A silver lining

As cloud computing continues to advance rapidly, businesses need to contend with the legal challenges stemming from such developments.

Microsoft, which is no stranger to the cloud, understands the value and importance of IP, not just for itself, but for its customers.

In February this year, the company revealed plans to use its patent portfolio to help protect cloud customers from patent litigation.

The aim of the company’s cloud computing platform, Microsoft Azure IP Advantage, is to best serve its customers.

“We’re listening to what our customers have said they needed,” explains Jule Sigall, associate general counsel of IP policy and strategy.

“Microsoft noted that a lot of customers are migrating to the cloud, and there was some concern about IP risks that might be increased when they moved.”

As customers move to the cloud, they may face IP exposure in areas that they don’t have a patent portfolio for, and this is where Microsoft’s programme comes in.

Sigall explains that customers wanted to know how they might be protected from assertions from both non-practising entities (NPEs) and operating companies that might assert against whatever they’re trying to do in the cloud.

According to Sigall, Microsoft stands out from the crowd—its competitors have not done anything like this before, he says.

“Lots of companies indemnify their products and services and they may have other mechanisms to help manage IP risk. But none of them has put together a package like we have,” he adds.

In a blog post, Brad Smith, president and chief legal officer of the company, announced the launch of the programme.

With the advent of cloud computing, new capabilities are allowing businesses to transform the way they deliver products and services.

According to research firm Gartner, the shift to cloud will generate more than $1 trillion in IT spending by 2020.

But this transformation does not come without its challenges, in particular the growing risk of IP lawsuits.

“According to Boston Consulting Group, there has been a 22% rise in cloud-based IP lawsuits over the last five years in the US,” said Smith.

He added that, over the same period, NPEs have increased their acquisition of cloud-related patents by 35%.

Because of the tremendous opportunity presented by the cloud, Microsoft is now offering this programme aimed at helping customers protect their cloud-based innovations and investments.

However, Microsoft’s new strategy is not strictly necessary, according to Luke Pedersen, head of IP in Baker Botts’ Washington, DC office.

“Microsoft could continue to provide its cloud services without it, and they would do fine commercially. But it probably gives the company a marketing boost and they pass along some value to their customers,” he adds.

Irah Donner, partner at Manatt, Phelps & Phillips, agrees with Pedersen, adding that although it’s not a necessity, the programme could provide significant customer satisfaction and loyalty.

A three-pronged approach

The programme offers a three-pronged approach—IP protection with uncapped indemnification coverage, a “patent pick”, and a pledge from Microsoft.

Microsoft’s indemnification protects its customers from IP infringement claims arising from their use of Microsoft cloud platform technologies and included open-source components.

The uncapped indemnification gives customers the kind of comfort they need to help manage risk, according to Sigall.

Indemnification has been part of Microsoft’s policy for years but, with the launch of this new benefit, Microsoft can also defend and indemnify for IP claims against open-source code included in first-party branded product and service offerings.

He adds that the open source component of the indemnification is very important—the Azure offering is designed to appeal to all sorts of customers, and many, if not most, of Microsoft’s customers want to use “both open source and Microsoft code to build their offerings on Azure”.

"Microsoft’s plan is to discourage operating companies from suing Azure customers for patent infringement against their workloads running in Azure."Julie sigall microsoft

“We decided indemnification alone wasn’t enough; we wanted to give our customers other alternatives to protect themselves,” explains Sigall.

It’s routine for companies to indemnify their products, according to both Pedersen and Donner, although it’s more unusual for the indemnification to be uncapped.

Donner explains that indemnification is likely to be the main advantage of the programme, although “the devil will be in the detail”.

Patent pick

The multinational included two other components: its patent pick and springing licence, which Sigall describes as a “broad set of benefits” that customers won’t find in other cloud platforms.

Perhaps the most important and novel component is the patent pick.

As part of its offering, Microsoft will make 10,000 of its patents available to Azure customers for the “sole purpose of enabling them to better defend themselves against patent lawsuits”, according to Smith.

Microsoft has a portfolio of 60,000 patents so it’s providing a large chunk to its customers. The patents range across a broad cross-section of all the technologies in its portfolio, although they are slightly more weighted towards cloud technology.

The purpose of the patent pick is deterrence. Microsoft’s plan is to discourage operating companies from suing Azure customers for patent infringement against their workloads running in Azure.

Azure customers are eligible as long as they haven’t sued other Azure customers in the last two years.

The reasoning behind this is Microsoft’s goal to “create a community of interest” among its customers in support of a “peaceful zone of innovation”.

Essentially, the multinational is offering an incentive through the patent pick benefit without taking away customers’ IP rights.

On top of this, if Microsoft removes a patent from the list or a patent expires, it plans to add new patents so as to maintain a total list of 10,000 patents.

Donner is not as optimistic—he adds that unless Microsoft is going to assist in the research and defence of these patents, making 10,000 patents “available” is not ideal.

A springing licence is the final ingredient in Azure IP, with the technology company pledging to Azure customers that if Microsoft transfers patents in the future to NPEs, they can never be asserted against them.

Although Microsoft doesn’t have a practice of making such transfers, customers value the added protection, according to the blog post by Smith.

“NPEs have asserted against customers in the past, in both Azure and in other products and services,” adds Sigall.

He explains that there was a recent case of an Azure customer being asserted against for open-source components of the Azure stack.

The team at Microsoft successfully handled that litigation on behalf of the customer, adds Sigall.

“Although springing licences are not really new, this is as widespread a licensing programme I’ve heard of,” says Pedersen.

Donner adds: “This just means that Microsoft patents won’t be asserted against Microsoft customers. In addition, this is limited to transfers to NPEs.”

Azure IP is offered across the globe in all the places Microsoft does business, except China where the Azure service is offered by an independent entity licensed by the Chinese government to provide cloud services under Chinese law.

But that doesn’t mean Microsoft isn’t making plans. “We are looking at it now and hopefully we’ll be able to do that in the future,” says Sigall.

Donner says that while the programme is definitely a step forward, it is hard to say it’s a “first of a kind” approach.

Such a strategy would be to step into the actual case and take over the defence, not necessarily indemnify the customer after the fact, he says, although this may not be completely practical in view of the number of Microsoft customers.

Pedersen believes that in future, Microsoft could improve by using its own portfolio to try to invalidate some of the patents that might be asserted against its customers.

“This could be through Microsoft searching its portfolio to help customers invalidate patents asserted against them or by providing a more user-friendly tool that somebody could apply to the portfolio to try to find patents that might be useful,” he adds.

The new programme is here to stay. Microsoft is committed to making Azure IP Advantage a success, offering the benefits indefinitely.