Microsoft Settles InterTrust Suit for $440M

Microsoft has settled a long-simmering patent-infringement complaint with InterTrust Technology, agreeing to pay US$440 million to license all of the firm’s digital rights management (DRM) technology.

Settlement of the patent claims, which were first filed in 2001, is just the latest move by Microsoft to eliminate the phalanx of lawsuits pending against it from competitors. For example, it comes about a week after Microsoft agreed to a blockbuster settlement with Sun Microsystems that will be worth nearly $2 billion over time.

As is typical in such agreements, Microsoft did not admit to any wrongdoing, but the company did tout the settlement spree as proof that it understands “the importance of intellectual property rights,” saying customers can have peace of mind in knowing that using the software giant’s products will not expose them to legal liability of their own.

“Doing an effective job at managing the IP in our software differentiates our products and builds confidence that Microsoft has the rights necessary to build innovative solutions,” said deputy general counsel Marshall Phelps.

Hitting Home

That message likely resonates with many buyers of IT, who are increasingly cautious of the legal ramifications of buying certain technology, according to IDC analyst Roger Kay.

“The Linux lawsuits put buyers of technology on notice that they can be held responsible if they buy something — they might be getting some legal entanglements along with the software,” Kay told the E-Commerce Times. “The fewer high-profile cases left dangling, the clearer the value proposition that Microsoft can sell itself with.”

Microsoft also focused on the potential it sees in the new technology. DRM, which can assign users specific rights to a document or file — authorizing some users to read a file, for instance, while others also can copy or distribute it — has been hailed as a way to stem piracy of music and other digital media and to pave the way for more copyrighted media to be made available through the Internet.

Mission: Streamline

Matt Rosoff, an analyst with Directions on Microsoft, said the effort to settle lawsuits streamlines the company’s mission as it heads into what may be a critical phase for its future, with the heavily hyped Longhorn operating-system debut now slated for 2006.

“Each settlement has gotten another lawsuit off the books, but a lot of them have also added something to Microsoft’s menu of features and technologies,” Rosoff told the E-Commerce Times. “They’re trying to turn potentially damaging situations into net gains.”

DRM technology is particularly important, he added, because it plays a major role in Microsoft’s vision of computers controlling the distribution and use of digital media.

Digital Strategy

Just last week, Microsoft quietly purchased a stake in privately held DRM firm ContentGuard, a spinoff of the Xerox Palo Alto Research Center.

The moves may suggest Microsoft is attempting to create flexibility for itself so that it can provide products that work with whatever standard emerges for digital rights management in the long run. Competing standards put forth by Apple and others have gained some traction in the marketplace, but no single platform has emerged as a clear dominant force.

Microsoft scored a major victory in the DRM space in February when Disney announced it would use the platform to secure the online availability of all of its films.

Lawyers and More Lawyers

InterTrust, meanwhile, gets a major boost from the deal. The company went public in 1999 but struggled to remain independent and was later bought by an investment group led by Sony and Philips Electronics.

InterTrust said the Microsoft deal opens the door to additional licensing agreements, because the rights granted to Microsoft do not extend to third parties that use Microsoft’s DRM platform.

Despite the latest settlement, Microsoft still has plenty of work to keep its legal department busy. In addition to a pending court battle over the European Commission’s record fine and sanctions against Microsoft over its Windows operating system, RealNetworks recently hit Microsoft with a $1 billion civil lawsuit.