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Q&A: Microsoft Unveils New Policy on Intellectual Property

REDMOND, Wash., Dec. 3, 2003 -- In response to the need of customers and business partners for greater access to technology, Microsoft today announced an updated policy on intellectual property (IP) that will clearly articulate Microsoft's position on licensing IP. Microsoft already leads the technology industry in investment in research and development, and the new IP policy makes Microsoft technology even more accessible, providing opportunities for expanded innovation across the industry. In addition to increased technology access, Microsoft will license IP to interested parties in a commercially reasonable fashion under terms standard in the industry.

To learn more about Microsoft's new IP policy, PressPass spoke with Marshall Phelps, corporate vice president and deputy general counsel, Intellectual Property.

PressPass: Why is Microsoft launching this new policy?

Phelps: IP licensing is not new to Microsoft, nor to the IT industry as a whole. We've been licensing IP to third parties for a number of years now. Our customers and partners have been asking us for a more prescriptive, comprehensive guide to our position on IP and licensing. As Microsoft matures as a company, it has become increasingly clear that this revised policy is necessary for us to continue our collaborative work throughout the industry, ensuring consistency, understanding and respect of and for IP.

Other reasons that prompted us to clearly articulate our IP licensing practices include a growth in the size of -- and interest in -- our overall IP portfolio, based on expanded R&D commitments, along with a renewed awareness of IP issues in the software industry. Our portfolio includes a diverse array of copyrights, trademarks, patents, trade secrets and other IP. Our aim is driven by our desire to improve access to this IP while also recouping some of the initial R&D investment.

PressPass: Why is it important to protect IP?

Phelps: The spirit of innovation is something we value passionately. Microsoft firmly believes that innovation is the fundamental component of progress and growth in the IT industry. We believe it is the essential foundation for the delivery of great new products and that it fuels ongoing R&D.

Companies like Microsoft engage in applied research to develop products that advance the state of technology. In turn, that generates jobs, profits and tax revenues that boost the economy, which, as part of the process, funds additional research. Companies also contribute the results of innovation directly into the larger body of technical knowledge. If software companies are not compensated for the investments they make in R&D, the cycle of sustainable innovation is disrupted. When that happens, the overall health of the software industry is jeopardized.

Microsoft is committed to a business model that protects the IP rights in software, just like any other technology, and ensures the continued vitality of an independent software sector that generates revenue and will sustain ongoing R&D. Our commitment to innovation is reflected in our industry leading annual budget for R&D.

PressPass: There are those who say that patents stifle innovation. How would you respond to them?

Phelps: The free and open exchange of ideas is an important ingredient in creating and fostering an innovative environment, but it's not the only ingredient. Motivation and incentive also are critical to sustained and ongoing innovation, especially in the context of large, complex systems that software programs often must implement. History shows that nations and countries with robust IP laws to protect the creative works of authors and inventors are at an advantage. Strong IP laws promote innovation and differentiation—both of which ultimately benefit the customer. Patents are part of the U.S. Constitution, and firms such as IBM have been patenting software-related inventions for over 30 years. The fact is, the last 30 years have seen unprecedented innovation in the IT sector.

PressPass: What IP will you license under this policy?

Phelps: We want to convey that Microsoft is open for business when it comes to IP licensing. In the past, we readily admit that our IP approach was much more closely held and less structured. In retrospect, we realize that our approach caused frustration and confusion for the industry and for our customers. Microsoft's new IP policy embraces an approach that is intended to increase access for reasonable licensing requests.

Microsoft's highest priorities and commitments are the ones that involve our industry, partners and our customers. Microsoft considers the new IP policy a viable means for continuing fair and balanced practices for licensing our IP where it makes sense for our customers, our industry partners, and for Microsoft.

PressPass: Do you feel the IT industry as a whole benefits from IP licensing?

Phelps: Absolutely. A healthy, fluid intellectual property marketplace is essential for a strong IT ecosystem. The revenues generated by IP licenses make it possible for companies like Microsoft to consistently invest in R&D. The industry is continually adopting the innovations that are a direct result of R&D spending and this leads to an increase in deployment. When you have increased deployment, the opportunity for further innovation downstream becomes available -- by both the originating company and potential licensees. This downstream innovation is what generates new IP, which generates new licensing, which generates new revenue. By utilizing this revenue for additional R&D, it furthers the cycle of innovation and that, of course, is a lasting benefit to the industry.