Microsoft's New Cash Cows: Linux And Android

Casio has agreed to pay royalties to Microsoft in exchange for Redmond's pledge not to sue the Japanese electronics manufacturer for using Linux code in its products. The deal makes Casio the latest in a growing list of companies that are paying to use what is ostensibly open source software, rather than risk a lengthy and expensive legal fight with Microsoft.

Under the multi-year deal, Microsoft also agreed not to pursue legal action against Casio's customers. Casio is most known for consumer devices such as watches and calculators, but it also makes business systems, including industrial handheld terminals, that incorporate a mix of Microsoft and Linux technologies.

"We're pleased to reach an agreement and to see continued recognition of the value of our patent portfolio, particularly as it relates to operating systems," said Horacio Gutierrez, corporate VP and deputy general counsel of Microsoft's intellectual property group, in a statement.

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To the consternation of open source advocates, Microsoft has long maintained that Linux violates a number of Microsoft patents relating to the Windows operating system. In recent months, a number of manufacturers that use Linux in their products have agreed to pay royalties to Microsoft--either because they agree with Redmond's claims or they simply do not want to commit time and expense to a courtroom battle.

Among the companies now paying Microsoft for the right to use Linux are Samsung, LG Electronics, Fuji-Xerox, Brother, TomTom, and Kyocera Mita.

Microsoft also openly contributes code to the Linux community. For instance, in July it released 20,000 lines of device driver code under the open source GPLv2 license and submitted it for inclusion in the Linux tree. Also in July, it released the Microsoft Live Services Plug-in under GPLv2 so that its Live@edu services could be integrated with the Moodle open-source course management system.

Gutierrez said there's no contradiction in the fact that Microsoft open sources some of its own code while asking Linux users to purchase licensing rights for those parts of the Linux kernel it believes are drawn from Windows.

"Some observers question how a company can contribute to open source projects while, at the same time, insisting on respect of its intellectual property rights by its competitors," said Gutierrez, in a recent blog post. "In fact, these two things are not inconsistent, and striking a balance between them is one of the key things every commercial technology company must do in order to compete effectively in a mixed source world."

Microsoft has taken a similar tack when it comes to smartphone software. The company has obtained royalties from a number of handset makers that use Google's open source Android operating system to power their devices. General Dynamics Itronix, Velocity Micro, and Onkyo are among the Android users that have agreed to purchase Android licensing rights from Microsoft. Barnes & Noble, meanwhile, is disputing Microsoft's claim that its Android-based Nook e-reader violates Microsoft patents.

It's not clear how much Microsoft earns from its royalty program, as the company doesn't report the number on its public financial statements. By some estimates, however, it has earned more from Android, the most popular mobile OS in the U.S. market, than it has from its own Windows Phone 7 software, which lags behind Apple's iOS and RIM's BlackBerry OS, as well as Android, in market share.

Google recently struck a deal to acquire Motorola Mobility chiefly, according to many observers, to gain control of Motorola's patent trove. The thinking is that Google felt it needs a richer patent portfolio to counter Microsoft's intellectual property licensing drive. Microsoft said it has struck 700 deals since launching its IP licensing program in 2003.

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