December 3, 2003 10:58 AM PST

Microsoft opens technology to more licensing

Microsoft said Wednesday that it will follow the lead of other high-tech businesses and start allowing companies to license a broader array of its technology than it has in the past.

As previously reported, the move represents the company's broadest effort to date to allow others to gain access to its intellectual property portfolio. Microsoft also announced specific programs to make available its ClearType font display technology and its FAT (file allocation table) system and said Lexar Media is licensing the FAT system and that Agfa Monotype is licensing ClearType.

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What's new:
Microsoft will allow companies to license a broader array of its technology than it has in the past.

Bottom line:
The change formalizes efforts that had previously been handled on a case-by-case basis and allows Microsoft to fend off criticisms and legal challenges that it offers better access to favored partners.

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On a conference call, Microsoft General Counsel Brad Smith said the software powerhouse has been getting requests from other companies to both clarify and expand its licensing effort. As a result, Smith said, Microsoft is offering a broad program to license its technology on clear, "commercially reasonable" terms.

"Naturally, Microsoft's significant commitment to research and development and our large investments in R&D have resulted in a valuable, growing and diverse intellectual property portfolio," Smith said. "By making more of our intellectual property available for licensing to others, we will help create new opportunities for collaboration (in the technology industry)."

The company also said it would make "100 percent" of its patent portfolio royalty-free for noncommercial use by the academic community.

Microsoft had already established a limited program for licensing its technology. It has gradually expanded the effort in recent years to meet both business and regulatory needs.

In August, for instance, Microsoft said it had broadened the terms by which it licensed certain protocols needed to create products that work with the Windows operating system. Under its settlement with U.S. regulators, the company is required to license such code on "reasonable and nondiscriminatory" terms.

The software maker also recently expanded its shared-source program to allow other companies that provide PC technical support to have access to some source code. Also, in November, Microsoft said it would license the Extensible Markup Language-based file formats used in the latest edition of its Office applications on a royalty-free basis. That program, set to begin Friday, was motivated by looming competitive and regulatory pressures, according to analysts.

Matt Rosoff, an analyst at market research firm Directions on Microsoft, said Wednesday's move was less of a strategy shift than a formalization of efforts that had in the past been handled more on a case-by-case basis.

"Nobody should be under the illusion that Microsoft is going to be an open-source company or anything like that," Rosoff said. At the same time, he said, there are areas where the company can spur adoption of its products by making the underlying technology more readily accessible.

Also, by formalizing its efforts, Microsoft is better able to fend off criticisms and legal challenges that it offers better access to some partners than others. "Microsoft doesn't want to appear to be showing favoritism to any one company," Rosoff said.

For its part, Microsoft says it has become steadily more open with its technology in recent years.

"None of these by themselves is a dramatic shift," David Kaefer, Microsoft's director of business development for intellectual property, said in an interview. But "compare where we are today versus, let's say, five years ago--where we didn't license source code, we didn't have structured programs around patents. Much of our standards work was not nearly as robust as it is today. This is an evolutionary process."

Smith said Wednesday that Microsoft did not expand its licensing program specifically to address the concerns of European regulators, who have been looking separately into the company's business practices.

"I really don't see this announcement as relating directly to the issues in Brussels," Smith said. "I think you can think of this as a step that is consistent with kinds of steps government regulators have been encouraging us to take. It is not designed to, and it does not, in fact, address the specific issues that have been involved in the case in Brussels."

Among the requests from competitors, Smith said, is that the company expand its communications protocol licensing program, something it is not doing with Wednesday's announcement.

Microsoft said it is heeding the precedent of other technology companies that have had licensing programs in place for some time, such as Intel, IBM, Hewlett-Packard and Fujitsu. "We have worked to learn from the examples they have set," Smith said. "We're joining their ranks today."

The effort, which has been in the planning stages for about a year, is not expected to contribute significantly to Microsoft's bottom line. Smith said he did not believe the licensing push would add materially to earnings for the foreseeable future.

"Fundamentally, that's not why we are doing this," Smith said. "We are doing this to work better and promote better collaboration with the industry."

In addition to allowing other companies to use Microsoft technology for a fee, the software maker is also likely to sign more cross-licensing agreements with other large technology companies, said Marshall Phelps, the deputy general counsel recruited to Microsoft six months ago to set up its intellectual-property licensing effort.

Phelps said patent cross-licensing has been a standard practice in the hardware world, with Bell Labs and IBM pressured to broadly license their patents decades ago. "It's pretty well understood," he said, adding that a similar notion didn't take hold in the software world until the mid-1990s.

 

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