So What About Those XML Patents, Anyway?

Mea Culpa.  I am uncharacteristically late in commenting on the XML Wars of August, 2009, which have already received so much attention in the press and in the blogs of the technology world.  The wars to which I refer, of course, broke out with the announcement early in the month that Microsoft had been granted an XML-related patent.  The opening of that front gave rise to contentions that patenting anything to do with XML was, in effect, an anti-community effort to carve a piece out of a public commons and claim it as one's own.

The second front opened when a small Canadian company, named i4i, won a stunning and unexpected remedy (note that I specifically said "remedy" and not "victory," on which more below) in an ongoing case before a judge in Texas, a jurisdiction beloved of patent owners for its staunch, Red State dedication to protecting property rights - including those of the intangible, intellectual kind.

So if this is war, why have I been so derelict in offering my comments, as quite a few people have emailed me to tell me they are waiting to hear?  Here's why.

Let’s start with the ho-hum one: I’ve been really busy – family matters, struggling to finish the latest issue of Standards Today (on cybersecurity – which was (ironically) delayed a week getting out the door when my site got hacked), and so on.

The other reason I haven’t yet written is equally simple: the latest skirmish that i4i won in Texas really doesn’t matter very much.

Huh?  Then why, you may fairly ask, are we reading so many breathless articles (3,227, by the Google News count as of this moment in time), speculating on the consequences and opportunities that will follow when the sixty days runs out under the Texas judgment, and Office disappears from the shelves of the U.S. retail world?  Isn’t Office Suite Life As We Know It about to end?

Well, no.  Sorry.  The key of course, is that patents in general, and the i4i patent as well, are all about money.  Whether or not Microsoft’s emergency appeal to lift the Judge’s order barring it from selling Office with Word as currently configured (i.e., with the specific offending XML capability included upon which the i4i suit focuses) is successful, I’ll wager you that no one will have any more trouble buying Office the day after the 60 day pendancy period runs out than they did before.  That’s because the key to the solution is also all about money, calculated under three alternate paths.  The outcome will almost certainly be reached as a result of the parties following one of these routes, or some combination of them:

1.  Settle:  The easiest way for Microsoft to make the issue go away is to settle with i4i which by this point will be just as happy making money when Microsoft sells product as when it does.  Note that I said settle, rather than pay up on the judge’s order, as that would only pay for damages the judge has determined Microsoft already owes i4i, and would not give Microsoft the right to continue to sell Office cum Word as is.  Since Microsoft has the resources to appeal and litigate until all of its avenues are exhausted, there is an incentive for i4i to settle as well, perhaps for less than the judge has already said that Microsoft is supposed to pay, and even including a license from i4i that would allow Microsoft to continue to infringe the i4i patent.

2.  Defiance or camouflage:  Microsoft can simply continue to sell Office and Word as they are today, defying the court’s order, while it goes about pursing its appeals.  The damages would continue to pile up, of course (assuming that Microsoft’s final appeal ends in failure), but so would the profits in the meantime, without business interruption.  This is roughly the approach that Microsoft has sometimes followed in the past (e.g., during its long-running bout with the European Commission), and even when the penalties are substantial, they may still be less than the interim profits made. 

That’s certainly the case here.  It is important to recall that the technology at issue here is not the entire Word program, but only

the custom XML feature.  As a result, the value attributed to that capability is far less than the value of the entire program.  That means that the amount of profit per sale of Word that i4i can claim is allocable to the value of its patented technology will always be far less than the profit that Microsoft can justifiably claim is attributable to the rest of the product.  The result?  There will always be a good profit left over for Microsoft after all penalties are paid, no matter when it settles or eventually loses – and, of course, it could win, or i4i might give up. 

In effect, this always stacks the deck in favor of Microsoft, which can pay the legal costs of the i4i contest out of the rounding error of its balance sheet and make money even if it loses, while tiny i4i has to spend precious R&D and sales dollars to pursuing victory – and this after the inclusion of its technology in Word gutted it’s own product of commercial value and viability.  As John F. Kennedy famously observe, life is unfair.

3.  Design around the infringement within 60 days:  Conceivably, Microsoft can design its way around the infringement (or claim to) before the deadline, and reship product against return of the boxes already sitting on retail shelves.  Once again, it can also continue to appeal the i4i case, since it has far more to gain by overturning the Texas judgment than it will spend on taking the case the next step along the way – in effect, betting $1 of legal cost against $20 of avoided damages, if successful.  This of course puts poor i4i at an even greater strategic disadvantage, because its costs continue to rises, while its potential upside does not, since it is no longer being infringed.

In short, this isn’t about XML, or the Commons, anything else high minded – it’s a game of high-stakes, commercial chess, being played out by two obviously skillful opponents.  The most logical outcome will be for a settlement to be announced within the 60 day period, no doubt secret, but which will result in a payment to i4i of an amount that is less than the Texas judge has awarded, and which gives Microsoft the right to continue to sell Word as is.  The payment of the amount to i4i may even be deferred – so much at close, and so much in royalties over time against future sales – assuming that Microsoft doesn’t go ahead and design the i4i technology out of the program in the future anyway.

Will such a settlement occur before the judge’s deadline is reached?  There’s no way to tell.  That’s up to the chess players, and how they see the relative strength of their positions at this point in time.

Bottom line:  While it’s fun to speculate about WWW (that is, a World Without Word), it just ain’t gonna happen.  Which is not to say that there aren’t real issues that people should be writing and paying attention to here.  Here’s my short list:

1.  What about the "New Microsoft?"  For some time now, Microsoft has been saying that it has grown up, leaving its Bad Boy adolescent behavior behind.  One element of that bad behavior was getting small companies to open their technological kimonos to give Microsoft a peek, in hopes of getting an advantageous business relationship, only to find that Microsoft instead knocked off their technology, including it for free in a Microsoft product, and putting the little companies out of business, or close to it.  That’s what i4i says happened here, and the judge agreed.  So much for the New Microsoft.

2.  What about XML?  It’s important to know what we are talking about when we connect the words "patent" and "technology."  Sometimes, it’s true, a patent can be truly fundamental – a "blocking patent" that makes it almost impossible to build a product at all, because the patented claims go to the heart of the product’s raison d’

être. But the longer a technology has been out there, the less likely it is that a patent will come along that can turn the world upside down. Moreover, it’s also likely that every vendor of significance will own a few bushes in the patent thicket that grows up around valuable technologies, resulting in an endless game of rock/paper/scissors with patent cross-licenses being signed all around to allow each vendor to continue to go about its business as usual.

The age of a technology also impacts whether or not the existence of a blocking patent is feasible.  That’s because you can’t patent something that is already known to the world – your invention must be both "novel" (that is, new) and "non-obvious to one skilled in the trade," and examples that it is not one, the other, or both, whether they be existing products, scholarly papers, or existing patent claims (so-called "prior art") can all be used to show that a patent should not have been issued at all.  Clearly, the i4i patent appears to relate to icing on the XML cake, and I expect that the Microsoft patent does, too, although I’ve read less on that topic.  (For an excellent review of why you should take most of what you read about the impact of patents with several shakers of salt, see Rob Weir’s excellent How Not to Read a Patent). 

3.  Patents generally:  As always, we come back to the usual elephant in the software bedroom.  Do patents really do any good, or only harm in the marketplace?  They didn’t help little i4i much.  Microsoft apparently destroyed its business despite it’s patent application, and i4i hasn’t received a dime yet.  Would i4i have launched its business around its technology even if it hadn’t been able to get a patent?  Of course it would have.  Another new software company (if not more) makes a similar decision every day.  Always has, and always will.

I’ve written too often on this topic before to lengthen this post further, but I will close with one additional observation.  I recently participated in a very interesting email thread where a number of people who know a whole lot more about fonts than I do discussed the lack of unencumbered technology in this area to create, and render, fonts properly.  One thing I learned was that Microsoft has created a lot of technology in this area that it has patented, and which applies to some fonts that have been in existence since before the invention of the printing press.  Something about a patent regime that permits this to occur feels wrong in some fundamental way, despite the fact that from a legal perspective, there is no difference between patenting the Arial font and a new widget.

To conclude:  So there you have the reasons why I did not view the XML Wars of August 2009 to be a "drop everything and blog" affair.  As I see it, to conflate two of Douglas Adams’s more famous lines, the bottom line is this:  Don’t panic.  These two patents are mostly harmless. 

To which I might add: issues in the rearview mirror of the press and the blogosphere are often smaller than they appear, at least to those that write about them. 

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