04/06/2009 05:12 am ET | Updated May 25, 2011

Microsoft Roils the World with FAT Patents

Last week Microsoft roiled the world by filing a patent infringement suit against TomTom, a Dutch maker of GPS devices. Microsoft's shares are trading at an 11-year low and is in the news for laying off workers, but Microsoft still has $20 billion in cash on hand, a good and necessary thing if you're engaging in patent litigation. TomTom, by contrast, whose shares were already down 90% within the past year, is reported to be on the verge of bankruptcy,

This is big news. First, it means that I can no longer say that Microsoft has yet to file a lawsuit over software patents. (It had previously filed a few over patents on mouse technology.) Second, it is a direct attack on Linux, the open source operating system that offers the only significant competition to Windows in many markets.

Until now, Microsoft has shown restraint in not asserting its vast portfolio of patents, despite some notorious saber rattling against Linux two years ago. At that time, Microsoft vice-president Horacio Gutierrez fumed: "This is not a case of some accidental, unknowing infringement. There is an overwhelming number of patents being infringed." He claimed that 42 Microsoft patents were infringed by the Linux kernel alone, but declined to identify them.

But Microsoft's own practices with regard to software patents were described in congressional testimony by its former CTO, Nathan Myrhvold:

Most tech companies have made a deliberate decision to ignore the patent system.... They send people to technical conferences, and encourage them to read scientific papers so they can learn the latest techniques. Yet, they do not allow them to read patents - not even patents by the same people whose research papers they use, or patents of the institution from which they hire employees.... They do not check their products to see if they infringe anybody else's patents - a common practice in other industries, known as patent clearance.

Indeed, a good practical reason to avoid reading patents is that they are written by attorneys.

In any case, Gutierrez has put aside his indignation. Today he claims this litigation is not about Linux but merely about poor TomTom, who has long failed to see the justice of licensing a mere eight of Microsoft's 10,000+ patents. In short, it's just happenstance that three of the patents implicate Linux.

So here's what it looks like to me

1. Microsoft has abandoned its long history of not suing on software patents, in order to attack the Linux operating system. (Other patents at issue are specific to GPS systems.)

2. It has attacked Linux in the embedded devices market, where Linux has been conspicuously successful. This avoids the problem of suing developers or users of Linux distributions, such as Red Hat, which would threaten the many large Microsoft customers that use both Windows and Linux.

3. Even if the Linux community rides to the rescue, TomTom will be under pressure from its shareholders to settle quickly on "undisclosed terms" and, weakened as is, to avoid the cost and uncertainty of making a posterchild of itself.

4. More likely, TomTom will sell out to Microsoft, which tried to buy TomTom in mid-2006. Companies with large patent portfolios can drive hard bargains. With TomTom in a bind at the bank, Microsoft can use its patents to acquire TomTom on the cheap.

5. By demonstrating its willingness to sue a small company, Microsoft can induce others to settle, while undermining confidence in the market for embedded Linux. By contrast, when IBM sought to impress the world with its patent portfolio, it at least picked on Amazon -- a company able to defend itself and with a reputation for asserting patents aggressively. (Remember the one-click ordering patent that Amazon used in its holiday-season attack on Barnes and Noble?).

6. Microsoft is throwing eight patents at TomTom in dual proceedings -- one before the International Trade Commission and the other in court. Beyond imposing extra legal costs on TomTom, the ITC proceeding allows Microsoft automatic injunctive relief if it wins, which is no longer automatic in District Court. Microsoft argued against automatic injunctive relief in an amicus brief before the Supreme Court, but now it can get an injunction simply because TomTom's devices are imported. At the same time, Microsoft is forcing TomTom to defend a lawsuit in Microsoft's home district in Washington State, where Microsoft has demanded a jury trial. (Patent owners win before juries nearly two-thirds of the time, but only half the time before judges.)

But the move also comes at a potentially high price for Microsoft.

It drastically undercuts what creative and pragmatic people within Microsoft have been doing to and develop trust within the open source community and engage constructively with open source businesses. It is no coincidence that Gutierrez was promoted to corporate vice president the previous week, giving him extra juice to stand tough against those within Microsoft who have been cut off at the knees by this provocative litigation.

Microsoft's attack sticks a fat finger in eye of Europe, where authorities have been less solicitous of a company that is not their national/regional champion. Microsoft has continued to slug it out with the Directorate-General for Competition years after litigation was settled in the U.S. Now it is targeting a (former) European success story with patent claims that have been invalidated in Europe as "non-inventive."

Microsoft has long been an advocate of software patents in Europe both directly and through its policy surrogates, the Alliance for Competitive Technology and CompTIA. This move concretizes one of the big nightmares that caused many European policymakers to question the scope of software patents -- an issue that is now a subject of an administrative proceeding at the European Patent Office. Moreover, the use of the ITC exposes a US practice that is in principle a violation of the WTO charter -- discriminating against imports by subjecting them to automatic injunctions.

In fact, the lawsuit publicizes a patent trap of Microsoft's own creation. Microsoft created a de facto industry standard in the FAT (File Allocation Table) format that it made widely available for adoption without letting it be known that it held and would assert the patents behind the standard. What makes the FAT patents valuable is not the technology behind them but the fact that they were promoted and accepted as a standard without word that Microsoft would someday come asking for money. Two of the patents are for converting between long and short file names - a FAT function that is commonly implemented in digital cameras, MP3 players, and other devices, not just in Windows and Linux.

Does this remind you of ugly creatures jumping out from under bridges, demanding tolls from those in the midst of crossing, and, in some cases, eating them alive?

Some wishful thinkers within the open source community may accept Microsoft's claim that this is about TomTom rather than Linux, along with the blather that accompanies most patent litigation about how Microsoft would rather license than litigate. But this is in fact a landmark assault into the most troubled and controversial terrain of the patent system. It will reverberate for a long time to come.