Patent Infringement Claims Suggest Microsoft Heading for Open Source Litigation

With Microsoft claiming that Linux and other open source software violates 235 of its patents, at the same time the company is cross-licensing patents it says Linux has violated, analyst Rob Enderle sees the Redmond software giant positioning itself for litigation. The big question, says Enderle in his blog on the IT Business Edge Web site, is who will be the initial target of any legal action by Microsoft.

"My take is Microsoft will put litigation off as long as it can," Enderle says, "but is on a path where I don't think it can avoid litigation forever if it wants to actually protect its patents."

Listing the likely first targets for such litigation, Enderle includes IBM as the largest un-licensed supplier of Linux, the Linux Foundation as a proxy for Linux itself, and Red Hat as the most powerful Linux distribution brand. However, Enderle thinks IBM has too much legal firepower and cross-licensing ammo to provide the overwhelming victory Microsoft would seek in its first legal assault on open source. On the other hand, the relatively meager resources the Linux Foundation is likely to bring to court would leave Microsoft looking like a bully and provide a rallying point for its foes. That leaves Red Hat with a bull's-eye on its back, being neither a legal pushover nor an opponent with resources nearly equal to those of Microsoft.

Enderle's full analysis of Microsoft's recent actions, as well as his advice to Linux-using enterprises who want to avoid getting caught in the crossfire, can be found at his blog:

http://www.itbusinessedge.com/blogs/rob/

Linus Torvalds On Microsoft"s Patent Infringement Allegations: "They Are Bluffing!"

“Linux kernel violates 42 of our patents and we'll eventually sue!” threatened Microsoft on Monday. Unfortunately for the Redmond company, not everyone shivered with fear. Linus Torvalds, lead developer of the Linux kernel, gave Microsoft an answer and it was definitely not the thing the software giant wished to hear.

According to Torvalds' mail to InformationWeek, Microsoft is unlikely to hold too many winning card, because:

"Basic operating system theory was pretty much done by the end of the 1960s. IBM probably owned thousands of really 'fundamental' patents. The fundamental stuff was done about half a century ago and has long, long since lost any patent protection."

Furthermore, Torvalds doubts that Microsoft is really certain of a victory in court. Instead, he believes that the Redmond company is just bluffing in hope that it would reach quick financial settlements with other parties rather than going to court:

"They'd have to name the patents then, and they're probably happier with the FUD [fear, uncertainty, doubt] than with any lawsuit. [...]So the whole, 'We have a list and we're not telling you,' itself should tell you something. Don't you think that if Microsoft actually had some really foolproof patent, they'd just tell us and go, 'nyaah, nyaah, nyaah!'"

Last but not least, Torvalds wonders if Microsoft isn't the one violating more patents and hints that a thorough review of the source code for Windows might reveal that the software giant is the one that has to pay up to other patent holders.

New Draft Law to toughen stand on counterfeit goods [United States]

The US Justice Department (DOJ) has sent to Congress the Intellectual Property Protection Act of 2007, the draft of a new law calling for stronger penalties for repeat offenders and would increase the maximum penalty for counterfeiting offenses if the defendant “knowingly and recklessly causes serious bodily injury or death.”

Announcing the move, US Attorney general Alberto Gonzales said, “Violations of intellectual property rights (IPR) not only deprive legitimate businesses of millions of dollars and undercut innovation but often pose serious threat to human safety and health.”To be considered by Congress, a draft bill sent by the Administration must be sponsored by one or more members of Congress. To become a law, identical versions of a bill must be passed by both chambers of Congress and signed by the president.At the same time, the Bush Administration also announced plans to expand its efforts to improve intellectual property enforcement in key countries. Many counterfeit goods, particularly pharmaceuticals, are imported from overseas markets.According to the draft bill, serious body injury could carry a penalty of 10 years to 20 years in prison, and up to life imprisonment if counterfeiting results in death, according to a senior US Justice Department official.

Although some may think violations of intellectual property rights have purely economic effects on so-called “faceless corporations,” the reality is much different, especially when medical and pharmaceutical products are concerned, the Attorney General said in comments made at the US Chamber of Commerce.

Neglect of Intellectual Property may breach Fiduciary duty [Outsourcing Contracts]

A fiduciary is an individual, corporation or association holding assets for another party, often with legal authority and duty to make decisions regarding financial matters on behalf of other party. The directors and officers of a corporation are fiduciaries of the corporation and its shareholders. The fiduciary duty includes the obligation to prevent a waste of corporate assets and other actions and omission which damage the corporation. With the growing importance of IP in a companys overall value, any IP mismanagement is seen as a serious waste of corporate assets. By outsourcing, the organization gives up control over physical access to its system and the control over all company functions becomes more flaccid. The inability to tightly control all aspects of the company increases the risk of illegal activity such as piracy which may constitute a breach of fiduciary duty. The fiduciary responsibility of the directors encourages them to oversee IP assets more closely. The relationship between an organization and its outsourcing firm is not considered to be fiduciary (Op. cit., Mylott). In this light, the management should consider how effectively it will be able to control functions in its offshore entity. The officers and directors must carefully plan how to supervise the people directly managing the offshore part of the corporation. If this control is not planned and executed properly, the company may find its intellectual property falling victim to illegal activities such as piracy and its high level management subject to litigation for breaching fiduciary duty to the corporation and its U.S. stockholders by allowing such illegal activities to occur.