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Volume 2, Number 26 -- June 29, 2005

Microsoft Expands IP Indemnification to Partners

by Alex Woodie

Microsoft last week upped its battle against open source software by increasing the amount of money it's committed to pay should its software be found to violate third-party patents or be subject to other intellectual property (IP) disputes. As part of the announcement, the software giant has lifted the caps on spending for its ISV and OEM partners, and expanded the plan in other areas.

In the last six months, Microsoft has highlighted its IP indemnification protections as a way to distance itself from Linux distributors and raise questions in the minds of people buying open source software, including whether they will be held fiscally liable in IP disputes. With last week's announcements, Microsoft has improved an already impressive IP indemnification portfolio, including increasing the scope of protection it provides to several categories of partners, including OEM partners, OEM system builders, OEM distributors, and ISV royalty partners.

Microsoft is now providing all categories of partners protection against trade secret claims; previously it didn't offer protection against trade secret claims. It is also now providing OEM system builders with protection for the four major forms of disputes commonly associated with software, which are patent, copyright, trade secret, and trademark. Previously, it offered only limited protection to OEM system builders, if any at all. ISV royalty partners also gain protection against claims related to patents, trade secrets, and trademarks; this category of partner previously only received coverage against copyright claims.

Microsoft has also removed some caps on the amount of money it will pay defending its partners from IP disputes. Previously, only Microsoft ISV royalty partners were eligible to receive unlimited legal defense fees in the event of an IP dispute. Lastly, Microsoft is now offering to help pay damages and settlement fees for OEMs, OEM system builders, and OEM distributors. Microsoft is limiting how much it will pay in such circumstances, however.

Microsoft senior vice president and general counsel, Brad Smith, says the company's partners appreciate Microsoft's IP indemnification, too. "Our partners are telling us that IP issues are becoming increasingly complex," Smith says. "We're proud of our strong IP indemnification."

The Yankee Group has also given Microsoft kudos for its strong IP indemnification, saying it holds an advantage over Linux in this area. Earlier this year, Yankee analyst Laura DiDio praised Microsoft for its comprehensive IP protections. (See "Microsoft's Strong IP Protections Give Windows an Advantage" in the January 19 issue of this newsletter for more coverage of Yankee's independent review of IP indemnification options.)

OEM system builder Equus Computer Systems applauded the expansion of Microsoft's IP indemnification. "For some time, IP indemnification has been an important assurance Microsoft provides to its OEM partners," said Andy Juang, CEO of Equus Computer Systems. "Today's announcement improves this existing coverage by removing financial caps."

"Managing intellectual property is of prime concern to enterprises large and small," said Nabeel Youakim, area vice president of Microsoft Global Relationship at Citrix Systems. "This extended indemnification program . . . enables us to offer our products to the broadest market with the lowest risk."

Microsoft has put together a handy Channel Partner Indemnification Quick Reference Table that's available here.

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Editor: Alex Woodie
Contributing Editors: Dan Burger, Joe Hertvik, Shannon O'Donnell,
Timothy Prickett Morgan, Victor Rozek, Kevin Vandever, Hesh Wiener
Publisher and Advertising Director: Jenny Thomas
Advertising Sales Representative: Kim Reed
Contact the Editors: To contact anyone on the IT Jungle Team
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