85% margins to 45% margins is a problem
that most CEOs would LOVE to have, but many of those same CEOs are
still rather unwilling to give some huge percentage of their 10-20%
margins to feed Microsoft’s 45% margins. This is one of the reasons
that they are not terribly keen on mass migrations to yet another
Microsoft monopoly solution.

Of course, Microsoft is also up to their usual “Dirty Tricks”, trying
to get disgruntled employees to “drop the dime” on their employers for
copyright violations. This improves Microsoft’s ability to blackmail
the CIO into accepting the mandatory updates. Unfortunately, many
CIOs have now established formal anti-piracy policies, and are
encouraging their employees to use Open Source applications instead of
pirating “share-ware” and leaving it unregistered.

Many companies even have automated “software audits” and will notify
an employee’s manager of “security Violations”, including unregistered
share-ware. Even when a company does permit shareware, they often
provide their employees with the tools to install registered
shareware, that has been licensed at an enterprise rate.

With measures like these in place, the CIO and IT management are much
less vulnerable to the classic “blackmail by piracy”. They can thank
the BSA or other auditing service for identifying the problem,
discipline the employee and his manager (which may or may not also
involve termination), remove the offending software automatically, and
request a second audit after 30 days (the notice BSA usually gives
when their first “surprise audit” finds indications of piracy.

Ironically, services like Microsofts SMS, IBM’s Tivoli software
management, and other third party “Security Audit” tools have made the
anti-piracy much easier to manage and monitor. In addition, the use
of a “standard corporate image”, provides a solid argument that the
CIO had not specifically granted permission for the piracy, that anti-
piracy policies were in place.

The bigger problem for Microsoft, is that all this “Anti-Shareware”
has killed the third party market and fed the Open Source market. As
a result, you are much more likely to see OpenOffice, FireFox,
Eclipse, and Cygwin and much less likely to see “trial versions” of
commercial third party software. This of course, is also killing the
ISV support for Vista, or even continued support for XP.

Perhaps this is why so many commercial Independent Software Vendors
are now rolling out Linux versions (where there is less likelihood
that the BSA will use their software to call in Microsoft).

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