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April 12, 2004

Not all developers covered by Microsoft’s $440m DRM deal

Microsoft Corp has paid digital rights management R&D shop InterTrust Technologies Inc $440m in cash to settle several patent infringement lawsuits, but not all Microsoft developers will be protected by the deal.

By CBR Staff Writer

The companies yesterday announced all 11 lawsuits, which alleged infringement in 44 Microsoft products, have been settled. Microsoft gets a permanent license to use all current InterTrust patents in its products.

But there are certain third-party uses not covered by the deal. I think a large tranche of developers’ applications built using Microsoft tools are not covered by this agreement, InterTrust CEO Talal Shamoon told ComputerWire yesterday.

InterTrust CTO David Maher said that straightforward uses of Microsoft’s DRM technology, such as developers using the DRM features in the .NET framework to protect their code, would be protected under the deal.

But more sophisticated uses of Microsoft’s DRM will not be protected by the settlement. Any application that adds value that is made with Microsoft’s development tools may likely require a license from us, Shamoon said.

Microsoft’s senior VP of the Windows Client Business, Will Poole, said in a statement yesterday that there are some partner development scenarios not covered in the agreement and that systems are in place to explain these scenarios.

Poole said: This agreement gives Microsoft developers, and partners who build on Microsoft platform technologies in normal or expected ways, rights to InterTrust intellectual property that they would have not had access to.

The test for whether third-party applications are covered is complicated, Shamoon said. The companies both said they will disclose the relevant portions of the settlement to developers who agree to sign a non-disclosure agreement.

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The settlement came out of mediated negotiations that started last September. These talks were forced on the firms by a Northern California District Court, where the cases were being heard, following a hearing last July that went in Intertrust’s favor.

In the July ruling, the crucial Markman hearing that makes or breaks most patent suits, Judge Sarah Brown Armstrong sided mostly with InterTrust, and accused Microsoft of wasting the court’s time with needless oppositions.

Basically, we delivered a decisive blow to Microsoft’s case last summer, Shamoon said. He said that the ruling restored his faith in the system’s ability to stand up for the rights of the little guy.

When InterTrust started suing Microsoft three years ago, it was a publicly owned company. But in January 2003, a joint venture of Sony Corp and Royal Philips Electronics NV, paid $453m for the company.

The settlement means the two companies have made a return on their investment already. We had $100m in cash at the time we were bought, so, without going into all the financial details, I think our investors are very happy, Shamoon said.

Microsoft also has an investment in a DRM company. Following a deal last week, Microsoft is an equal partner in ContentGuard Inc, with occasional rival Time Warner Inc, owner of America Online Inc.

It’s important for Microsoft to find a way for DRM systems to interoperate, and, as evidenced by these agreements, Microsoft is working with others in the industry to overcome barriers to establishing reasonable and flexible standards, Poole said.

Interoperability is seen as a hurdle to widespread DRM adoption. ContentGuard is a specialist in rights expression languages-based interoperability, whereas InterTrust specializes in establishing the trust chain, according to Shamoon.

This is only InterTrust’s third licensing deal, the other two being Sony and Phillips. Shamoon said the settlement now opens the doors for the company to start licensing its patents to other companies, hopefully without resorting to litigation.

We’ll put together some nice licensing packages people can plug into, rather than going door-to-door, he said. The company sees its greatest opportunities in the mobile market, where Microsoft is not dominant.

This article is based on material originally published by ComputerWire

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