Microsoft drops caps on its liability for products

Microsoft Corp. is ready to take the heat if its products land customers in trouble.

The Redmond, Wash.-based software maker will pay its customers’ full legal bills if they get sued over intellectual property issues relating to its products. Also, Microsoft no longer limits its liability when a customer suffers damages due to gross negligence or intentional misconduct on Microsoft’s part, said Morris Kremen, associate general counsel at Microsoft, in an interview on Tuesday.

The improved legal protection on Microsoft products are part of changes the company made earlier this year in its volume licensing program, according to Kremen.

In older contracts, Microsoft only agreed to pay legal fees and be accountable for charges of gross negligence or intentional misconduct up to the value of the software a customer bought. Software buyers did not care for that and often protested those provisions in contract negotiations, Kremen said.

“Customers were not happy with that as a fair allocation of risk and they thought it was too protective of Microsoft,” Kremen said.

The changes to the licensing policies went into effect first in the U.S. in March and were introduced in the rest of the world in the months after that. “It is about risk and giving the customer the peace of mind they were asking for,” Kremen said.

Customers in the U.S., widely seen as a litigious society, were worried most about the limited liability. “We certainly heard the concern most frequently from U.S. customers, but I also heard this from customers in Germany and in France,” Kremen said.

Although the changes expand Microsoft’s legal exposure, Kremen does not expect the company to actually have to start writing cheques. He can’t recall a single instance in which a customer had to call any of the now updated contractual provisions into play, he said.

Microsoft reworked its volume licenses and got rid of the sticking points as part of a broader company effort to be nice to its customers and better its image, Kremen said. “There is not a person here that has not heard the message that we have to get a lot better at listening to customers and show them that we are listening,” he said.

The updated license policies also give Microsoft some ammunition in its battle against open source. In May, The SCO Group Inc. warned commercial Linux users they may be liable for intellectual property violations because, it alleges, the Linux source code contains illegal inclusions of SCO Unix intellectual property.

SCO’s move followed a Mar.7 lawsuit it filed against IBM Corp., charging IBM used proprietary Unix code for the open-source Linux operating system, violating the Unix license agreement it has with SCO.

Some big Linux vendors do not offer indemnification the way Microsoft now does. Red Hat Inc., for example, has said it does not indemnify customers and Yankee Group Senior Analyst Laura DiDio blasts IBM for not protecting customers.

“This new indemnification plan Microsoft came out with is a model for the industry and certainly raises the bar. I don’t think it is sufficient or responsible for a company as large as IBM to just tell their customers that this lawsuit is going nowhere,” she said.

“The big issue about this SCO lawsuit is the indemnification of customers. Whether or not SCO fades into the woodwork, the indemnification issue is not germane just to SCO,” she said. “Indemnification is a huge issue. Microsoft is trying to win back customer confidence and what they have now is a model for the rest of the software industry.”

Microsoft is on the Web at