Microsoft vs. Salesforce.com: Troll, Alley Thug or Patent Warrior?

Microsoft doesn't sue people very often for patent infringement -- at least not unless someone else sues them first.

Thus, it was quite an event when Microsoft chose to honor Salesforce.com with a patent lawsuit this week. Although the complaint alleges infringement of nine patents from to , what is really going on is that Microsoft has decided to use the hammer of patent litigation to achieve competitive ends, rather than simply throwing its weight around in the marketplace.

Although a lot of press on this case chooses not to focus on the particular patents involved and to concentrate on the particular market segment Microsoft is attempting to muscle into [customer relationship management] and noting that this shows that Microsoft is serious about something called "Dynamics, CRM and cloud computing" [a really good article on this subject is available here and here], this post chooses to focus on neither.

What is kind of exciting is that Microsoft has chosen, at long last, to actually use its patents to compete in the marketplace. Apparently Salesforce.com and Microsoft are hot competitors in the CRM marketplace and Microsoft is using this lawsuit to boost its presence in this market, to show that its product is innovative (and that Salesforce's is not). Microsoft is also using this lawsuit to create doubt in the marketplace about Salesforce's product and perhaps give Salesforce's customers pause before they deal with the company. Microsoft is using this lawsuit to trumpet its competitive position in the CRM and cloud computing marketplace and to show everyone else that it means business.

Not surprisingly, Salesforce.com's stock immediately dropped 5%.

Now, why is this a good thing? Maybe not a good thing for Salesforce.com (who knows whether they are infringing Microsoft's patents or not), but for the patent world? To answer this question, we have to look at what has happened to patent litigation lately

It is no mystery that in the past few years, patent litigation has largely been taken over by patent trolls -- companies that make no products and whose only economic interest in the patents they own is to sue. They create nothing and are nothing but an economic drain -- rewarding nobody other than the lawyers who litigate their case and the hotel and restaurant owners of Marshall and Tyler, Texas. These patents have no economic utility and are employed for no useful purpose.

Microsoft, whatever you may think of its competitive tactics, is actually using the patents it is suing on and is actually competing in the marketplace with the party it is suing. In doing so, it is using the patents for their proper purpose -- to exclude others from practicing the patented technology -- rather than simply to extort a license which no one really wants.

Salesforce.com's CEO, Mark Benioff, obviously also in a fighting mood, called Microsoft a "patent troll" and an "alley thug" for bringing this lawsuit. Whether or not you think that Microsoft is a "thug," (I think you'd get a lot of Microsoft's vanquished competitors to sign on to that description) there is no question that it is not a patent troll -- since Microsoft -- unlike the trolls, actually participates in the marketplace with its technology and uses its patents as a competitive weapon. For this, Microsoft should be congratulated.

So, three cheers for Microsoft -- patent warrior!

Turn Your Intellectual Property Into a Competitive Weapon

“When a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully." – Samuel Johnson

The meltdown in the financial markets, the drying up of credit and the scarcity of investment capital makes it paramount that companies, particularly in the technology sector, “concentrate their minds” on immediately deploying their most valuable assets – their intellectual property.

A technology company’s patent and trade secret portfolio is the image that the company has of itself. These technological assets are what make their products prized in the marketplace. They are the product of millions of dollars and years of work spent on research and development. They are the most valuable assets the company has – and they are right at hand.

A technology company executive must ask him or herself -- How much is my patent portfolio worth? Have the R&D expenses and the lawyers’ fees been worth the investment? Can I get some competitive advantage – or, even better, some cold, hard cash, for my patents -- or are they just going to decorate the walls of the company headquarters?

Any rational businessperson will ask these questions -- and one more: How can I make the most money possible from my patent portfolio, whether through licensing or, if necessary, a lawsuit? Here are some suggestions of ways a company can maximize the value of its intellectual property portfolio and the return on that investment:

• Concentrate on features your competitors need Contrary to what many think, a patent does not give the inventor “ownership” of an idea – just the right to exclude others from using the invention. The value of a patent, then, is what someone will pay to not be prevented from using the patent. The damages a patent infringer will be required to pay is directly related to how much that infringer needs that patent to stay in business. Thus, if you choose to wield your critical patent against your competitors, make sure that they know that you could easily shut them down and make them pay well for any license. The latest court decisions make it clear that the risk an infringer runs from using your patent is directly related to the value that patent has to that infringer.
• Focus on features that are virtually impossible to design around A corollary to the first rule is to make it difficult, if not impossible, for an infringer to “design around” your patent. If a competitor can easily and cheaply gain the same competitive advantage by tweaking your invention in a way that does not infringe, your patent is virtually worthless. Make sure your engineers and patent attorneys anticipate these loopholes.
• Make your patent part of a standard Making sure your patent is part of an industry standard is, obviously, easier said than done. However, the effect of the inclusion of your patent in such a standard can be a goldmine, as anyone who wants to practice the standard has to license your patent or else be barred from the market altogether. If possible, establish your own standard (Blu-ray, for example). Be careful, however, about properly disclosing your patents or “pooling” your patents with others who may be part of the standard -- the FTC has been known to cast a very dim eye on such practices.
• Make a possible injunction devastating Many economists have decried the effect of “patent holdup” – where a patent is given a value far in excess of its intrinsic worth because of the threat of an injunction. If you can bar your competitors from selling their products because of your patent on one specific feature that cannot be removed or avoided, the amount you can demand for a license (or as damages in a lawsuit) can skyrocket.
• Act like a troll Although so-called “patent trolls” have gotten a lot of bad publicity, especially in the technology sector, you may notice that many of them are quite successful in exacting quite substantial monetary returns from their patents. They pursue a profit-maximizing strategy which includes identification of vulnerable, profitable targets, relentless pursuit of those targets for possible licensing and a willingness to sue whenever necessary to exert maximum pressure. Indeed, if you actually use your patent in your product, you are in an even more powerful position than a troll. Although the courts have recently made it harder for companies who do not practice the patents they assert to get an injunction, an infringer’s competitor, on the other hand, has very little trouble obtaining this devastating relief from the court.

For the next few years, your company may be in survival mode. It may need to use whatever tools it has at its disposal to bring in cash and disrupt the activities of its rivals. Your IP portfolio – assets you have already paid for – may be the best and most effective weapon you have to weather the storm.