Novell challenges Lodsys's two core patents as Lodsys victim Quickoffice gets sued again

Before I get to yesterday's new developments in the app patent arena, I also have to state -- for the sake of completeness -- that the East Texas-based court issued on Friday (June 17, 2011) a summons (a you-have-been-sued notice) to all seven app developers sued by Lodsys. The summons documents are sealed. The publicly available information is this:

E-GOV SEALED SUMMONS Issued as to Combay, Inc., Iconfactory, Inc., Illusion Labs AB, Michael G. Karr d/b/a Shovelmate, Quickoffice, Inc., Richard Shinderman, Wulven Game Studios. (Attachments: # (1) Iconfactory, # (2) Illusion Labs, # (3) Michael Karr, # (4) Quickoffice, # (5) Shindermann, # (6) Combay)(ehs, )

The list of sealed documents doesn't contain the summons for Wulven Game Studios. Since that company is based in Vietnam, there may be an administrative delay with respect to them. It's also possible that the summary of the court order got cut off after a certain number of characters. At any rate, the first part of that summary shows that all seven are summoned.

Defendants in such a lawsuit usually have to respond to the complaint within 20 days. It is relatively easy to get, as a matter of course, an extension by 30 days. Extensions beyond that are difficult, especially if opposed. I can only hope that Apple gives unlimited coverage to the sued app developers. Otherwise the only responsible thing they can do will be to settle as early as possible.

The court hasn't decided yet on Apple's motion to intervene. I will continue to follow and report on that case. Also, I'm still waiting for Google to explain what Android app developers should do when they receive a letter from Lodsys.

Novell becomes eighth company to request declaratory judgment of invalidity of Lodsys's two core patents

Novell is one of the ten companies Lodsys already sued in February. Novell was the last defendant of those ten to answer as its acquisition by Attachmate constituted a special situation.

Yesterday (June 20, 2011) Novell finally filed its answer to Lodsys's complaint. In addition to denying Lodsys's claims, Novell brought counterclaims, requesting declaratory judgment of invalidity (and non-infringement) of Lodsys's two core patents (the ones also asserted in its lawsuit against seven app developers).

Novell is the eigth company to request declaratory judgment of invalidity with respect to those two patents. Two other defendants in the same lawsuit, Brother and Lenovo, previously did the same thing. The seven remaining defendants also contest the validity of those patents, but only as a defense, not as a counterclaim. A counterclaim is more aggressive and could really do away with those patents in practical terms.

In addition to the three counterclaimants, there are five companies that brought declaratory judgment actions. They filed proactive lawsuits, and those relate to all four Lodsys patents, not just the two over which Lodsys is suing seven app developers. The first declaratory judgment action was brought by ForeSee Results (in that blog post I also explained the concept of declaratory judgment), followed by antivirus software maker ESET, The New York Times Company, OpinionLab, and webchat company LivePerson (in that blog post I also discussed the very likely possibility of Apple and Google being barred from seeking the invalidation of Lodsys's patents).

Four of the five proactive declaratory judgment suits were filed in the Northern District of Illinois (only ESET filed elsewhere, in Southern California). There will be some consolidation and possibly also some transfers (from one venue to another).

Can Lodsys handle all of this resistance?
Most probably yes

This flurry of activity has a simple explanation: Lodsys sends out many letters requesting payment. They have been doing so for a while now, and the most recent one I became aware of went out last week, so they're probably not finished yet. They make allegations in connection with all sorts of functionalities including but not limited to in-app purchasing, ad click tracking, and webchat. Then, as a result, one out of X number of targets will launch a pre-emptive strike somewhere.

Some believe that Lodsys may have taken on too many companies, but I'm afraid Lodsys is a front for deep-pocketed patent enforcers and can handle all of this.

It's a common misbelief -- to some extent spread deliberately by propagandists who want to downplay the problems the U.S. patent system causes -- that the cost for an entity asserting a given patent is the same as the collective cost incurred by the companies defending themselves against such an assertion. That is just not true. Generally it's much easier to just claim an infringement and let discovery (the fact-finding process) begin. And how much discovery can there really be concerning a company like Lodsys as compared to any of the defendants? Lodsys itself doesn't have much of a history, so there isn't much to look at. It will produce documents that show it's the rightful owner of the patents. But any of the defendants will have to disclose source code and material related to potential damages.

Also, if Lodsys doesn't let its lawyers spend much time on the pursuit of its assertions, the case will still go on and represent a serious threat to defendants. But defendants have so much at stake that they will have to make a lot of effort to try to prove that the patents are invalid and/or not infringed.

There's no such thing as parity in the U.S. between patent aggressors and defendants.

Considering how things usually play out, Lodsys is very likely to get some lucrative settlements out of all of this further down the road (most likely next year). In the remainder of this post I'll talk about the next patent assertion against mobile apps, and the company behind that new attack is living proof of how well the patent assertion business model works.

Lodsys victim Quickoffice gets sued again --
this time by Achates Reference Publishing

Quickoffice, one of the seven app developers sued by Lodsys, is already facing the next patent infringement lawsuit (again in East Texas) as Achates Reference Publishing, which publishes legal reference material (also related to patent law), sued thirteen legal entities. Other defendants than Quickoffice include Symantec, GlobalSCAPE, Common Time, Native Instruments Software Synthesis, Stardock Systems, Valve, Electronic Arts, Nero, and SolarWinds.

Achates claims that its two patents -- U.S. Patent No. 5,982,889 and U.S. Patent No. 6,173,403, both entitled "method and apparatus for distributing information products" -- cover the activation of purchased software by means of an encrypted activation code (token).

The older one of the two patents was applied for in 1997; the newer one in 1999. Besides the fact that the patents don't really look like any serious (i.e., non-obvious) innovation, one may also wonder whether such technologies didn't already exist at the time. But the related litigation history indicates that many large companies have previously settled with Achates:

In June 2007, Achates sued Microsoft and settled in December 2008. In 2009, Achates filed a suit against nine companies: BMC Software, Borland Software, Citrix Systems, The MathWorks, Dassault Systèmes SolidWorks, MindJet, McAfee, Bentley Systems, and Intuit. All of those settled between February and August 2010. In addition, it's likely that many companies agreed to pay Achates license fees even without being taken to court.

Quickoffice is larger than most (if not all) of the other app developers sued by Lodsys. According to CrunchBase, the company raised a total of $28.5 million of venture capital in four rounds (between 2005 and 2007). But those investors -- who include Mayfield (a very famous venture fund), Advantage Capital funds, and Shepherd Ventures -- wanted to finance product development and marketing, and probably didn't envision that Quickoffice would at some point get sued by two different patent holders during a period of just a few weeks, with the defense in each case easily costing north of a million dollars.

Fortunately, there are relatively few mobile apps that use activation tokens at this stage. But this is another example of the kinds of threats mobile app developers face. On the one hand, there are very broad assertions such as by Lodsys and MacroSolve; on the other hand, there are patent holders going after smaller numbers of app developers. Achates Reference Publishing going after Quickoffice is the latest example. A few years ago, some iOS app developers were accused of infringing a baby tracker patent. And there are many other patent holders who have made, are making and will make assertions against app developers, just that their activities don't receive as much publicity as Lodsys's assertions and lawsuits.

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US Department of Justice announces modified Novell patent deal

The United States Department of Justice (DoJ) just announced that a deal that originally envisioned the sale of 882 Novell patents has been modified in order to address its concerns. The DoJ also announced close cooperation in this regard with Germany's Federal Cartel Office (FCO; German name: "Bundeskartellamt").

[Update] The German FCO made an announcement of its clearance decision that is materially consistent with the DoJ's announcement. [/Update]

In formal terms, the DoJ's work is not yet finished: its Deputy Assistant Attorney General Sharis Pozen said that "the department will continue to investigate the distribution of patents to ensure continued competition." But in practical terms, this looks like a done deal, and Novell's stock price is now only a hair's breadth below the $6.10 per-share price to be paid by Attachmate, the acquirer of Novell as a company.

[Update 2 on Apr 21] Novell's latest SEC filing just announced that the formal consummation of the patent deal as well as Novell's acquisition is now scheduled for April 27, 2011. Apparently that will be the date barring any unforeseeable events. [/Update 2]

The announcement by the DoJ essentially reaffirms what I blogged about two weeks ago with only smaller changes:

• The DoJ refers to "approximately 882 patents". A Novell SEC filing revealed a few months ago that there was some disagreement resulting from the fact that Novell originally listed some patent applications that were withdrawn or rejected. There were talks between the parties about whether to replace those assets with others, or whether to adjust the price. The word "approximately" suggests that the number may have changed, or may still change, but only slightly in all likelihood.

• There are 33 (not 31 as originally announced by the OSI) virtualization-related patents that EMC won't get to acquire.

• The fact that Microsoft will effectively sell back its allotment of patents is not new. The DoJ's announcement just makes it clearer than the OSI's recent statement that Microsoft is granted a license to all of the patents changing hands (including the roughly 200 patents that Microsoft will own temporarily) as well as "any patents retained by Novell." Considering that Microsoft for hundreds of new patents every month, it seems obvious that they don't have to acquire a couple hundred Novell patents in order to beef up their own patent portfolio. By contrast, Google with its relatively small portfolio would have benefited from such an acquisition in a more significant way, relatively speaking.

• The DoJ mentions some provisions according to which CPTN Holdings LLC and its owners (Apple, EMC, Microsoft, Oracle) won't be allowed to interfere with Novell's relationship with and commitments to the Open Invention Network. In other words, after the acquisition it will be the prerogative of Attachmate (Novell's acquirer) to make a determination concerning Novell's post-acquisition relationship with the OIN. Maybe the original agreements stipulated that Novell would leave the OIN, or maybe there wasn't any such provision but the DoJ was afraid of the patent deal affecting Novell's partnership with the OIN. In my opinion, the flood of patent lawsuits especially in the smartphone space shows that the OIN doesn't deter anyone from asserting patents against Linux and Linux derivatives like Android. Therefore, whether or not Novell continues to be an OIN member doesn't matter too much.

• There's one item in the DoJ's announcement that isn't clear without knowing the details:

  "All of the Novell patents will be acquired subject to the GNU General Public License, Version 2, a widely adopted open-source license, and the Open Invention Network (OIN) License, a significant license for the Linux System"

  Novell made some commitments "subject to" the GPL and the OIN license in the past. It's not clear to me inhowfar the DoJ imposed anything new on Novell or any of the acquirers beyond already existing obligations.

  In its criticism of the deal, the OSI, FSF and others claimed (not for the first time) that they believe the GPL is incompatible with obligations to pay patent royalties. However, the DoJ's announcement doesn't necessarily say that the acquirers of those patents are now required to make those patents available on royalty-free terms to publishers, distributors or users of GPL'd software.

  My guess is that the DoJ didn't support those claims by OSI and FSF that royalty-free is the only GPL-compatible option, just like the European Commission also found that royalty-bearing patent license deals can be structured in open source-compatible ways. In other words, some royalty-bearing deals may not work for open source, but others do. Per-unit royalties could be difficult given the way open source software is shared, but fixed royalty amounts or royalties relative to a company's revenues are possibilities.

  There's a perfect example of patent royalties that were paid on software distributed under the GPL: Red Hat's $4.2M FireStar settlement, which is mostly a patent license deal (just with additional provisions to withdraw a lawsuit). In Eben Moglen's opinion, the related deal would have been compatible even with the GPLv3. I assume that such GPL-compatible patent license deals would still be a perfectly valid option for the companies acquiring those Novell patents if they find GPL'd software to infringe any of those patents. But I don't know what exactly the revised patent purchase agreement stipulates (except for what the DoJ just announced, which is vague).

If any additional details become known, then there may be more clarity concerning the "subject to" language. For now this is all a bit speculative. It also remains to be seen inhowfar the regulatory intervention in this case could backfire on some of the complainants should similar issues ever come up in connection with the aforementioned OIN. Regulators didn't seem to care much about the secondary market of patents in the past. They apparently raised concerns (whether or not those would have been defensible in court is another question) in this case, and who knows what questions may come up in connection with the sale of Nortel's patent portfolio.

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Analysis of new Novell patent deal structure according to OSI statement

Having just read the Open Source Initiative's latest statement on the sale of 882 Novell patents to CPTN Holdings LLC, I see a probability of 90% that the consummation of the transaction is now imminent. There's a deadline on Tuesday, April 12, and most likely the deal will close by then. It seems to me that the regulatory agencies have obtained very significant concessions from Microsoft and EMC, and I can't see what else the antitrust authorities could realistically do to address concerns by competitors and open source organizations.

[Update on Apr 14, 2011] A new SEC filing by Novell shows that the US Department of Justice decided to let the April 12 deadline expire, which means that while the DoJ could theoretically still challenge the transaction, it apparently doesn't have any more objections at this stage. In all likelihood closing is now a mere formality. [/Update]

OSI still declares itself unhappy, but I believe they must realize that competition law has its limits. I doubt that the regulators could have imposed the changes that apparently occcurred to the transaction if they had ever had to defend those in court. To me this looks like a deal that the companies agreed upon in order to avoid further delays, not because of a firm legal obligation.

The Bundeskartellamt (the German Federal Cartel Office) gave the OSI permission to publish its latest submission to the regulators and a "non-expert summary" of how the deal has changed since the original announcement. I previously blogged about that late November announcement, was first to publish the names of the four companies who jointly own CPTN Holdings LLC (Apple, EMC, Microsoft, Oracle), and commented on a statement by EU competition chief Joaquín Almunia, who said the transaction didn't require EU-level notification.

Changes to the deal structure (according to OSI)

The original deal envisioned that CPTN Holdings LLC would become a long-term owner of the 882 patents to be sold under the deal. Now it appears that CPTN Holdings LLC will be dissolved shortly after the transaction. Each of the four owners will

• be granted a perpetual license to 100% of the acquired patents, and

• get to own 25% of the acquired patents,

but

• Microsoft will sell its entire 25% allocation right away to Attachmate, i.e., Novell's acquirer, and

• the parties appear to have promised that EMC's allocation won't include any of 31 patents previously identified by EMC as virtualization-related patents.

The OSI also states that "[a]ll patents will still be subject to all existing licenses, covenants not to sue and similar restrictions." However, I am not sure whether this is any "change". If the license grants made by Novell in the past were already worded in a way that made them survive changes of ownership, then this part is merely declaratory and doesn't signify any modification of existing agreements.

Let me clear up the confusion that may arise from a non-trivial deal structure having changed. Under the deal structure described above, CPTN Holdings LLC will end up like a non-returnable patent bottle, bound to be forgotten, and the lasting net effects will apparently be that

• Novell sells 882 of its patents, but it will retain hundreds of patents and its new parent company, Attachmate, will own 25% of the 882 patents sold (see further below),

• Apple, EMC, Microsoft and Oracle will never have to defend themselves against any Novell patents (not just the 882 that are sold but all others as well),

• Apple buys whichever 25% of those 882 Novell patents,

• Oracle buys whichever 25% of those 882 Novell patents,

• EMC buys 25% of those 882 Novell patents, which can also be any of those 882 patents except that 31 patents identified as virtualization-related (the core business of EMC subsidiary VMware) won't be among them,

• Microsoft's patent portfolio will be the same after all of this as it was before because

• Attachmate, Novell's new parent company, will own the 25% of those patents that Microsoft could otherwise have received as a result of the dissolution of CPTN Holdings LLC.

The resulting relative growth of the patent portfolios of Apple, EMC and Oracle is fairly limited, given that those companies already own large numbers of patents and file for new ones on a daily basis, so if each of them gets to own approximately 220 more patents, it doesn't make much of a difference.

Competition logic

As I stated in a previous post on this subject, I didn't see any deal-specific theory of harm. I certainly support significant parts of OSI's criticism of software patents and would actually like to see them and their member companies communicate those concerns more effectively to policymakers. But I thought the concerns were generic -- relating in principle to all software patents and to all owners of such patents -- as opposed to particular reasons for which the sale of 882 Novell patents to CPTN Holdings LLC would have had to be blocked by antitrust regulators.

There's a vibrant secondary market for patents, and so far I'm not aware of any antitrust intervention against any such transaction. By the way, just to show how much is going on in terms of patent transfers, Google's $900 million bid for thousands of Nortel patents was made public earlier this week. I haven't blogged about that bidding process yet, but I commented on Google's aggressive pre-auction bid on Twitter (as reported by The Guardian's Technology Blog) and I answered questions I received from the Financial Times, the Los Angeles Times, BBC News, and law.com.

I have done a fair amount of work in connection with competition enforcement, and I believe that no one can blame the regulators for having achieved too little in connection with the Novell deal. Realistically, the regulatory agencies would have had a very hard time defending a blocking decision in court. I, personally, doubt very strongly that they could have won such a case. But there is always some leverage in the ability of a competition authority to delay a transaction by additional reviews and requests for information. There are companies that elect, under those circumstances, to make concessions in order to accelerate the process. The changes on which Attachmate, Apple, EMC, Microsoft and Oracle agreed look like what a regulator would usually consider sufficient remedies. And that's why I guess we're only days away from the closing of the deal, which according to earlier reports is scheduled for next Tuesday (April 12, 2011).

While I don't think there was a legally defensible case against the deal even in its originally contemplated form, it's easy to see that the concessions made by the companies reflect the idea that the acquisition of additional patents in a certain field by a company dominant in that field could, theoretically, raise concerns.

Microsoft was found dominant in certain markets by regulators a while ago. While many (probably most) of Novell's patents relate to markets in which Microsoft isn't dominant, my best guess from the outside is that it would have been too time-consuming to sort out exactly which patents relate to Microsoft's core business and which ones don't, so they apparently accepted not to get to buy any of them at all. A recent SEC filing already indicated such a concession.

EMC's VMware subsidiary is a major force in virtualization. I haven't examined that market, but I guess the regulators believed they could perhaps make a dominance case here, which is why VMware accepted to exclude virtualization-related patents from the deal.

Apple and Oracle are free to buy any of those patents because

• at this stage it would be very difficult to claim that Apple is dominant in the market for mobile communications devices as a whole (its market share isn't high enough for a simple, straightforward dominance case), and

• while Oracle may or may not be dominant in the database management systems market at this point, I doubt that any of the patents in question would change Oracle's position in that market in any non-negligible way.

OSI's remaining demands are legal nonsense

In its latest statement, the OSI still makes demands concerning remedies it wants the regulators to impose. I have looked at those and, frankly, those are just a political statement that doesn't make any legal sense whatsoever.

OSI basically claims that even after the changes I outlined above, they still think Novell was a great open source-friendly patent owner and companies like Apple and Oracle, and to some degree even EMC, aren't similarly open source-friendly in OSI's opinion. Therefore, they want commitments that none of those patents will ever be asserted against software published under an OSI-approved license.

There's no way that a regulatory agency anywhere in the free world could put open source software above the law. If you don't want patents to be asserted against open source software, you must abolish software patents altogether (I would love that). But if those patents exist, the use of particular kinds of licenses cannot constitute a carte blanche to infringe patents. Open source must abide by the law, including intellectual property law, and considering how widely adopted open source software has become under the legal framework as it stands, there can be no doubt that open source and software patents cannot only coexist but open source can even thrive despite the existence and enforceability of such patents.

If the OSI had come up with any remedy proposal that would make legal sense, maybe the regulators would have given it some thought and held up the deal. But with demands of the just-wishful-thinking kind, OSI effectively admits that the regulators have done whatever they could, and it's time to move on.

OSI's theories include, among others, the fear that "Oracle [could] take Android down based on legal assertions of Middleware and Virtualization patents [and] would [thereby] significantly weaken [OSI's] efforts in promoting open source to mobile developers." OSI claims Oracle is "dominant" with Java. I think this is just propaganda. I'm sure that Google can work out a deal with Oracle anytime if Google recognizes the rights Oracle asserts and accepts reasonable terms. Android's intellectual property issues are unprecedented, and some of those issues will have very significant impact on the market, but that doesn't mean that companies enforcing their rights in connection with Android are no longer allowed to acquire patents.

Two days ago, the Linux Foundation's Executive Director, Jim Zemlin, said that patent and copyright concerns related to Linux (and Linux-based Android) are just "FUD". I don't agree with Zemlin's unsubstantiated and desperate attempt to brush aside legitimate concerns, and the fact that he feels compelled to make such statements is interesting in and of itself, but by making up unrealistic doomsday theories for Android, the OSI clearly contradicts the LinuxFoundation and exposes itself to accusations of "FUDding" whenever Zemlin gives his next speech.

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EU competition chief has no concerns over Novell patent deal

The EU is not going to intervene against the Novell patent deal about which the Open Source Initiative (OSI) and Free Software Foundation Europe (FSFE) recently complained. European Commission vice president and competition commissioner Joaquín Almunia has told a Member of the European Parliament that the sale of 882 Novell patents to CPTN Holdings LLC appears "unlikely" to require an EU-level review, and "the Commission has currently no indication that the mere acquisition of the patents in question by CPTN Holdings would lead to an infringement of EU competition rules."

The EU's competition chief said so in reply to a written question put forward by Emma McClarkin, a British conservative from the East Midlands. The question was submitted on 20 December 2010, subsequently published on the European Parliament's website, and answered yesterday (17 January 2011).

I'll quote and comment:

"Subject: Microsoft and competition rules"
"A constituent has written to me"

British MEPs are always very exact about "constituents" because unlike the MEPs in most other countries, they are elected in certain districts. So in all likelihood, someone from the East Midlands wrote to Emma McClarkin. That email may have been orchestrated by FSFE or OSI, but it may also have been someone's independent initiative based on early media reports on the deal.

"expressing concern about Microsoft recently purchasing a large number of patents from Novell. This move strengthens the hold Microsoft has over its competitors, which could potentially harm consumer choice and increase prices. Is the Commission aware of this situation? If so, does the Commission believe there have been any infractions by Microsoft of EU competition laws?"

This focus on Microsoft shows that the MEP wasn't fully informed when posing the question. The question was dated 20 December 2010. Four days earlier, I published the names of the four companies (Apple, EMC, Microsoft, Oracle) that have formed the CPTN Holdings consortium.

There still seems to be some confusion out there concerning Microsoft's role. When the acquisition of Novel by Attachmate and of those 882 patents by "a Microsoft-organized consortium" became known in November, the other companies weren't disclosed until they appeared on the website of the German competition authority. But the fact that Microsoft "organized" the consortium only means that Microsoft had a key role in bringing the partners together. It does not necessarily mean that Microsoft still leads the consortium following its foundation. All that's known so far is that Microsoft had the role of a midwife. Any assumption that Apple, EMC and Oracle decided to let Microsoft run the organization thereafter is purely speculative, and in my view, unlikely in light of the weight and pride of those partners.

Anyway, here's the vice president's answer:

"E-10547/10EN
Answer given by Mr Almunia
on behalf of the Commission
(17.1.2011)"

"The Commission is aware of the proposed acquisition by CPTN Holdings, a consortium of technology companies which includes Microsoft Corp, of a portfolio of 882 patents from Novell. On the basis of the information currently available at this stage, it appears unlikely that the proposed transaction requires a notification to the Commission under the Merger Regulation."

This means that this is so far from being an EU competition issue that it doesn't even have to be reviewed. Finally:

"Furthermore, in addition to the consideration under the Merger Regulation, the Commission has currently no indication that the mere acquisition of the patents in question by CPTN Holdings would lead to an infringement of EU competition rules."

This means that there's no problem with the sale of patents per se. The use of patents has played and is currently playing a role in some EU competition cases, but companies can sell any of their patents pretty much like they sell products, their office furniture, used company cars, or real estate.

I have seen the positions taken by OSI and FSFE. I couldn't find any real substance in them. Those complaints came down to indicating a dislike for patents and distrust for the companies behind CPTN Holdings. But they didn't raise any legal issues that would be specific to this deal.

My own position is known: I used to run a campaign against a software patent bill. However, politicians don't stop patent offices from granting them. So let's come to terms with it: this is the law of the land. As long as those patents exist, they can be sold.

Finally, if it confuses you why the deal was notified to the German competition authority while the EU (of which Germany is a member) doesn't see a need for notification, that's because the EU is a supranational body and its member states still have their own laws. Those can't be in conflict with EU rules in areas where the EU has harmonized the rules, but there can be some differences in details, such as one country requiring notification of joint ventures of a type that the EU doesn't investigate. In order to coordinate everything efficiently, the European Commission works closely with the member states' competition authorities through the European Competition Network (ECN).

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CPTN Holdings LLC (acquirer of 882 Novell patents): Microsoft, Apple, EMC and Oracle are the partners according to German antitrust notification

Breaking news: Twitter user @VM_gville (whose account has meanwhile disappeared) pointed me to the website of the German federal antitrust authority ("Bundeskartellamt"), which discloses a merger (or more precisely, joint venture) notification filed a week ago (on 09 December 2010), according to which the four companies behind CPTN Holdings LLC -- the acquirer of 882 Novell patents -- are Microsoft, Apple, EMC, and Oracle. The product market in which the newly formed company plans to operate is defined as "patents".

Three weeks ago I already commented on the recent announcement of Attachmate acquiring Novell and the sale of 882 Novell patents, in exchange for $450 million, to CPTN Holdings LLC. At the time, the full list of CPTN Holdings LLC partners was not known. The entity was described as a "consortium organized by Microsoft."

Just like many people, I was certainly curious as to which companies were Microsoft's partners in this new organization. The group could have consisted of Microsoft plus several considerably smaller companies. But this impressive list of companies shows that Microsoft's partners are very powerful players themselves, true counterweights without a doubt.

When I commented on the original announcement, I wrote that "it's certain that the decisions of the consortium will not be taken by Microsoft singlehandedly. That fact should actually give a lot of comfort even to those who don't want to trust Redmond."

Now that the other companies are known to be such major players, I can only reiterate what I wrote then. I don't know much about EMC other than that it's a very significant company. I do know that Apple and Oracle are clearly companies who have different approaches to some important issues than Microsoft. Within the consortium, the four players will have to agree on a common denominator concerning the patents to be acquired. They've apparently been able to agree that those patents are valuable assets to own. I still don't know the list of those patents, but it's important progress that we now have the names of the companies, thanks to the German competition authority.

I don't have a crystal ball that would tell me what their business plan with those patents is, but those organizations have a track record and, very importantly, they have a reputation to protect. They all want to enjoy excellent relations with software developers, and software developers expect large players to make reasonable and constructive use of whatever patents they own. I guess that's exactly what will happen in this case.

[Update] AllThingsD quotes an anonymous source inside one of the four companies describing this patent deal as "cheap defensive insurance".

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Attachmate, Novell and the sale of 882 patents to CPTN Holdings, a consortium organized by Microsoft

On Monday I attended a European Commission and European Patent Office conference on intellectual property rights and standardization (I blogged about it) when the long-awaited acquisition of Novell was announced. I received questions about it but for lack of information wasn't able to say anything of substance at that point.

Relatively speaking, it's easier to comment on new patent suits because once one obtains a copy of the complaint, there are usually various aspects worth looking into.

Just so you're not disappointed if you read further: there still isn't anything spectacular or dramatic about this Novell transaction and I guess there never will be. But it is an important deal for open source, so I'll sum up what I've read and what I think so far. Let's talk about the projects first, then the patents.

Mono

Miguel de Icaza, a Novell vice president who started the Mono project (a FOSS implementation of the .NET API) and previously founded the GNOME project, reassured the Mono community with this tweet:

"After the Novell acquisition, Mono continues as-is, but our paychecks will come from Attachmate instead of Novell."

A few months ago I disagreed strongly with Richard Stallman after I read an interview with Glyn Moody in which RMS said that developers "shouldn't write software to use .NET. No exceptions."

I don't know if any of those Mono critics will restate their baseless concerns, but at any rate, I believe that the acquisition of Novell is positive for Mono. It ends a period of uncertainty for the brilliant team Miguel leads. Miguel's blog indicates that they are being very productive these days.

SUSE and openSUSE

I remember the time when SUSE was capitalized differently ("SuSE") and often spelled with dots ("S.u.S.E."). That German Linux distribution used to be much more popular in Europe than Red Hat Linux. At an online gaming startup I co-founded and managed in the late 1990s, we used SuSE on our servers. I also ran SuSE on a computer at home (for MySQL).

Later, SuSE was acquired by Novell and renamed "SUSE" because people struggled with the lowercase "u" in the middle of an otherwise all-caps name although the SuSE team liked that kind of silhouette: they named one of their key differentiators YaST ("Yet another Setup Tool"). SoME SeEM To LiKE ThAt.

A few months ago I blogged about IBM's discriminatory pricing strategy in the mainframe business and mentioned z/Linux, the mainframe version of Linux. SUSE has been the market-leading mainframe Linux distribution all the time and still has a market share of 80% (worldwide).

I'm sure that SUSE is a pretty substantial part of the value that Attachmate saw in the acquisition. There's a lot of potential to narrow the gap between SUSE and Red Hat. For a company that doesn't own much intellectual property, Red Hat's margins are unbelievably high, suggesting to me that SUSE has a world of opportunity if it executes well. An open source model doesn't guarantee low prices all by itself: market dynamics still depend on effective competition.

Attachmate has already emphasized that SUSE will be run as a stand-alone business unit, and that the openSUSE community project "is an important part of the SUSE business" and "no change to the relationship between the SUSE business and the openSUSE project" is expected as a result of this deal. Pascal Bleser, a leader of the openSUSE project, writes on the official openSUSE blog that "the openSUSE Project has had, since its beginning, a very vibrant cooperation with Novell, especially with Novell’s SUSE business". Now he and his team "are looking forward to continuing this once Novell and SUSE become part of Attachmate!"

882 patents to be acquired for $450 million

My focus on this blog is on how patents get used -- from an open source angle -- and not on the secondary market for patents. But I do know that numerous patents are on the auction block all the time: some are sold individually or in smaller packages, others are sold in large blocks. Deals come in all sizes. For example, a Morgan Stanley analyst estimated six months ago that a portfolio of 4,500 Nortel Networks patents and 1,000 patent applications was worth in excess of $1 billion.

The structure of the Novell deal appears to be such that Attachmate pays $6.10 in cash per share of Novell (NASDAQ:NOVL) shareholders, a total of approximately $2.2 billion. Since Novell has, according to certain reports, cash of approximately $1 billion in the bank, this means an "enterprise value" of approximately $1.2 billion. The price to be paid already takes into consideration that a Delaware company named CPTN Holdings LLC will acquire "all of Novell's right, title and interest in 882 patents [...] for $450 million in cash" (I quoted from the SEC filing related to the acquisition, to which the merger agreement is attached).

A list of those patents is not available. Some have pointed out that 882 is a greater number than that of all patents registered in Novell's name with the USPTO. This led some to believe that the number includes some patent applications, and it may. It's also possible that Novell acquired the ownership of some patents that have not yet been re-registered in its name.

But the one piece of information that could make a major difference is whether that count relates to 882 patented inventions or 882 per-jurisdiction patents. Software patents are granted in almost all of the industrialized world. In an analysis of international equivalents of patents over which Apple, Paul Allen's Interval Licensing and Oracle are suing other companies, I gave examples. I found that a certain Apple touch-screen software patent was filed for in the United States, Canada, China, South Korea, Japan, Australia, and 34 European countries. Depending on the approach, this could count as 1 patent, 7 patents (if Europe counts as one patent because of a centralized examination process at the EPO) or as 40 patents (since an EPO patent is a bundle of national patents, each of which results in additional costs, gets a separate patent number and would have to be enforced separately in its jurisdiction with potentially different outcomes; the number of countries in which an EPO patent actually gets registered varies greatly, with the 34 countries in that example being close to the maximum).

Financial structure: $2.2 billion for Novell minus patents plus $1.4-$1.5 billion

Attachmate offers to lay down $2.2 billion in exchange for a company that will, following the patent sale, have $1.4-$1.5 billion in the bank. That makes the transaction more affordable, and NOVL shareholders benefit because they will get to sell their stock at a price that is 28% higher than before a hedge fund named Elliott Associates (which already held a chunk of Novell shares at the time) made a buyout proposal. Attachmate's offer is 9% higher than the closing price on the last trading day before the Attachmate-Novell announcement.

Wall Street clearly believes in this deal. Yesterday NOVL closed at $5.93. This means that investors buying the stock now will -- all going well -- realize a 3% gain, which is a good deal for the "arbs" (risk arbitrageurs) if the deal closes quickly. They need a certain margin since every once in a while a deal may fall through for whatever reason and then they may have to sell their holdings with losses. A 3% margin so shortly after the announcement suggests that those professional speculators expect the deal to close on those terms relatively quickly. It's a nice margin for a virtually certain quick flip but wouldn't make sense otherwise.

It's also a good sign that Elliott -- whose buyout offer got the ball rolling earlier in the year -- "will become a shareholder of Attachmate under the latest offer" (as Zacks.com reports). Some thought Elliott's offer in the spring wasn't serious and was just meant to force a sale. However, by putting its money where its mouth is, that hedge fund shows it really believes in the longer-term value of the combined company and wasn't merely looking for an exit strategy concerning Novell.

In this financial context, let me restate a disclosure I previously made in connection with possible investments in mainframe software companies: at the time of publication of this posting, I do not own stock (or related derivatives) in any of the companies mentioned.

Patent holding consortium organized by Microsoft

The fact that Microsoft organized CPTN Holdings LLC, the consortium that agreed to buy those 882 patents, has made waves in the media. I have seen worries expressed over this fact in articles by Steven J. Vaughan-Nichols ("Dark horse Attachmate buys Novell, Microsoft helps"), Dana Blankenhorn ("Novell sale shows its control by Microsoft"), Katherine Noyes ("Microsoft's Hand in Novell Deal Bodes Ill for Linux"), Rob Enderle (who sees Red Hat and Google as "first targets" of a "creative" IP strategy), and Timothy Prickett Morgan, who asked:

"Novell shareholders have to wait to see exactly what Attachmate is selling off to Microsoft and then ponder the deal. Wouldn't it be funny if Microsoft ended up owning whatever rights to Unix that Novell thinks it has?"

The wait-and-see approach is right. Actually, the other journalists -- all of whom I really respect -- also made it clear where the facts end and their gut feelings begin.

CPTN Holdings LLC is a consortium organized by Microsoft but involving other "technology companies". Names, numbers and the allocation of shares are unknown at this stage, but it's certain that the decisions of the consortium will not be taken by Microsoft singlehandedly. That fact should actually give a lot of comfort even to those who don't want to trust Redmond.

No big difference

I previously commented on Microsoft's cooperative approach to patents and still can't see any reason to be particularly concerned about. (I could, however, put together a whole list of other patent holders I would be uneasy about.) Microsoft's dispute with Motorola is just one of many in the smartphone context. So even if Microsoft bought those patents directly as opposed to being just one of several shareholders of CPTN Holding LLC, I wouldn't be concerned.

Mary Jo Foley, famous for her intimate knowledge of Microsoft, looked into "Microsoft's role in the Novell-Attachmate deal" and quoted Horacio Gutierrez, Microsoft’s Corporate Vice President and Deputy General Counsel of Intellectual Property and Licensing, with a business-as-usual statement.

I just want to be rational. The prospect of a company that already owns about 15,000 US patents -- and uses them pretty reasonably -- acquiring indirect, partial ownership of hundreds more doesn't set off an alarm on my end. At their current rate (roughly 3,000 new US patent applications a year) they file for that number of new patents every quarter, and I'm sure many of those -- as well as many patents obtained and held by countless others -- read on some open source software.

Software patents are a fact of life. Even if all of those 882 patents were invalidated overnight, the patent threat to open source wouldn't be diminished in any noteworthy way.

I also don't subscribe to theories that the Open Invention Network plays any role in this transaction. The OIN doesn't appear to impact anything too much. I have yet to see a single verifiable success story involving the OIN. My guess is that Attachmate will look at all of the partnerships Novell has in place, continuing with those that deliver tangible value and revisiting those that don't. The patents that are sold to CPTN Holdings LLC will be outside the scope of the OIN, but that could happen to the patents of any other OIN member or licensee. Other OIN companies, especially IBM, are far bigger patent holders than Novell.

A year ago I warned against the acquisition of MySQL by Oracle. The FOSS community was divided, but today hardly anyone describes Oracle as a good steward of the open source assets it acquired. Some argued that the acquisition was a way to prevent Microsoft from acquiring Sun's patents and using them against open source, but Oracle's suit against Google proved that preference completely wrong.

I will continue to watch this process, of course, and I will discuss relevant new information if and when it becomes available.

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The Ubuntu contribution controversy validates the concept of intellectual property

Mark Shuttleworth, the founder of Ubuntu Linux company Canonical, today published a blog posting on the lingering controversy over whether his company's code contributions are reasonably proportionate to the scale of its commercial activities. The South African one-time astronaut argues that "the body of free software needs many organs, many cells, each of which has their own priorities and interests. The body can only exist thanks to all of them."

He doesn't want his company to be measured just by what it contributes to the open source code base (which is little in some people's opinion and he doesn't seem to deny that). He realizes that commercializing open source "without contributing features might just feel like leeching" and basically wants a broader definition of what is considered a meaningful contribution, preferably including the kind of design, packaging and marketing job Canonical does.

This debate started a few months back and doesn't seem to go away soon.

Red Hat's rise once raised similar questions

More than a decade ago, when Red Hat went public and at some point attained a market capitalization of around $20 billion (about three times of what Red Hat is worth now), there was also some concern in the community about whether this was fair.

Even though the quantity of Red Hat's contributions to the Linux code base in recent years may by now appear reasonable compared to its share of the Linux market, the fact of the matter is that Red Hat didn't create Linux and made rather replaceable contributions to its adoption in the early years.

I'm not aware of any other company having derived so much commercial value from a product it neither developed nor acquired. Only in open source is this possible, it seems. Is that a good thing? I'm skeptical and I'll explain my view further below.

Red Hat gave stock worth millions of dollars to Linus Torvalds, and hired other key developers, such as Alan Cox, who became a Red Hat Fellow (now he works for Intel). While Red Hat's gifts to Linux developers were pocket change compared to its own value, there was no legal obligation and it was certainly a significant token of gratitude. But a Red Hat investor I talked to a few years ago nevertheless called the company's business model "parasitic" (and not "symbiotic", which is how Red Hat apologists would rather put it).

The second Linux distributor, SUSE, was acquired in early 2004 by Novell for about $210 million. That amount is dwarfed by the gains Red Hat realized, but still significant for a company that didn't create (or acquire) Linux either, apart from a pretty popular setup tool (YaST).

Now there are constant rumors that Red Hat, too, may be acquired soon. I don't know how much stock to put into that assumption, but any publicly traded company can be acquired if someone is ready, willing and able to lay down the right price. Red Hat's stock has done well in recent weeks, but is still significantly below its IPO price. So Red Hat has been a better deal for its pre-IPO shareholders and for short-term speculators than for long-term investors who came in early and held.

The IP-centric model of MySQL AB

Another major open source project was built on the basis of a business model that is diametrically opposed to the Linux approach.

In 2001, I became involved with MySQL AB, the startup that made the namesake database and was later acquired by Sun (which in turn was bought by Oracle). That was the year the company was founded. When I first met the two most active founders (there was a third one who financed them early on), they had not yet moved into their office.

We had our conversation at the kitchen table in the appartment of one of them (David Axmark) in Uppsala near Stockholm. We had already started the meeting when there was some loud noise from the living room: Monty, the original author of MySQL, was just waking up. Shortly after the dotcom boom that was characterized by lavish spending and (figuratively speaking) marble floors, this was quite some contrast.

But the really impressive part was their IP-centric business model: they always ensured that if someone made an essential contribution to the code base, they would get the relevant intellectual property rights assigned. In some cases, this included that they hired capable contributors as part of the deal.

At the time we also discussed how copyleft (the obligation to publish derived versions of a GPL'd program under the GPL as well, unless they are used only internally) enabled the dual licensing business model. David said that -- even though it appears counterintuitive -- the stricter the copyleft rules are, the better it actually is for dual licensing because it creates demand for a non-copyleft license to the same program code. But the ability to make a GPL'd program available on non-GPL terms requires copyright ownership.

MySQL AB was criticized for contributing too much

The European Commission (as well as antitrust regulators in Russia and China) looked into Oracle's acquisition of Sun of several more months after the US government had already approved the deal because it understood that MySQL wasn't a Linux-like project belonging to everybody and nobody at the same time. MySQL was, even though available under the GPL, essentially a company product and very much an IP-based business.

As a former strategy adviser to MySQL's CEO and shareholder of the company from the early stages until its acquisition by Sun, I knew about that. It just wasn't easy to explain this to other people because Oracle and Sun argued aggressively that an open source project doesn't need any particular company behind it. Interestingly, Richard Stallman agreed with Monty and me rather than with Oracle, Sun and the likes of Eben Moglen. He also explained the legitimacy of MySQL's business model (from a free software point of view) on the GNU.org website.

Given Richard's support, it's unbelievable that a pathological liar told the community that my work related to the merger control process was directed against the GPL. I debunked that smear in this recent blog posting. I argued for -- not against -- the GPL in connection with MySQL's business model.

The key thing in the current context is that MySQL never had the kind of debate over commensurate contributions that now surrounds Linux.

In the controversy over Oracle's acquisition of MySQL, some argued that MySQL would have been even more successful with a Linux-like model. Those who said so either just wanted to help Oracle and Sun push the deal through or some of them might have vastly (!) overrated their understanding of business issues (or both in some cases).

The people who took that position, including but not limited to Eben Moglen, certainly never built any (or any significant) business. MySQL AB was sold to Sun for $1 billion less than seven years after being founded, which should have upped the ante for those who thought they knew better.

Moreover, MySQL's lead venture capital investor, Benchmark Capital, was the original financier of Red Hat and certainly didn't lack an understanding of the Linux business model. Benchmark also financed eBay and other major successes. If a Linux-like approach had indeed worked better for MySQL, those experts would have been in a perfect position to identify and seize that opportunity, whose understanding of business models in general and FOSS business models in particular is hugely greater than that of Eben Moglen (who effectively joined Oracle's legal team for the merger case). The claim that MySQL picked the wrong business model is an insult to human intelligence, but such absurdities aren't against the law, so we have to live with them in all sorts of contexts.

Intellectual property rights ensure that creators and contributors are rewarded

The one lesson that I believe many more people in the FOSS community should learn from the Ubuntu debate is that intellectual property is a perfectly valid concept. Intellectual property rights (IPRs) were created by governments in order to ensure that innovators and other creative people get to benefit from their work. The IPR system may have its counterproductive protuberances, but the basic underlying idea is a good one.

I firmly believe that one can be pro-FOSS and pro-IP at the same time. That's been my approach ever since my involvement with MySQL started in 2001, and my appreciation of open source goes back to the time when my online gaming startup in the late 1990's used Linux, PostgreSQL and other free software on the server side.

I often disagree with the anti-IP rhetoric of many other FOSS advocates, to the extent that some radicals misperceive my support and respect for intellectual property as a hidden non-FOSS (or even anti-FOSS) agenda. I don't claim that FOSS and IP mix easily. It's non-trivial to strike the balance and reconcile the two value systems. But I won't waver in my tireless efforts and I won't be satisfied with anything less than the best of both worlds.

The fact of the matter is that whether or not one wants to categorize a Red Hat or Ubuntu business model as "parasitic", it certainly can't be a model for the economy at large. It can work for a few, but nature teaches us the limit: a biological system needs mechanisms that create real substance, not just parasites or little symbiotic creatures who can't exist without a host.

The FOSS community can only benefit from showing respect for IP

Even though I know that some are ideological about this and won't agree with me, I think FOSS will only do better if the community shows increasing respect for intellectual property and recognizes that in some areas, for certain kinds of innovation and creative production, IPRs are needed. One can deny that fact and claim that "sharing" and "the Commons" can take care of everything. One can even go as far as Eben Moglen recently did in India (a country that is way behind not only the West but also China in terms of respecting IPRs) and claim that "property" is a bad thing in general. In that speech, which was ideologically much closer to Fidel Castro than Hugo Chávez, he even claimed that mankind can only survive on the basis of "the Commons". I oppose such fundamentalism, and if necessary I will also call out people on hypocrisy if they preach water while actually drinking wine that is financed by patent aggressors like IBM.

I want to be thought-provoking, if necessary even irreverent, and identify and address problems. I don't want to preach to the converted and spread anti-IP propaganda because that only makes problems worse instead of contributing to solutions. Even when I fought against the EU software patent directive, I highlighted my pro-IP values.

It's not always easy to strike the balance. For instance, Richard Stallman argues that the term IP is a "seductive mirage" because of the differences between various IPRs. This isn't as bad as denouncing the concept of property. But RMS overstates the differences between non-material property rights. By rejecting the term IP without proposing a reasonably acceptable alternative, he raises concerns among decision-makers that the free software movement is anti-IP. His claim that ownership of software is immoral adds massively to that impression, even though the position he took on MySQL's dual licensing model shows a kind of pragmatism that a lot of people wouldn't consider him capable of having.

The whole debate over whether Ubuntu contributes enough code to open source is in my opinion the ultimate empirical evidence of our innate respect for rights that ensure a fair reward for true creators rather than free riders. Deep in our hearts, we all understand the legitimacy of intellectual property. We should not let an ill-conceived ideology turn our value system upside down.

Notwithstanding the foregoing, where IPRs are overreaching or where they are used in exclusionary and destructive ways, we should stand up and fight. But you won't seee me throw out the baby with the bathwater only to pander to an ideology.

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Open Invention Network (OIN) demystified

An organization that was founded in 2005 and pompously claims in a press release to be "the company formed to enable and protect Linux" is the Open Invention Network (OIN). But at a closer look it's not nearly as useful as its backers would like to make us all believe. There's absolutely no evidence it has ever helped any FOSS company.

What's beyond doubt is that the OIN's structure is fundamentally flawed and unbalanced.

Above all, the OIN is under the exclusive control of half a dozen companies who have funded it with (presumably) hundreds of millions of dollars and who just use it for their own purposes rather than advancing the cause of software freedom. Therefore, I believe company-independent defense initiatives such as the Defensive Patent License are a fairer, more transparent and more reliable approach than the OIN.

Only six companies call the shots

The OIN's name starts with an utterly misleading term: "open".

In reality, the organization is owned and run by a closed circle of six companies, some of whom have a terrible background concerning software patents:

• IBM (the world's largest patent holder and one of the most ruthless ones, recently in the news for betraying its own "patent pledge" by infringement assertions made against open-source startup TurboHercules)


• Philips (a company that once benefited from the temporary abolition of patents in its country but later lobbied extremely aggressively for software patents, left the World Wide Web Consortium because of the latter's royalty-free patent policy, and threatened politicians with killing software development jobs in Europe if they weren't going to allow software patents, even though patents are always related to a target market in which they're valid and 100% independent from where in the world the patented invention is made)


• NEC (a large patent holder)


• Sony (a large patent holder)


• Novell (which never supported any serious push against software patents and instead told EU officials in 2004 that it liked software patents a lot except that a proposed EU law on them appeared to limit "customer choice" a bit too much)


• Red Hat (which lobbied to keep the aforementioned EU bill alive when we had already formed a majority for its rejection, and which partners with IBM on a number of initiatives that appear to protect FOSS but are either ineffectual or even potentially harmful)

When it comes to patents, would you buy a used car from those fellows?

Everyone else may join as a second-class citizen who won't have a say

The six-pack that controls the OIN invites everyone else to become a mere "licensee". There's only one benefit for a licensee: OIN licensees can't use some patents against each other in some context. If "some patents [...] in some context" sounds strange to you, then that's because the whole OIN is based on an arbitrary definition of the "Linux System". If an OIN member has patents that are infringed by that arbitrary definition of the "Linux System", then it can't use those particular patents against other members as far as those use or distribute the "Linux System" (in whole or in part). If those other members use or distribute software that's not part of the "Linux System", then even those patents could be used against them in that context.

The wording used by the OIN on its About page is:

"Patents owned by Open Invention Network are available royalty-free to any company, institution or individual that agrees not to assert its patents against the Linux System."

Unfortunately, the OIN's six owners decide in a completely intransparent process what is and what isn't part of that "Linux System". The OIN publishes that list, which can and does change from time to time, on its website. The OIN's License Agreement doesn't provide any definition or criteria other than pointing to that list. That list contains not only Linux but also some applications (not all Linux applications), and once again, there's no transparent basis on which the OIN makes or modifies that list at its whim. That's what they mislabel as "open".

[Update] In the meantime I've published this detailed explanation of the arbitrarily-changing definition of "the Linux System" and its implications, and in that posting I have also outlined four alternative ways to address the problem identified. [/Update]

This combination of intransparency and arbitrariness puts licensees into a weak take-it-or-leave-it position. If the OIN changes the list based on the strategic goals of its six owners, all others can stay or leave but they have no basis on which to require the OIN to include certain components in that list or to exclude some from it.

That's not the only important way in which licensees are disadvantaged as compared to owners.

Owners can use the OIN as a patent troll -- but the retaliatory strength of licensees remains unchanged

There are two fundamentally different approaches to patent defense: non-aggression pacts related to a certain range of patents, which is what the OIN's licensees get (with the serious flaws and limitations previously described), and the concept of mutually assured damage (deterrent/retaliatory potential). The latter is much more powerful. While nothing really helps against a "troll" (non-producing entity), a retaliatory arsenal can indeed deter a strategic patent holder from attacking, provided that the attacked entity disposes of patents that the would-be aggressor also needs for his own products/services.

Unfortunately, the OIN doesn't add anything to the retaliatory strength of its licensees. They don't get access to any additional patents that they could assert against an aggressor. But the OIN's six owners could use the OIN as a "troll" that would attack third parties because the OIN itself acquires patents (currently owns a few hundred) for that purposes. OIN licensees can use those patents in connection with Linux; OIN members can use their influence to make the OIN assert those patents against others.

There are no obligations on the OIN or its owners concerning how they would have to strike back against an aggressor. Just like the definition of the "Linux System", it's a backroom process without any transparency or published and binding criteria. They could use those patents for purposes that have nothing at all to do with Linux or other FOSS, and no third party, such as a mere OIN licensee, would have any basis to either get them to help or to make them refrain from a harmful way to use those patents.

They make vague statements on the OIN website as to what they plan to do and that they don't plan to build licensing revenue. None of that is legally binding. If you then look at the patent-related positions and history of that group of companies, you better be careful. The most frightening example is IBM, which never apologized for its assertion of patents against TurboHercules.

A look at the list of OIN licensees

The OIN lists its licensees (starting with the six owners, but that changes nothing about the privileges those have). There are two large players among those licensees: Google and Oracle.

Google provided an official reasoning for becoming a licensee that's fundamentally wrong:

"OIN members can focus their energy on writing and releasing software rather than vetting their code for intellectual property issues."

This is incorrect in two ways at the same time:

1. The use of those patents is tied to that "Linux System" definition, so the OIN's members still have to be equally careful for all software they develop that isn't part of that definition (which only the OIN's six owners determine and modify, and that definition is always related to particular program versions, so even a contributor to Linux wouldn't have any guarantees if upgrading an existing component).


2. No one who might want to assert his patents against OIN members will join, and since the OIN controls only a small portion of all patents worldwide, the reasoning of not having to perform patent clearance anymore makes no sense whatsoever, at least for the foreseeable future and probably for all eternity.

It's more likely that Google, the world's largest-scale Linux user, thought that any measure to reduce -- even if just marginally -- the risk of being sued for infringement of patents on hundreds of thousands or even millions of computers was worth trying. But that's their specific situation and doesn't validate the OIN as a whole.

One of OIN's medium-sized licensees is TomTom. That maker of navigation systems became an OIN licensee at a time when it had a dispute with Microsoft. That one was actually settled very quickly at any rate, and part of the agreement was that TomTom would have to stop the infringement of certain Microsoft patents within two years. Apparently, TomTom also agreed to pay royalties. So TomTom recognized it had a problem that the OIN couldn't solve.

What happened later is that some propagandists close to IBM and other OIN owners tried to fool the FOSS community into believing that the OIN played any role in that settlement. That's downright absurd because TomTom only became an OIN licensee, not an owner. By becoming a licensee, TomTom changed its patent licensing situation vis-à-vis other OIN members but nothing changed for the siuation between Microsoft and TomTom.

If the OIN were the kind of magic wand that would do the trick, then why would Amazon and HTC and many others have agreed to pay Microsoft royalties on patents that are considered to read on Linux? They could have joined the OIN, but quite apparently they found out the truth, which is that it doesn't strengthen them at all in their dealings with companies outside the OIN.

So what is the OIN good for?

The fact of the matter is that today, almost five years after its foundation, the OIN still hasn't proven its ability to help any Linux (or other FOSS) company in any meaningful way. Totally unsubstantiated and illogical claims by propagandists aren't a substitute for a single convincing success story. That success story would have to consist in some company potentially hostile to open source (and with a dangerous patent arsenal) accepting the OIN's licensing terms. That hasn't happened and I have serious doubt that it ever will.

The OIN continues to buy patents at auctions that might otherwise be acquired by regular trolls. At first sight, that may sound good. But given the intransparent and arbitrary structure of the OIN, it's not clear whether that's actually the lesser or the greater evil than a conventional troll. In the end, the OIN is under the control of those six companies who could decide to use some of those patents against competitors, including FOSS competitors. By controlling the definition of what the OIN calls the "Linux System", they can always ensure that their competitors don't benefit from it, even if they were or became OIN licensees.

Buying those patents at auctions is really expensive. So far the OIN has spent hundreds of millions of dollars. Given the way businesses operate, that's not the amount of money that one would spend unselfishly. Instead, that level of investment, intransparency and unbalanced rights suggests ulterior motives, if not a long-term hidden agenda.

In closing I can only repeat what I said further above: company-independent defense initiatives such as the Defensive Patent License are a fairer, more transparent and more reliable approach than the OIN. And with the Fair Troll business model, that reliability can be fully preserved while sharpening the DPL's teeth. By contrast, a small group of companies can turn the OIN into an unfair troll anytime, and the rest of the world -- including the FOSS community -- wouldn't find out until it's too late.

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