Bloomberg News

Microsoft Joins Oracle as Computing Companies Fight Patent Suits

February 22, 2013

The top lawyers for Microsoft Corp. (MSFT:US) and Oracle Corp. (ORCL:US) say a U.S. debate over rampant patent litigation could endanger businesses that rely on such legal protections for their innovative software.

Companies including Google Inc. (GOOG:US) and Facebook Inc. (FB:US) have said too many software patents are being used primarily to generate lawsuits instead of contributing to new products and services. While agreeing on that point, Microsoft, the world’s biggest software maker, and Oracle say some demands for change go too far in calling for strict limits or even the elimination of patents on software.

“My biggest concern, and the concern of many other software companies, is that there’s going to be a move to somehow reduce or diminish protection for software,” Oracle General Counsel Dorian Daley said in an interview in Washington yesterday. “There doesn’t seem to be any rational reason for doing that.”

Daley and her counterpart at Microsoft, Brad Smith, joined software and manufacturing executives meeting yesterday with lawmakers and congressional staff members to defend patents for computer programs.

“We have a patent system that has important strengths but it also has some significant weaknesses,” Smith said in the same interview. “We need to fix what’s broken but be careful so we don’t break what’s working. It’s all about striking the right balance.”

Yesterday’s Capitol Hill session was the latest in a series of gatherings across the country as companies that create, sell or use software programs debate how Congress or the U.S. Patent and Trademark Office should respond to the rise of patent litigation.

Serial Lawsuits

Large and small companies are united in their ire at so- called patent assertion entities, sometimes derided as “trolls,” that claim to have invented aspects of widely used technologies like online shopping and file lawsuits seeking royalties from dozens or even hundreds of companies.

Of the more than 5,600 patent-infringement lawsuits filed in the U.S. last year, more than 12 percent were filed by just 10 companies over software, according to Bloomberg Law data.

In a Feb. 1 interview, Suzanne Michel, Google’s senior patent counsel, said there are “fundamental problems with software patents as they are being allowed today” with too many that are broad or vaguely worded.

“This is not about opposing all software patents; this is opposing a certain type of software patent,” she said. “Google is advocating for really smarter software patents that are good for innovation.”

Loser Pays

Google, Microsoft and Oracle agree on some approaches, such as a proposal to make the loser in a patent lawsuit pay the winner’s legal fees. They also support greater transparency at the patent office, more clearly identifying the real owner of a patent and requiring applicants to provide more specific information about their inventions.

Smith said that, by April 1, Microsoft will post information on the patents it owns and called on other companies to do the same.

Microsoft, Oracle and International Business Machines Corp. (IBM:US) are among companies saying courts and the patent office are making progress as they implement a 2011 law that revised procedures for reviewing patents and curtailed some litigation.

Those proposals alone don’t go far enough to help smaller companies that can’t afford to wait for patent-law improvements to work their way through the system, said Alan Schoenbaum, general counsel of Rackspace Hosting Inc. (RAX:US), a provider of Web- based computing.

Extracting Money

“The problem is there are a dozen years of issued patents, software patents that are in play that are being acquired by patent assertion entities, and lawsuits are being filed daily against small businesses with the intent to extract money,” Schoenbaum said in an interview. “There are patents that never should have been issued, and the defendants don’t have the money or adequate resources to defend themselves to take advantage of the new laws.”

Schoenbaum said Congress needs to exempt end users of products from liability. Many of the serial lawsuits target businesses using software or other products, rather than the developers or manufacturers.

Schoenbaum, whose San Antonio-based company is working on an open-source platform for the use of remote servers to store data, said patents do more harm than good.

Vulnerable Projects

“These open source projects are vulnerable to patent trolls,” he said. “They are the next wave of innovation in our country.”

Daley, of Redwood City, California-based Oracle, said software products should be eligible for legal protection.

“The all-software-should-be-free model doesn’t work when you are trying to reap a financial benefit,” Daley said.

The U.S. Court of Appeals for the Federal Circuit, which specializes in patent law, is considering a case that could determine when computer programs are eligible for legal protection.

The patent office is holding meetings on possible changes to the way it handles applications for software programs, and is considering rules requiring more disclosure about the “real party in interest” in patents and applications.

“In a highly innovative industry, it’s natural you’re going to have litigation,” Daley said. “What we’re trying to do is eliminate that unreasonable, parasitic litigation and encourage licensing rather than litigation.”

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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