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10/8/2004
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The Cost Of Ideas

Sun and Kodak settled their long-running intellectual-property dispute last week. It's far from the last such clash we'll see.

The software industry ended its latest intellectual-property crisis last week when Sun Microsystems agreed to pay Eastman Kodak Co. $92 million to settle a 2-year-old patent dispute that, if carried to its bitter end, posed worrisome ramifications for the widely used Java programming language. Last week's agreement appears to head off that calamity. Yet, given the way things are going, it's only a matter of time before there's another intellectual-property clash like it.

The software industry seems destined for more altercations, as developers look to protect their inventions through a patenting process that's still learning how to cope with claims to originality contained in arcane programming languages. "This is going to be a continuing trend as long as the current state of patentability of computer software is allowed," says Brian Beatus, a partner and head of the Silicon Valley intellectual-property group with law firm Pillsbury Winthrop LLP.

Such disputes aren't limited to patents. SCO Group last year filed a $3 billion lawsuit against IBM, claiming IBM violated its trade secrets by submitting SCO's Unix code for inclusion in the Linux operating system. (IBM countersued.) SCO then leveled claims against two companies using Linux, AutoZone Inc. and DaimlerChrysler AG. In addition, Microsoft has been locked in several patent disputes--some recently resolved, others pending. Other software companies are in similar tie-ups.

The latest tangle over software intellectual property stemmed from Kodak's claim that Sun's Java programming language infringed on three software patents held by the Rochester, N.Y., company. Kodak acquired the patents on object-oriented software programming when it bought Wang Laboratories for $260 million in 1997. Kodak sued Sun in February 2002, and the Java community got a jolt last week when news hit that a federal district court jury in Rochester had upheld Kodak's claim in an Oct. 1 decision. Kodak had sought $1.06 billion in damages from Sun, and the verdict raised two questions: Could financially struggling Sun afford to pay such a large award? And what did the verdict mean for the larger Java community?

But just as the trial's penalty phase was about to begin, Sun settled, agreeing to pay $92 million for rights to the Kodak patents. The settlement protects not only Sun but companies that license Java from it against future legal action or demand for royalties by Kodak, according to Sun. "The settlement assures customers worldwide that Sun will stand behind its products and intellectual property," the company said in a statement.

Major vendors of Java-based products, such as BEA Systems Inc., have Java licenses from Sun that are protected, too, according to Sun. Hewlett-Packard, IBM, and Microsoft already have licensing agreements with Kodak that cover the patents in question.

Just how far the settlement will protect all Java users isn't clear. Large companies--heavy users of Java for internal applications--typically don't seek a license from Sun. Also, Java is a hidden component in an increasing number of products and services, from cell phones to truck-scheduling systems. Deciding where a given company makes commercial use of Java might depend on how aggressive Kodak plans to be going forward. Kodak declined to comment on the possibility of more Java-infringement lawsuits.

The number of software patents is soaring, which means more fighting is inevitable. For example, Microsoft is aggressively expanding its patent portfolio: The company expects to file about 3,000 software patents in fiscal 2005, a 50% increase over a year ago. The company already holds 5,000 patents, and nearly twice that many are pending. David Kaefer, Microsoft's director of business development for intellectual property and licensing, refers to patents as the "currency of exchange" between vendors looking to license each other's technology.

Microsoft's patent push is just one aspect of a broader strategy to license and protect the many forms of intellectual property spun out from its research and development work. Last December, the vendor revised its intellectual-property licensing policy in an effort to seed its technology more widely; since then, it has struck cross-licensing agreements with Cisco, SAP, Siemens, and Sun, while trying to simplify licensing terms for smaller vendors.

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