A Business Relationship Built At The End Of A Pointy Stick Isn't Much Of A Relationship

from the let's-do-business,-or-we-might-sue dept

Last week, Microsoft was kind enough to invite me to sit down, one-on-one with Horacio Gutierrez, the company’s VP and Deputy General Counsel in charge of intellectual property and licensing. As you might imagine, given my views on the patent system in general, and Microsoft’s gradual embrace of the patent system specifically, he and I disagreed on a fair amount. We agreed that the patent system should be focused on encouraging innovation. We agreed that there were abuses of the system. From there, our views pretty much diverged, though the conversation was fun and lively.

Gutierrez began the conversation by focusing on all of the “benefits” that Microsoft sees to the patent system, which focused on all of the licensing deals that the company has done. He positioned it by noting that the patent portfolio allows the Microsoft to get into deeper business relationships with other entities. Specifically, he noted that in many cases what began as a patent licensing discussion eventually leads to a much more complete business relationship that increases interoperability. He cited deals with both Sun and Novell as examples of this.

The problem, of course, is that this ignores how these deals actually began. Rather than approaching each other over mutually beneficial relationships, they really involve an implicit threat. That is, Microsoft shows up with its big patent portfolio (or, let’s say, a big pointy stick) and says “hey, let’s make a deal, or I’ll jab you with the pointy stick.” Yes, that can obviously lead to further business deals, but it’s not about two companies entering into a relationship willingly for mutual benefit. It’s all based on a rather clear threat.

The fallacy that Gutierrez laid out is that these sorts of relationships and interoperability are impossible to come by without the use of that pointy stick. That’s difficult to believe. If the relationships really are mutually beneficial, then they are likely to come about in a much more friendly manner anyway. When I pointed out (literally) that Microsoft coming to companies with a big stick didn’t seem like the friendliest of business negotiations, Gutierrez suggested that you “need” the stick to make the conversations work. On that we disagree, and there’s a pretty long history of companies entering into mutually beneficial relationships that don’t necessarily involve the threat of a lawsuit or government granted monopolies on processes.

Gutierrez also pointed out that any complex product these days, by its very nature, will violate numerous patents from numerous other companies and individuals. Thus, his argument is that we really should focus on mechanisms to avoid lawsuits to allow those products to move forward. Thus, licensing is preferable to lawsuits. That’s true, but misses the point. The fact that no complex product can be brought to market without violating numerous patents should be seen as the problem, rather than a truism that is solved through licensing. Let’s fix the problem that makes it so difficult for products to get to market without paying a “tax” to other companies, and figure out ways to let companies innovate freely and compete in the marketplace.

I was somewhat surprised to also hear Gutierrez claim that because of this “patent thicket” situation these days, you couldn’t innovate without patents. I interrupted him to point out that this was ridiculous on its face, as Microsoft’s own history showed. His response was that the situation had changed as the interpretation of both copyright and patent law over the past couple of decades had changed, such that protections that the company had thought it had in the early years didn’t really exist, and additional rulings made it clear that other protections would be useful. Needless to say, I find that unconvincing. There’s plenty of evidence that a ton of innovation occurred when software companies focused on the market, rather than on ownership of ideas.

Gutierrez also insisted on pointing out that Microsoft’s rather massive patent portfolio had been voted by some third party to be one of, if not the, best patent portfolios in terms of quality. He suggested that other firms, such as IBM, were more likely to file very questionable patents, but Microsoft was much more focused on quality. Perhaps that’s a subjective measure, but given how many questionable Microsoft patents we see around here all the time, some may beg to differ — or at least point out that some questionable patents are getting through.

In discussing all of this with Gutierrez, I brought up the company’s continual FUD campaign, where it goes to the press to wave that pointy stick around, in announcing that Linux violates over 200 Microsoft patents. Gutierrez noted that he was among the Microsoft execs who had made those statements, and he stood by them, claiming that Richard Stallman agrees, and falling back on his earlier claim of all complex products violating some patents, which is why he says they just want Linux vendors to work out some sort of patent licensing agreement. That, of course, doesn’t answer the question of why Microsoft keeps screaming about patent infringement, but never bothers to show what patents anyone infringes on.

Finally, we did have a fun conversation on the historical and macro level impacts of patent systems throughout history, where he asserted that perhaps the reason so many countries have found faster innovation in eras of fewer patents was because it makes sense to ignore patents during developmental phases, but after that to put protections in place. I pointed out that it seemed difficult to believe that there was some fundamental shift in economics that meant patents made sense at one time, but not at another — but by then we were running out of time to discuss things.

On the whole, however, I’ll say that we had a spirited discussion on the role of the patent system in encouraging innovation. More than once, we agreed that the conversation might have been more fun if we were having it around a couple of beers, rather than a Microsoft conference table. While I don’t think either of us changed each other’s minds, I did appreciate the chance to sit down and discuss these issues face to face on the record, and I hope to have a chance to continue the discussion in the future. I can understand where he is coming from and what Microsoft’s position on the matter is, but you have to admit, as the holder of a bigger pointy stick than most other participants, Microsoft may be more inclined than others to be a big supporter of being allowed to use the big pointy stick.

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Comments on “A Business Relationship Built At The End Of A Pointy Stick Isn't Much Of A Relationship”

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Ima Fish (profile) says:

There’s plenty of evidence that a ton of innovation occurred when software companies focused on the market, rather than on ownership of ideas.

Large players such as Microsoft does not want various software companies innovating in the market. Microsoft is a top dog. Top dogs want to protect the status quo, not allow younger more agile dogs the freedom to take their place. That’s what the patent system is really about.

chris (profile) says:

Re: Re:

Top dogs want to protect the status quo, not allow younger more agile dogs the freedom to take their place. That’s what the patent system is really about.

i agree. microsoft is like any other big company trying to protect it’s monopoly status. however, cory doctorow wrote in his novel “someone comes to town, someone leaves town” about confusing slow moving with evil:

we’re hardly nimble. Moving a Bell is like shifting a battleship by tapping it on the nose with a toothpick. It can be done, but you can spend ten years doing it and still not be sure if you’ve made any progress. From the outside, it’s easy to mistake ‘slow’ for ‘evil.’ It’s easy to make that mistake from the inside, too.

keep in mind that this is a quote from a sci-fi novel and not a textbook, but the idea is that large incumbents, especially those with monopolies, are not necessarily preventing change, nor are they truly incapable of embracing change, but rather that they are too slow moving in their progress for us to see them actually changing.

i’m not saying that it’s true, just that it’s an interesting take on the idea. even if it is true, and that the big incumbents will change eventually, i think that innovating quickly and effectively is still more important than letting old dinosaurs live out the last of their days.

Reed says:

New dogs innovate and old dogs litigate

I applaud your effort in having a conversation with entrenched monopoly/patent/copyright holders, but surely you understand why they won’t embrace your ideas.

Doing so would force them to actually compete in the market place rather than sitting around like the fat bastards they are blocking innovation rather than promoting it.

One only has to travel to countries like Korea and check out their portable media players like the Cowan A2 to see what should be produced in a market that doesn’t rely on litigation to make money and block innovation.

The whole concept of Microsoft operating 95%+ of all personal computers is rather ridiculous. I challenge you to find a single other product that is so widely used by people that a single company holds a such a stranglehold on. Considering how important computers have become I would hazard to say this type of monopoly is detrimental to the whole human race.

What we need is a good dose of conflict theory to agitate for change. Cooperation with these behemoths will do nothing but stroke their ego. We need to strike at their ability to litigate through patent/copyright reform.

If we continue to turn a blind eye we will one day wake up in a America that no longer produces anything of value and instead bullies money out of the rest of the world that does. How long before everyone notices that we are just a bunch of leeches, incapable of doing anything but sucking the tech sector dry? My bet is it is already happening.

Lonnie E. Holder says:

Re: New dogs innovate and old dogs litigate


Perhaps part of the reason that patent litigation in South Korea, which has quite a robust patent system, is so infrequent, is that you can be sent to prison for seven years of hard labor for patent infringement in South Korea. However, damages are limited to $225,000 for a corporation and $75,000 for an individual. I have heard stories (which I am unable to confirm) of corporations paying an employee to take the fall for patent infringement.

South Korea was also the ninth most patenting country in the United States in the period from 1963 to today. I suspect they actually rank higher than that now, because patents granted to inventors of South Korean origin have been growing substantially, gradrupling in the period from 1997 to 2007.

South Korea has a robust patent system and incredibly severe punishments for infringement (I consider seven years of prison severe) and South Korea is one of the most innovative and inventive countries in the world.

Anonymous Coward says:

he asserted that perhaps the reason so many countries have found faster innovation in eras of fewer patents was because it makes sense to ignore patents during developmental phases, but after that to put protections in place.

I find this hilarious and infuriating all at the same time. Its ok to ignore patents while we’re innovating, but now that we’re on top, let’s make it so any competition has to license our base technology so it is less able to undercut our price and actually compete. I’ve played this game before, as a child, its called king of the hill. The patent system is a way for those in control to remain in control, this does not spur innovation, it impedes it.

nasch says:

Big pointy sticks

The last sentence is right on. Abolish the big pointy sticks, and Microsoft will then start talking about how relieved they are, and how the pointy sticks were holding everybody back. Now we’ll have a new era in software, and MS can’t wait to start “cooperating” with all of the small innovative software companies that will spring up.

Mike S says:

Philosophical Differences

Your story starts out talking about Microsoft’s business dealings with other companies. The philosophy you want to go with is one of mutual benefits. Microsoft goes with “pointy stick”.

This shows the norm that exists within Microsoft. They have the big pointy stick and use it willingly. This may not be beneficial to the small guy, but the big guy with the big pointy stick can do whatever they want. As a philosophy, the small guy will want to enter mutually beneficial relationships because that is all the leverage they can get out of the other person; the big guy will take whatever they want and go from there. This doesn’t make it right on the big guy’s account, but when you’re a giant, do you CARE what the little people think?

The same goes for Walmart and their suppliers. They have the big pointy stick of expanded distribution for their suppliers. Do you think this giant CARES what the little guy thinks?

I agree that businesses should go with a “play nice together” philosophy, but all of us “small guys” won’t ever change the mind of the giants in their industries.

All we can do is hope that we are the David to the Goliath’s in their respective industries and remember to NOT become the giant after we take them down.

Brian says:

Gutierrez speaking like a lawyer

It’s clear Gutierrez is speaking like a lawyer, using the legal (a.k.a. patents) system to benefit him and people like him. I know many fine lawyers, including some who practice in the IT / intellectual property arena, who would argue contrary to Mr. Gutierrez, particularly on the issue of whether you need the ‘pointy stick’ to have meaningful business discussions.

He’s just trying to defend / protect his phony-baloney job and his employer – and we should we take it at that.

Jake says:

What's New?

I don’t see why everyone’s acting so surprised over this. Dirty tricks and bullying require much less mental exertion and often much less financial risk than competing by improving your own products and services, and probably always have, and if the idea that most people have an inverse ratio of ambition to moral scruples surprises you, you’ve clearly been in a coma since 1979.

Lonnie E. Holder says:

Re: Re: Patentable?

The only time most people even think to look at other patents is when they are trying to patent their ideas.

You may be correct when it comes to individuals, small companies (except those companies for whom patents are an important part of their business model), and some medium sized companies, but all the companies I have been involved with, and many of their customers, have performed due diligence with respect to patents.

Lawrence D'Oliveiro says:

Re: Re: Re: Due Diligence => Wilful Infringement?

Lonnie E. Holder wrote:

…all the companies I have been involved with, and many of their customers, have performed due diligence with respect to patents.

Did you point out to these clients of yours that this “due diligence” could expose them to triple damages for patent infringement? Because if they knew about a patent, even though they decided they weren’t infringing it, that means that anyone filing a lawsuit can claim the infringement is wilful?

Lonnie E. Holder says:

Re: Re: Re:2 Due Diligence => Wilful Infringement?


It is pretty much a standard action to claim willful infringement in patent cases. However, since In re Seagate in 2007, willfulness has become much more difficult to assert, and since the Knorr-Bremse case in 2004, jurors are no longer permitted to draw an inference from the lack of a legal opinion. Also, the USPTO wants to eliminate willful infringement altogether since it is nearly always alleged and almost never proved.

As a side note, a few companies have also alleged willful ignorance leading to willful infringement, on the theory that a company was aware of the existence of certain products and deliberately avoided due diligence. I am unsure of whether anyone has won willful infringement based on deliberate ignorance, but I have seen at least one court case where the judge chided the respondent for willful ignorance and called it such, and said that such ignorance could, in the proper circumstances, lead to proof of willful infringement.

Bottom line: Better to make a shot at due diligence and try to deal with it. At the very least, you will be better prepared for the suit when it comes.

gregg says:

got too many patents?

North Carolina has a “Certificate Of Need” (CON), which caps the number of CT scanners in the state so that, i’m guessing, all parts (urban and rural) get scanners, and all medical institutes have a fair and equal chance of acquiring a scanner. you are required to have a CON in order to place an order for the scanner.

so perhaps a reasonable rule that would allow competition AND innovation is simply that an organization may not own more than a certain number of patents, say, 100. for instance, GE & SIemens are made up of 100s of individual divisions, each of which may own a ton of patents. these companies are far too large to fail (follow along here), because failure would cripple their respective economies, and so, some argue, they should not be allowed to grow so large. in the same vein, companies which require more than 100 patents to do business should be forced to split or sell off patents because they’re stifling innovation too much — the risk to innovation outweighs the benefit to individual companies.


Anonymous Coward says:

A patent is legally presumed valid. Therefore, it makes more sense to characterize the little guys as jabbing MS with pointy sticks by virtue of their infringement on presumably valid patents.

In reality, however, many patents are invalid. Only in those cases does it make sense to characterize MS as the stick jabbers, the PTO being complicit jabbers for granting invalid patents.

Pat-ent says:

Patenting Limits?

The limits of patenting should go where you can’t innovate around others innovations, like you can do with many software patents.

For example, patenting genes in biotech is ridiculous practice and is to the detriment of the whole human race.

Fortunately, an upstart biotech company can, in the world we live in, easily blossom in countries that do not give out such patents, aka rest of the world except US of A.

Lonnie E. Holder says:

Re: Patenting Limits?

Fortunately, an upstart biotech company can, in the world we live in, easily blossom in countries that do not give out such patents, aka rest of the world except US of A.

Not quite. Gene patents also exist in Australia, Canada, France, Germany and the EU, though so-called gene patents are currently not being enforced in the EU while the validity of such patents are being examined. I suspect that there are other countries where “gene patents,” somewhat of a misnomer, exist.

The reason “gene patents” is a misnomer is that there are no patents that exist on naturally occurring genes. It would be illegal to obtain a patent on a natural part of a human body. “Gene patents” are actually for the tests or procedures that identify the gene, at least, in the US of A.

Dave. (user link) says:

Breaking a logjam

…I pointed out that it seemed difficult to believe that there was some fundamental shift in economics that meant patents made sense at one time, but not at another — but by then we were running out of time to discuss things.

War is one example but I think it proves your point.

The US aircraft industry was hobbled by the “impressive patent portfolios” of the Wright-Martin and Curtiss companies and their exorbitant licensing fees — until WWI came along and the US government created an aviation patents pool to cut through the mess. That’s when the US market began to grow and innovate (but not in time for the war, no US-built planes saw action).

Good piece on IBiz

Lonnie E. Holder says:

Re: Breaking a logjam

That’s when the US market began to grow and innovate (but not in time for the war, no US-built planes saw action).

There are four “U.S.” aircraft listed as having been used in WWI,

Curtiss JN-4D (1917)
American DH-4 (Britain/U.S.) (1918)
Loening M-8 (1918)
Navy-Curtiss F-5L (1918)

At the very least, the F-5L saw action:


Lonnie E. Holder says:

Re: Re: Re: Breaking a logjam


My bad…wrong link. Sorry about that. Here is the reference I wanted, for the DH-4:

The largest contracts for manufacturing the DH-4 went to Dayton-Wright in Dayton, Ohio; Glenn L. Curtiss in Buffalo, New York; Fisher Body in Detroit, Michigan, and Standard Aero in New York. The contracts to these U.S. companies, however, were not without criticism. Some alleged that these companies lacked experience and that more experienced companies had been passed over. Critics also accused the companies of inflating their costs to increase their profits. And in spite of their best efforts, compared to the total number of aircraft used in the war, the number of DH-4s produced in the United States and shipped to Europe was small. Most U.S. troops in Europe flew French-made aircraft.

You want me to make comments on point. Okay, here are two:

o The costs of the planes have been attributed to pure profit by some (http://www.centennialofflight.gov/essay/Aerospace/WWi/Aero5.htm), so while you can blame patent license fees, even when the U.S. government effectively eliminated those fees, companies still overcharged.

o You made your point backed by an inaccuracy. You stated that no U.S.-built planes saw action, and yet U.S.-built war planes were in Europe. I merely pointed out your inaccuracy. You then quickly moved to say the point backed by your inaccuracy was still valid. However, your point was war, and now you have no evidence, so I guess I am no longer able to stay on point, because there is none.

Just to show you that the DH-4 was not a fluke, here is a short blurb about the Curtiss Model R:

The Curtiss Model R was a utility aircraft produced for the United States Army and Navy during World War I. It was a conventional, two-bay biplane with slightly staggered wings of unequal span. The aircraft was provided with two open cockpits in tandem and fixed tailskid undercarriage, but many were built for the Navy with twin floats replacing the wheels. During the course of the war, Model Rs were used for general liaison and communication duties, as well for observation, training, and as air ambulances.

Of course, perhaps this is not your definition of action, since you are probably a war hero.

mike42 (profile) says:

Microsoft wouldn't be around part 2

Darn that enter key!
What I was trying to say was that Microsoft only benefited from the lack of ip throughout its existence. The pc, Microsoft’s reason for being, would have been “just another computer” had someone at IBM not forgotten to copyright the bios calls properly. Then, they copied the GUI concept from Xerox, copied the GUI from Lotus 123 for MS Excel, and the GUI from Word Perfect for MS Word. Nothing was original, except that they all WORKED and they all WORKED TOGETHER. This “interoperability” is the true power an innovation of Microsoft, and it’s being eroded by ip-obsessed lawyers who have gone to far towards the top.

Yo Ma Ma says:


People like Gutierrez are essentially corporate thugs who are highly skilled at causing the maximum amount of damage while leaving as little visible injury as possible.
They represent the iron fist in the velvet glove.

It’s clear the Microsoft intends to dilute the world of open-source by entangling it in a net of their so-called “Intellectual Property”.

Some will recall when Monsanto sued several farmers because the seeds they bred for their future crop-production got accidentally contaminated with GM material via the normal processes of pollination.

Microsoft however is *deliberately* attempting to contaminate open source with their “Intellectual Property”, so that licences such as GPL might become unenforceable thereby.

They are scum.

Mark says:

Patent Commons, Open Invention Network

Between them, the Patent Commons and the Open Invention Network have many quality patents that it is certain that Microsoft infringes.


Why is it that in discussions such as this one, Microsoft never mentions these?

If Microsoft doesn’t want to be counter-sued for Microsoft’s undoubted violations of patents held by these organisations, all that Microsoft needs to do is join the organisations. In return for joining those organisations, Microsoft gets a right to use, free of charge, all of the Intellectual Property held in trust by those orgainsations, all for the low, low price of promising not to sue Free Software and/or Open Source Software in return.

That would seem to be a far better and more responsible option for Microsoft and Microsoft’s shareholders rather than trying to extort money out of free Software and Open Source Software.

Lets face it after all … Linux and BSD distributions are basically UNIX and POSIX work-alikes, whereas Windows is a VMS work-alike. Essentially these two camps don’t really violate each others fundamental IP at all, in any real sense of the concept.

wvhillbilly says:


If every inventor had to license every possible patent from every crooked corporation and patent troll that could possibly apply to his invention, the combined license fees would probably exceed revenue by ten times or more, making the invention totally unsalable. But I guess that’s the way the big dogs want it…

And if every patent holder were to enforce every patent he held, the economy would melt down in a sea of litigation that would make the present financial crisis look like a walk in the park. It’s all about greed, but they don’t think about the ultimate consequences.

Lonnie E. Holder says:

Re: Ridiculous


I think you exaggerate more than a lot. Obviously your statement must be untrue, or prices of new products would not continue to fall. Further, when you mention “big dogs” you are really talking mostly about small inventors and “patent trolls” who like to strong arm the “big dogs” for every suspected patent infringement. Unless you mean “big dogs” of patent litigation, you really mean “little dogs,” or considering how many people think that Microsoft is out suing everyone, perhaps “dogs of all sizes.”

dinnerbell says:

stop the shilling!!!

You are correct in that (sadly) parties seldom agree to pay for what they want unless forced to. You have 2 choices. If you decide you want that shiny 52″ flat screen you either pay, or you risk arrest. Whether it’s intellectual property or real property it is property and should be respected. Often we invest far more of our time and money in our IP than real property. It’s real simple. Why do you work so hard at dissembling?

please see http://www.piausa.org/ for a different/opposing view on patent reform

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