Customers fund Microsoft’s lawyers

Let’s see if I understand Microsoft Corp.’s new intellectual property indemnification program correctly: According to Microsoft’s recent announcement, the folks in Redmond will cover the cost of litigation when any of its customers are sued because of any Microsoft products that contain copyright, patent, trademark or trade secret infringement.

In other words, if Microsoft breaks an intellectual property law and someone decides to sue a Microsoft customer because of it, Microsoft will pay the legal bills.

That seems fair. After all, customers have been paying Microsoft’s legal bills for years.

Where did the money come from to pay the lawyers in Microsoft’s losing antitrust battle with the U.S. Justice Department and 18 states? And the $3 billion that Microsoft has paid out just this year to settle various lawsuits? It all came out of the pockets of customers.

Nice of Microsoft to return the favour, isn’t it?

While Microsoft has spent billions of customer-supplied dollars on the losing end of lawsuits, the company probably won’t ever spend a nickel defending customers.

Oh, it could happen. Suppose some litigation-happy intellectual property company like Eolas Technologies were to decide that Microsoft had violated one of its patents.

Eolas might decide that instead of suing the obvious target — the company that actually infringed on its patent, a gigantic company with hugely deep pockets that would have to pay damages on every product unit sold that infringed on Eolas’ patent — it should sue some small customer, using a highly risky legal theory and with no chance of a big payoff.

How likely is that? Whoops, we already know the answer: Eolas sued Microsoft, not a customer, and won a half-billion-dollar judgment. No one knows if Eolas will ever collect, but there’s no question whom Eolas is trying to collect from.

(For the record, when I call Eolas “litigation happy,” I just mean Eolas is happy with the results of its litigation. Honest, guys. What else could I possibly mean?)

And in the unlikely situation where a customer would be sued instead of Microsoft, Microsoft would almost certainly end up paying even without an indemnification program. The public relations cost to Microsoft of standing idly by while a customer got hung out to dry when Microsoft itself was guilty of patent or copyright infringement would likely be far bigger than the cost of any court fight.

And in the extremely unlikely event that all the executives in Redmond lost their minds and Microsoft decided to take the PR hit anyway, the customer would end up suing Microsoft — and Microsoft would end up paying.

What an extraordinarily generous and foresighted deal this indemnification program turns out to be, eh? Especially since it’s still customers who would actually be providing the money Microsoft would spend in these increasingly unlikely scenarios.

Is it all really just a meaningless marketing gimmick? Well, sort of. As marketing gimmicks go, it does have one special twist.

A few years ago, there was no market for this gimmick. Nobody thought indemnification was needed. There had been IT patent and copyright lawsuits for decades. But customers didn’t get sued. Vendors did.

Then a little Utah company called The SCO Group sued IBM, claiming copyright infringement in Linux. And SCO eventually sued a couple of Linux customers, too. Those suits have gone nowhere. But along the way, tens of millions of dollars made their way from Microsoft to SCO — and now lots of people are talking about customer indemnification.

Who says Microsoft doesn’t know how to invest in a new market?

Hayes is Computerworld U.S.’s senior news columnist. Contact him at [email protected].

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