The Cost Of Ideas

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. Businesses that use technology aren't mere observers in all this. As Kaefer points out, "Increasingly, customers are becoming technology companies themselves--developing their own software, acquiring software." Advo Inc., a leading provider of direct-mail services, filed a patent last year for software, developed under contract by IBM, that's used to schedule the machines that process its mailing inserts. "My biggest issue is making sure that, once the [programming] work is done, Advo owns the code, and it cannot be replicated outside of Advo," CIO Daniel Sheehan says.

Advo uses IBM's Java middleware, but Sheehan's not worried about Kodak's actions. If necessary, he says, "I'll go to my agreement with IBM" for protection. But Sheehan knows what it's like to get caught up in an intellectual-property grab: When one of his application-service providers went bust, a vendor that had previously been one step removed from Advo showed up requesting royalty payments.

Such issues are "on my mind a lot," says Mike Green, CIO of United Pipe & Supply, which provides water systems for irrigation and golf courses. "You have to worry about bringing liability [to the company] where you never saw it." For that reason, Green tries to use only "mainstream" technology because it has been vetted more carefully, he says.

Microsoft's aggressive strategy keeps its lawyers busy. Last month, the company settled a dispute with Sendo Ltd., a British manufacturer of smart phones, and in July, it settled a trademark-infringement case against Lindows.com, now renamed Linspire. In April, Microsoft paid Sun $2 billion after a prolonged legal battle over patents, copyrights, and Java licensing issues. The same month, Microsoft made peace with InterTrust Technologies Corp. by making a one-time payment of $440 million that gave Microsoft access to the company's digital-rights-management technology.

But what the Patent Office giveth, the Patent Office can taketh away. The government agency is reexamining a patent previously awarded to Microsoft for its File Allocation Table technology. Microsoft plans to make its case for retaining the patent within 60 days. A separate development has swung in Microsoft's favor: The Patent Office is reassessing a patent for Web browser plug-ins that had been awarded to the University of California and licensed by Eolas Technologies. Microsoft faced the prospect of having to make changes to both Windows and Internet Explorer.

Some point to the U.S. Patent & Trademark Office as a big part of the problem. The Patent Office's process of issuing software patents has all the virtues of an 18-wheeler with no brakes, says John Rymer, an analyst with Forrester Research. While the government agency is charged with protecting innovation through patents, it's issuing patents on software code that applicants claim are unique software processes without much basis in fact. "Process patents are fairly easy to get," Rymer says. "There's no rigorous standards for issuing them. The result is you have conflicting and overlapping patents that aren't worth much."

Kodak might not agree. The whole issue of software patents and intellectual property is likely to remain contentious, if the angry reaction to Kodak's suit against Sun is any indication. Late last week, Java programmers were still taking digs at Kodak--a Java user itself--for launching legal action against their preferred development language. Noted one poster to Slashdot, the programmer news Web site: "Soon we'll be calling every patent lawsuit a 'Kodak moment.'"