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01.11.11

Microsoft-run Patent Cartel Retreats Following Formal Complaint, But Why? (Updated)

Posted in Microsoft, Novell, OSI, Patents at 7:16 pm by Dr. Roy Schestowitz

Fire door

Summary: Microsoft et al. head for the door just shortly after OSI files a complaint to the German Federal Cartel Office

TECHRIGHTS wishes to begin with the good news. Those patents which Novell was going to hand over to Microsoft? Well, that ain’t gonna happen on the face of it. And with AttachMSFT [sic] still looking for a loan with which to buy Novell (more on that in a later post), the whole Novell acquisition is now in jeopardy, shareholder lawsuits notwithstanding.

Here is just one article about the latest regarding CPTN:

A plan created by Microsoft, Apple, Oracle, and EMC to create a consortium to acquire hundreds of Novell patents has been withdrawn after complaints from open source advocates, leaving the fate of the nearly half billion dollars’ worth of patents uncertain.

It was first revealed in mid December that the four companies had set up CPTN Holdings LLC to jointly acquire 882 Novell patents for $442 million.

The rest of Novell was to be sold to Attachmate for $2.2 billion, with that sale being “conditioned upon the closing of the proposed sale of certain intellectual property assets to CPTN Holdings LLC.” according to the original Novell press release about the acquisiton.

There were precursors too. “This went almost unnoticed,” wrote Carlo Piana about a week ago, “Novell-Attachmate HSR filing withdrawn, to be refiled today”. To quote:

Regulatory Matters (page 73)

Under the HSR Act and the rules and regulations promulgated thereunder, certain transactions, including the merger, may not be consummated unless certain waiting period requirements have expired or been terminated. The HSR Act provides that each party must file a pre-merger notification with the Federal Trade Commission (“FTC”) and the Antitrust Division of the Department of Justice (“DOJ”). A transaction notifiable under the HSR Act may not be completed until the expiration of a 30-calendar-day waiting period following the parties’ filing of their respective HSR Act notification forms or the early termination of that waiting period.

The parties to the merger originally filed their respective notification and report forms pursuant to the HSR Act with the FTC and DOJ on December 1, 2010 and the initial 30-day waiting period would have expired on December 31, 2010. In order to provide the DOJ with additional time to review the information submitted by the parties, Attachmate is voluntarily withdrawing its HSR Act notification form, effective December 31, 2010 and intends to re-file for the same transaction on or about January 3, 2011. The effect of this re-filing will also be to extend the waiting period under the HSR Act to a date 30 days from the date of the re-filing, unless earlier terminated or extended by the DOJ requesting additional information from the parties.

The merger was also subject to review and approval by the FCO. Attachmate, with the consent of Novell, filed the appropriate notification in Germany, and the FCO granted clearance to the merger transaction on December 23, 2010 stating that it will not oppose the merger transaction.

Under the HSR Act, the patent sale also may not be completed until the expiration of a 30-calendar-day waiting period following the filing by the parties to that transaction of their respective HSR Act notification

For those to whom the whole thing is news, see the previous post about the complaint in Germany or about CPTN in general. It’s almost as though the FTC is too corrupted from the inside, so they need to go to Europe for help investigating this. Here is the original complaint [PDF].

“But why were the involved parties’ minds suddenly changed?”As O’Reilly Radar put it the other day, this could become another SCO-like trouble. To quote: “As someone who has 10 shares of SCO framed and displayed in his bathroom, 2010 looked to be a very good year. The Beast from Utah finally exhausted all of its legal options, and cratered into a messy bankruptcy, leaving Novell with clear ownership of the Unix intellectual property that Linux may or may not incorporate. We all rejoiced, assuming that Linux would enjoy a happy existence in the future, unworried by fears of corporate protection rackets trying to intimidate people into paying for the free OS.

“Then this fall, Novell announced that it was selling more than 800 of their patents to a consortium that includes Microsoft as a major player. Suddenly, all of the angst about IP attacks against Linux were back on the table, but now with known Linux-hater Microsoft appearing to hold the reins. Will further legal hijinks ensue? Only time will tell.”

Apparently not, assuming the latest news will stick and eventually become a confirmed reality. But why were the involved parties’ minds suddenly changed? Our reader Satipera noticed that a software patents’ crass booster, Patent WatchTroll, weighs in on the subject by writing that “The Meaning of “Open Source”: Patented by Microsoft”. Frankly, the headline alone is so inane that it seems automatically- or stochastically-generated and Satipera seems to agree. He simply calls this “Completely clueless.” To give just a flavour of this mind dropping:

Apparently, Novell was committed to open source and that makes it acceptable to the OSI that they owned patents, but the fact that patents might be used for a competitive advantage by a patent owner, and used to stop infringers from infringing is troubling. So troubling that they are urging the German government to investigate. See Open source campaigners urge investigation of Novell patent sale and Novell’s Microsoft patent sale referred to regulators. So it seems that the position of the OSI is that those who are anti-software patent and committed to open source are the only ones who can own patents without necessitating an investigation by the government. Breathtakingly self-serving if you ask me.

In any event, wouldn’t it be ironic if the movement developed at least in part to prevent monopolization of the software industry in Redmond wound up being responsible for handing Microsoft rights to every program ever created? Perhaps it is Microsoft that is behind the open source movement. Who knows, but several things seem abundantly clear, namely that nothing in life is every truly free, and the true meaning of the term “open source” may be “patented by Microsoft.”

On the contrary, Brian Proffitt came up with an accurate analysis which on January seventh scrutinised what Microsoft was doing:

For the record, I’m not terribly happy about the patent purchase agreement that’s running in parallel to the Novell-Attachmate acquisition deal. The thought of 882 Novell patents getting sold to CPTN Holdings, LLC (a holding consortium made up of Apple, EMC, Microsoft, and Oracle America) does not sit well with me.

Now, also for the record, a source inside one of these four companies told All Things Digital’s John Paczkowski “‘We get to buy in at a cheap price and get a license to a very valuable portfolio… It’s cheap defensive insurance.’”

I’m sure.

It is, like anything else in the world, possible that this is the reason behind the patent grab. If these are covering technologies that affect networking and cloud computing, areas that everyone and their sister are trying to get into, then a defensive stance makes sense.

But even if these patents have no direct correlation to open source, do you think the CPTN members will really miss a chance to spread some FUD if it suits them to? After all, in 2004, Steve Ballmer made the claim Linux violated 228 Microsoft patents, a claim that was revised upwards to 235 in 2007. Who will lay odds that in late 2011, if this patent purchase agreement goes through, that number will change to, say, 1117 patents?

Alex Handy argued that “Fall was a bad season for Linux” partly because of this news about CPTN:

The Novell deal sends 882 of its patents to CPTN Holdings in exchange for US$450 million. Microsoft expressed pleasure at bringing Novell technology in-house, but declined to comment further on its intentions for these patents.

Meanwhile, in October, Red Hat was back in US District Court, Eastern District of Texas with Acacia Research over litigation relating to Acacia’s patents on systems and methods for exchanging data and commands between an object-oriented system and a relational system. While such patents could be used to take down almost every database-backed applications ever created, Red Hat decided to settle with Acacia for an undisclosed sum.

On the face of it, people may just forget this whole thing ever happened, but Novell’s buyer too might walk away. Wouldn’t that be memorable? We choose to believe that there was maybe a conspiracy to hide — something malicious which had Microsoft retreat before further revelations could be made. Microsoft must not have expected formal (perhaps federal) complains to be made, later to unravel more participants in what had the word “cartel” come up. We wrote about this last month and so did many American news sites [1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17], British news sites, and even former Novell employees like Zonker who argued: “According to the letter, “the proposed CPTN transaction represents a potentially new, and unprecedented threat against open source software.” I’d go farther than that, though. The CPTN transaction is a threat against competition in larger marketplace, period. Yes, open source is in danger — but pretty much any legitimate competition in the areas of operating systems, virtualization, cloud computing, middleware, etc. I’m sure Red Hat feels uneasy about this unholy alliance, but then again so do Google and Parallels. Of course, OSI is only responsible for speaking up for the open source community, not the entire computing industry.”

“On the face of it, people may just forget this whole thing ever happened, but Novell’s buyer too might walk away.”Despite being a former Novell employee, he wishes this will fail. Zonker can be commended for not being loyal to Novell to the point of self-imposed blindness. Further he says: “There’s still time before the deal closes, though. Here’s hoping that OSI’s voice is heard, and that it’s not alone. Many companies and communities stand to be affected. There’s no reason to stand by silently and let Apple, EMC, Microsoft, and Oracle increase their collective patent warchests without any scrutiny whatsoever.”

Zonker’s colleague wrote:

Indeed, the number and significance of Novell’s open source patents call for scrutiny of CPTN from regulators. Novell is nearly as old as the personal computer, and when CPTN’s newly acquired patents came to light, we, along with other open source observers, expressed concern about a Microsoft-led consortium inheriting hundreds of them.

Simon Phipps (OSI), who took part in this complaint, published a blog post about it and separately he wrote: “I’ve had a steady stream of investment analysts asking me for private advice on the Novell/CPTN deal. No others, just them. Not giving it.” From his blog post we have:

I’m a member of the OSI Board, who were all involved in the drafting process. This is a significant new step for OSI, who have not previously referred a matter to competition authorities. It reflects the changing emphasis for the organisation, shifting from a role focussed almost exclusively on approving licenses to a more general role representing the interests of the open source movement.

Taking positions on important issues internationally is a valuable counter-balance to the influence of computer industry trade associations, and I hope OSi will keep doing it. That’s one of the reasons we’re shifting to a representative governance – a process which just progressed to the next step in the volunteer Governance Commitee, and which I hope will be completed before mid-2011.

Phipps also appears in some comments on the original post announcing this complaint.

In relation to the CPTN announcement, Groklaw admits its mistake (where Techrights got it right). To quote some relevant parts of the article “OSI Asks German FCO to Look Into the Proposed Patent Deal & You Can Too”:

Remember when Novell won in SCO v. Novell before the jury in Utah in March of this year, and they put out the statement pledging their loyalty to Linux and how they would protect it?

Novell is very pleased with the jury’s decision confirming Novell’s ownership of the Unix copyrights, which SCO had asserted to own in its attack on Linux. Novell remains committed to promoting Linux, including by defending Linux on the intellectual property front.

This decision is good news for Novell, for Linux, and for the open source community.

Like a dope, I believed them. Maybe you did too. Maybe your business relied on that promise and decided to use Linux as a result. Now what? If you get sued for patent infringement over those 882 patents Novell wants to sell to the Microsoft consortium, would you have a cause of action against Novell as a result of what OSI calls a “major disruption to the competitive landscape.” Ask your lawyer. But if the German FCO is saying it welcomes comments from the public, why not tell them about it, particularly if you have a business that could be directly affected by this proposed patent deal, if this is how you feel?

In short, the good news is that the whole CPTN plot is self-nuking at this moment. The question which remains to be answered is, did the complaint from the OSI play a role in derailing this part of the Novell deal? If so, there was probably something rogue to hide.

Update: it is now being reported that the CPTN arrangement ought to be still on, despite reports like this one.

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2 Comments

  1. twitter said,

    January 11, 2011 at 10:08 pm

    Gravatar

    Zig, zag, the senile company is imploding. Perhaps Microsoft is out of money and does not think the FUD value is worth the purchase price. As Techrights noticed, there are funny money problems in Microsoft land. The company has managed to shake down and bully a lot of OEMs without Novell patents but the courts have started to catch up with how bogus software patents are, making all of them less valuable. Microsoft wasted money on more than 3,000 software patents in 2010 and did squat for actual software. Unable to compete technically, the business types at Microsoft are increasingly erratic and the rest of the world is increasingly aware of the high cost of software slavery. Good riddance.

    Dr. Roy Schestowitz Reply:

    It seems as though there is insistence on buying those patents, despite erroneous reports. Privately I’ve been hearing about Microsoft’s plans for ‘competing’ and I have around 10 posts about patents coming. Microsoft now relies on other companies too… for taxing Linux.

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