Top Microsoft strategist highlights a change in IP policy

Microsoft has embarked on creating a brave new world of IP enforcement, which promises to be much scarier than the old world it replaces.

Open source is not going away. Why should it?

That's a quote from Microsoft CEO Steve Ballmer in Marshall Phelps' new book, Burning the Ships, and it's a question that Phelps tries to answer.

In the course of doing so, Phelps portrays Microsoft as desperately striving to adapt to a new world of aggressive enforcement of intellectual property (IP), but ends up suggesting a rising IP hegemon eager to shape a new world of such enforcement.

It's not pretty.

Phelps is the man who turned IBM's patent portfolio into a $2 billion business (as he reminds the reader several times), but his goal at Microsoft wasn't to generate cash through licensing, he declares. Nor is Microsoft's new IP strategy a rehash of the old world where IP is treated as a negative right (i.e., the ability to protect one's IP from the wiles and avarice of competitors), but rather IP becomes "a bridge to collaboration with other firms."

But this is where the contradictions begin.

Phelps indicates that Microsoft cannot go it alone in the world...then points to statistics that claim 42 percent of the world's IT people depend upon Microsoft technology. Microsoft apparently has done quite well going it alone.

He further agonizes that Microsoft must expand its partnership footprint...even while identifying 640,000 vendors in Microsoft's partner ecosystem that earned more than $425 billion in revenue in 2007. It's unclear, based on his own evidence, how Microsoft is starving its partners and, indeed, Microsoft has always made much of what an impressive partner it is with 96 percent of its sales going through partners.

Phelps berates patent trolls and others for forcing Microsoft to pay hundreds of millions of dollars in licensing fees...but then goes on to explain how Microsoft's new IP strategy has his team on the road constantly signing up new licensees for patent royalties and other agreements.

The money quote comes from Nathan Myhrvold, a former Microsoft executive and arguably now the world's largest patent troll with his company Intellectual Ventures, who declares himself "shocked" by the actions of patent trolls who could "just go and buy a patent and then use it" against Microsoft.

Oh, the irony, given that this is a concise definition of Myhrvold's current business plan and, apparently, Microsoft's.

Indeed, this is where Phelps' IP strategy for Microsoft departs from its stated intent. Phelps writes:

...(I)ntellectual property should always serve the business, not be the business....Microsoft didn't need money (from its patent portfolio)--it had billions of dollars of cash in the bank. Instead, Microsoft needed to transform its relations with the rest of the industry and build collaborative relationships with other firms. So that became the focus of our new IP strategy.

This sounds impressive, and it would be if it accurately depicted how Microsoft has approached the industry with its IP. Instead, Microsoft has spent the past several years menacing the open-source community and others with the threat of its increasingly large patent portfolio, and now claims "more than 500 patent and technology collaboration deals with companies large and small around the world."

I say "menace" because Phelps nearly always talks about these agreements in light of Microsoft approaching a prospective IP "partner." If Microsoft's IP were needed to build such cooperative bridges, presumably more of these "partners" would be approaching Microsoft, rather than waiting for Microsoft's heavy knock on the door.

Novell, as Phelps highlights and which CNET recently noted, is an exception to this rule, having approached Microsoft.

As with Novell, Phelps routinely neglects to mention facts that might cast Microsoft's IP actions in anything less than a warm and glowing light. For instance, he talks up Microsoft's generous decision to share 30,000 pages of technical documentation, conveniently forgetting to mention that the action was spurred by its desire to get out from under the European Commission's antitrust eye. (It didn't quite work.)

But nowhere is Phelps' selective memory more illuminating on Microsoft's intentions for its new IP strategy than when discussing open source. Here Phelps outdoes himself, starting with his characterization of why Microsoft wanted to build a bridge to the Linux world:

(Our customers) also wanted to stop worrying about the potential legal liabilities involved in using (open-source) software that was the subject of IP disputes. (p. 100)

The cheek Phelps uses here is breathtaking. First of all, he reiterates over and over throughout the book that Microsoft is a regular target for firms claiming Microsoft's technology violates their IP, suggesting that Microsoft may be the one with an IP problem, not open source, which has almost never been the subject of an IP-infringement lawsuit.

Except those funded (or started, as in TomTom) by Microsoft, of course, as SCO's failed suit against Novell appears to have been. In other words, this pitch-black Microsoft pot is calling a nearly lily-white kettle black, even as it attempts to smear the kettle with black paint.

This is galling in the extreme.

Ironically, Phelps suggests that the open-source charm offensive was all about providing interoperability to customers, but then declares two pages later that IP license agreements "wouldn't solve the interoperability problem." Well, of course not. But then, it's not really about interoperability. Patents are not critical to interoperability, as Microsoft's deal with Red Hat demonstrates.

Let's call a spade a spade. Microsoft's patent-licensing scheme has little to do with helping customers achieve interoperability. According to recent IDC data, IT execs rank interoperability way down on their list of priorities when buying a new server operating system.

Microsoft's plans are actually about providing Microsoft with a way to more effectively compete with free.

Customers aren't taking Microsoft's word for it. Phelps explains that while every CIO with whom Microsoft discussed its pending open-source plans purportedly expressed sympathy and encouragement, not one of them was willing to join negotiations or sign up for Microsoft's patent license. Phelps suggests this was out of fear of retribution. But couldn't it also simply mean that these CIOs were expressing lip service to Microsoft's initiative, lip service that wasn't worth backing up with any real action?

Phelps declares that the key point of his book is the "role that intellectual property can play in liberating previously untapped value in a company and opening up powerful new business opportunities." Unfortunately, he never explains why this new "collaboration imperative" is necessary, given that Microsoft's pre-patent offensive strategy netted it billions of dollars each quarter in free cash flow and a hugely impressive partner ecosystem.

In other words, the old Microsoft seemed to be doing quite well before Phelps made it an active patent tax collector. Will his new Microsoft fare as well?

Follow me on Twitter @mjasay.