Two cheers for intellectual-property law

Likewise, nothing is more effective at focusing attention on the arcane subject of patent law than a $1.52 billion jury verdict--in a case that could affect everyone who uses digital music.

I refer, of course, to the recent verdict in the patent infringement case brought against Microsoft by Alcatel-Lucent. It will come as no surprise that Microsoft regards the decision as erroneous. For several reasons, including the fact that Microsoft already paid to license the technology at issue in the case, we are confident the verdict will be reversed.

If not, many companies face potentially calamitous repercussions. Because the case involves MP3 software that is widely used for recording and playing digital audio, almost every leading provider of digital media software, devices or content could be affected, along with their many millions of customers.

Regardless of the ultimate outcome in the courts, however, we are worried that policymakers and the public may draw the wrong lessons from this and other recent patent controversies, such as the dispute last year that threatened to shut down the BlackBerry wireless e-mail service. Excessive and sometimes frivolous suits might lend credence to the idea that patent litigation is getting out of hand, or even that patents should be abolished.

Abolition is favored by some prominent software developers, who flaunt patent infringement. At a recent Tokyo conference, for example, Richard Stallman, founder of the Free Software Foundation, noted evidence that "Linux infringed 283 different software patents." He defended such violations on the grounds that "proprietary software is evil."

Obviously, we disagree. Protection for software patents and other intellectual property is essential to maintaining the incentives that encourage and underwrite technological breakthroughs. In every industry, patents provide the legal foundation for innovation. The ensuing legal disputes may be messy, but protection is no less necessary, even so.

So, in an increasingly digital age, what should be done to make the incentive system work better for everyone--innovators, consumers, competitors and nations?

At Microsoft, we are in the unusual position of having one foot on each side of the divide on patent law and litigation. On one side, we are among the largest holders of intellectual-property rights. While many companies and governments have slashed funding for basic research, we continue to invest heavily in long-term R&D. As a result, we filed more than 3,000 new U.S. patent applications last year alone.

Like other companies, we also pay for rights to use others' innovations in our products. In the past three years, Microsoft has invested more than $1.5 billion to acquire such rights.

On the other side, our popular products and financial strength make us a favorite target for patent litigation. We typically spend close to $100 million a year defending against dozens of patent claims simultaneously.

Although we generally win the vast majority of these cases, being a perennial patent defendant is not much fun. Yet, it has given us some insight into how a properly functioning patent system needs to strike a balance that serves innovation, economic growth and the needs of consumers.

We believe that one of the best ways to strike that balance, and reduce unnecessary patent litigation in the process, is through widespread licensing of patented technologies. Licensing is the means for sharing intellectual property so that it can be further developed and widely adopted for the benefit of consumers and society.

Three years ago, Microsoft announced a corporate-wide policy to license our innovations to all comers on commercially reasonable terms. We have concluded many licensing agreements, some with direct competitors.

For example, recently we reached a broad collaboration and patent cooperation agreement with Novell, a leading provider of Linux and other open-source software. This agreement not only resolves potential patent disputes between our two companies, but also protects Novell's customers from being drawn into such disputes.

Our work with Novell reflects a recognition by both companies that new technologies require new, creative approaches to intellectual property. Microsoft would like to see more leaders in more industries working together to resolve potential disputes amicably through licensing instead of litigation. And we would like to see everyone participate in the patent system, playing by the same rules.

Despite our latest legal tussle, Microsoft is not giving up on the patent system. We disagree with Alcatel-Lucent's claims, but we all benefit from its right to make them.