In a September speech to the Massachusetts Software Council, Ballmer warned that commercial software companies need to be thinking about the same issues. "Let's say you know you want to build your business around Windows or Linux," Ballmer said. "You have to decide what intellectual-property risk you want to build, what additional cost you might be pushing to your customers that is unanticipated because nobody stands behind the stuff."
That last remark is somewhat of an overstatement. While it's true that some Linux distributors don't offer indemnification, others do, though their offers of legal protection vary. Just over a year ago, Hewlett-Packard began offering indemnification to customers that run Linux on HP computers, subject to certain limitations. And in January, Novell introduced an indemnification program to cover customers of its newly acquired SuSE Linux. The Open Source Development Lab, a consortium of open-source developers and commercial software companies, has created a defense fund to help defray potential legal expenses of Linux users. However, the fund can be applied only to cases associated with SCO Group's litigation, and source-code contributors aren't covered.
Microsoft strengthened its original indemnification, or "duty to defend," policy in April of last year. It expanded the policy's provisions to cover trade-secret and trademark claims and removed a monetary cap on damages. "They're saying, 'We accept full responsibility.' That's almost unheard of in the industry," says Yankee Group analyst Laura DiDio. In doing so, Microsoft is exploiting the fact that some Linux distributors have been unwilling to provide their customers with similar guarantees, she adds.
None of this is lost on business-technology decision makers. "I have a lot of conversations with my various software vendors to make sure we stay on the right side of the licensing questions," says Mike Green, CIO of United Pipe & Supply, which sells water-distribution equipment for irrigation and golf courses. One software vendor recently pitched a Linux-based product to United Pipe. Says Green, "I'm asking, 'What flavor of Linux?'"
Customer protection is just one aspect of a broadening intellectual-property strategy at Microsoft that's putting greater emphasis on patents and cross-licensing arrangements and less on its trade-secret approach of the past. Kaefer says there are five underpinnings to Microsoft's new model: using process controls to track the origins of software; securing intellectual-property rights through patents and other techniques; acquiring rights for third-party software used by Microsoft; licensing its software; and protecting customers via indemnification.
In the process, Microsoft is building up its own patent portfolio. Chairman Bill Gates estimated this summer that Microsoft would file 3,000 software patents in fiscal 2005, a 50% increase over this year. Kaefer refers to patents as the "currency of exchange" used by vendors to assemble the technologies they need to build products without reverse engineering another company's approach or other workarounds.
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