Microsoft Expands IP Indemnification For Partners

The Redmond, Wash., company announced that it would offer full IP indemnification for OEMs, system builders and ISV royalty partners to shield them from the legal costs and damage fees related to patent disputes as well as potential trade secret, trademark and copyright claims.

"This is insurance that provides coverage for indemnification for IP disputes related to software we distribute through partners," said Kurt Kolb, vice president of system builders and licensing at Microsoft. He said legal concerns have been a long standing issue in the channel. "An IP holder can go anywhere in the chain of distribution and file claims against any person distributing the allegedly infringing products. Microsoft will [now] stand behind you and work to resolve that on your behalf."

Previously, the software giant provided protection for OEMs and distributors related to patent and trademark claims. What's new under the policy is full indemnification for OEMs and distributors against trade secret claims, and gives them for the first time an unlimited cap on legal defense fees and potential damages and settlement fees that may result from such a case.

System builders, who in the past received no IP protections from Microsoft, are eligible for the same level of benefit as OEM and distributors partners, the company said.

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Finally, ISV Royalty partners that embed Microsoft run-time software in their offerings are now covered against patent, trade secret and trade market claims and also will enjoy an unlimited limit on legal expenses and possible settlement fees. In the past, such ISV partners were provided with indemnification against copyright claims only.

Joe Cousins, Vice President of Marketing at Bell Microproducts, said the indemnification is important to all partners since Microsoft will pay all legal, claim and litigation costs associated with disputes involving most of their software.

"As a major global distributor of Microsoft, Bell is pleased to see that Microsoft is listening to the system builder community and taking action to protect their business," said Cousins. "The system builder channel is a significant market segment for Bell. Over the next several years, we are investing significant resources in growing this business globally."

Microsoft announced a similar indemnification policy for customers that hold volume licenses in 2003 and extended the protection to all customers in 2004, due in part to customer demand following SCO's highly publicized IP litigation against IBM and some IBM customers running Linux.

Nevertheless, there have been a myriad of other notable IP cases impacting the software giant and its partners, and that is primarily driving the new coverage policies, said David Kaefer, Director of Business Development in IP and Licensing group at Microsoft. He denied a claim made by some observers that Microsoft is touting indemnification as a competitive weapon to focus attention on unresolved IP issues affecting open source software, in order to dissuade customers from choosing Linux or other open source products.

Microsoft has deeper pockets than its Linux rivals. Red Hat, for instance, offers its Linux customers limited coverage, while IBM and Novell, which offer customers indemnification, remain embroiled in patent and copyright disputes with SCO that have yet to be settled by the courts.

Kaefer pointed out that Microsoft, for its part, has battled numerous patent claims in recent years, and has also observed an increase in claims being filed against its ISV partners as well as OEMs and partners that distribute Microsoft software.

Microsoft recently intervened on behalf of Gateway and Dell, for example, when Lucent Technologies filed Windows related claims against those OEMs.

Microsoft will not provide coverage if a claim is not related to its software, or if the issue arises as a result of combining hardware and software, Microsoft said. But in instances related to Windows, Microsoft will offer full protection in all four areas of intellectual property disputes: patent, trade secrets, copyright and trademark.

Importantly, the new policy extends IP coverage to smaller partners -- system builders -- for the first time, and expanded coverage for smaller ISVs.

Microsoft's executives acknowledged that smaller OEMs and ISVs are often less vulnerable to litigation than brand name, deep pocketed vendors like Dell, yet there are many cases where smaller partners are sued for IP infringement. For the small system builder or partner, the legal costs of such a claim can threaten to put them out of business.

"In today's environment, IP rights in software are increasingly complex. There is a lot of IP being acquired by IP holding companies who are in the business solely to assert IP in the chain [of distribution] where they have the best ability to collect royalties for the IP they hold," said Kaefer, noting that Microsoft wants to "encourage" plaintiffs to file claims against the company rather than its partners. "Everyone has different risk profiles but people up and down the chain have been calling people and claiming IP infringement. This is a strong signal we send to partners that we are putting our money where our mouth is."