Microsoft: No easy mark

Don't let the company's newfound willingness to settle its many legal challenges make you think it'll be easy pickings for any competitor that can hire a couple of lawyers.

In settling a number of lawsuits, Microsoft is trying to paint itself as a better corporate citizen and to minimize the costs and distractions of its seemingly endless legal battles.

Since last year, Microsoft has said it wants to settle antitrust lawsuits if it can do so on what it sees as reasonable terms. More recently, the company has also settled a number of high-profile patent infringement cases, including claims by InterTrust, AT&T and Immersion.

News.context

What's new:
Microsoft has settled many antitrust and patent claims in the past year, with the total payout in the billions of dollars.

Bottom line:
The company runs the risk of being seen as an easy mark, which could encourage the filing of even more suits. So far, analysts say that's not likely to happen.

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In adopting a less confrontational posture, Microsoft might appear to run the risk of becoming a corporate pinata stuffed with nearly $60 billion, with a long line of litigious competitors waiting to take a whack. Already about 30 patent lawsuits are pending against the company, as well as a score of antitrust cases filed by governments, competitors and private class-action attorneys.

Despite its "let's talk" posture, analysts say the company is unlikely to open up the floodgates of new litigation.

"I don't think it paints...that much of a bigger target on their chest than they already have," said Blaney Harper, a Washington, D.C., intellectual-property lawyer at Jones Day.

Richard Donovan, chairman of the antitrust unit at Kelley Drye & Warren, said the same is probably true on antitrust issues, noting that the company has a lot of resources and also waged one of the fiercest court room battles in some time--its defense against the Justice Department charges.

"Microsoft is not going to settle frivolous cases," he said. "They are still only going to settle the legitimate suits."

Still, the company continues to face an incoming stream of claims. Of the 30 or so pending patent claims, about 10 were filed in the past year. And as EU and U.S. regulators wrapped up their antitrust cases, new inquiries have emerged.

Earlier this year, the Japanese Fair Trade Commission raided Microsoft. The software maker insisted that the inquiry had to do with a single provision in the Windows license agreement that had already been removed.

Most recently, a South Korean Internet portal company earlier this month sued Microsoft for $8.6 million (10 billion won), charging that the instant-messaging program bundled with Windows XP is hurting its ability to compete in that market.

While Microsoft officials say they don't know whether the firm is attracting more lawsuits than other large companies, Microsoft spokesman Jim Desler did say executives believe most of the patent claims against the company are groundless, noting that about 15 patent claims have been dismissed by courts in recent months. Desler also disputed the claims raised by the Korean competitor.

"We believe we've competed fairly," Desler said. "There is robust competition in the Korean instant-messaging market and that competition continues to be a good thing for Korean consumers."

One of the biggest disincentives for suing Microsoft is the costs associated with legal action. "It's an expensive thing to undertake," Harper said. "People aren't going to do it lightheartedly."

"For those who don't have valid intellectual property or valid claims, we are not in a settlement posture."
--David Kaefer, Microsoft director
of technology policy

Adding to this is the fact that in a number of cases that Microsoft ultimately settled, it waited until it was further along in the litigation process--a practice that could weed out the faint of heart. Where it has settled patent claims, Microsoft said it has done so only when a company could demonstrate the value of its intellectual property.

"As long as you communicate that value, hopefully you are not attracting" more suits, said David Kaefer, Microsoft's director of technology policy. "For those who don't have valid intellectual property or valid claims, we are not in a settlement posture."

In many ways, settling patent claims has become a cost of doing business for Microsoft as the software maker expands into areas in which there is already a great deal of intellectual property.

Kaefer said Cisco is a company that figured that out early on and built the costs of acquiring outside intellectual property into their business model. "A lot of their intellectual property is not stuff that has been developed in-house," Kaefer said.

Although Kaefer said it is hard to put a dollar value on potential IP liabilities, he said it is something that Microsoft takes into account when it decides new features for its software. "That's exactly what's becoming much more clear to us," he said.

Microsoft is also starting to make the pitch that it is settling lawsuits to protect customers, while rivals are not.

For example, Microsoft was one of the earliest companies to license Unix intellectual property from The SCO Group, while the Linux community is battling over the validity of SCO's claims. Some have dismissed the move as more sinister, noting that Microsoft gains from SCO's claims against Linux, arguably one of the biggest threats to the dominance of Windows.

"There is going to be a real drive to position Microsoft as the intellectual-property company and open source as uncertain," said Directions on Microsoft analyst Matt Rosoff. "I think we will see more and more of that."

Some also see it as another sign of the company's growing maturity. CEO Steve Ballmer said in a recent interview that the company is moving out of its brash adolescence and into adulthood.

"It does kind of fit," Donovan said. "They realize these things aren't always black and white, and they are not always right."

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