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August 31, 2003

Microsoft's patent woes continue

It seems like Microsoft just isn’t going to have an easy year. A whole raft of lawsuits against them are finally beginning to get to court after being on hold while the DOJ case was settled. Last week Microsoft was in Federal Court in Baltimore for a Public Hearing. Burst.com is suing Microsoft for patent infringement regarding the audio and video streaming technologies which Burst holds 37 patents on. According to Burst Microsoft misappropriated trade secrets from them during two years of failed negotiations for Microsoft to license the technology. Burst further alleges that Microsoft anticompetitive damaged Burst, violating Federal and state anti-trust laws. Up to last week it looks like the standard legal wrangling: Microsoft files a motion for dismissal, Burst opposes Microsoft’s motion, Judge decides against dismissal, Microsoft files to exclude factual findings from the DOJ case (Collateral Estoppel) from this one (in essence trying to force Burst to re-argue/prove every point from that case that applies to this one), Burst defends Collateral Estoppel, Judge rules to allow Collateral Estoppel, but denies Burst’s filing for partial summary judgment. This week however at the hearing….

(Summarizing from Robert Cringely)

“The hearing came about because Burst felt Microsoft was not divulging all the documents it was supposed to as part of the discovery phase of the case… Among other things, Burst asked for copies of all Microsoft e-mail messages concerning Burst during and shortly after the time when the companies were trying to negotiate a license for Microsoft to use Burst’s intellectual property.

“Microsoft handed over the e-mail messages on a disk, and when Burst’s lawyers had printed all the messages they filled 140 boxes. That’s a lot of messages, but not surprising for Microsoft, where the business culture of the company literally happens on e-mail.

“When Burst’s lawyers put the messages in order by date and time, they claim to have noticed a peculiar phenomenon. There were literally no messages from approximately one week before until about a month after all seven meetings between the two companies. This meant that either Microsoft completely suspended its corporate e-mail culture for an aggregate period of 35 weeks, or there were messages that had been sent and received at Microsoft, but not divulged to Burst.”

Come on, lets be real, this is precisely the time that email activity will pick up and not insignificantly either. Anyone who has been in an e-mail culture corporation knows this. Before the meetings there are last minute meeting arrangements, hotel/flight/meeting room/equipment confirmations, last minute strategy notes, presentation collateral finalizations, and a whole raft of other insignificant and exceedingly significant details are confirmed and ironed out. During any meeting lasting over an hour there are often e-mails sent and received during breaks/lunch/etc for guidance, key revelations etc between meeting attendees and their superiors or peers not able to be in the meeting. And after a meeting…well, the email traffic relating to the meeting or company would increase at least 2 fold as discussions about the opposition, key points raised, how to solidify position,…the list goes on. Anyone who has been in an environment where e-mail is used as a vital communication tool (such as Microsoft) will recognize that this is a glaring hole, some companies I’ve worked at nothing is final until it has been confirmed in email.

Microsoft acknowledged the gaps and claimed the messages were erased because Burst and their technology were uninteresting. Excuse me? Seven meetings over a period of over a year to figure out that Burst was uninteresting? Seems the Judge agrees: his order to Microsoft was to produce the emails, doesn’t matter what it takes, produce them or the judge will make it clear to the jury that Microsoft has withheld and destroyed evidence material to the trial. OUCH!

Microsoft nearly got away with this one. After Microsoft (allegedly) turned Burst’s other clients away from Burst, the company shriveled up to only 2 employees. Even with only 2 employees additional funding was required and secured to last this long. The lawyers representing Burst in this case are doing it on a contingency basis, assuming all the financial burden in hopes for a successful finding, in which case they would take the lion’s share of any damages. Like in the Eolas case this seems for Burst to be as much a case of principles as it is financial gains.

What’s interesting is that it appears that Microsoft has in essence cut it’s own throat on in this case already. Produce no emails and the jury will be informed they destroyed evidence, and what Jury today would find for them in that situation especially post Enron. Produce the e-mails and (I am suspecting) they already know that their case is lost then, why else would all copies of the e-mails have been erased. 

Lesson to be learned from all of this (besides the obvious blatantly anti-Microsoft themes):

For Microsoft…
it would have been far cheaper to buy Burst for $250 Million ( or even far more) and secure 37 international patents that wou grant you a limited MONOPOLY than to lose one lawsuit, because Burst was just to determined to not die. If this case is decided in Burst’s favor the settlement could prove to be far greater than the one in the Eolas case. (Which with interest acruing is already at $600 million and by the time all post trial work and appeals are done could be well over $1 billion.)

And Lesson for the rest of us:

“…an NDA is only as good as the integrity of the company signing it,” cautions Richard Lang, CEO of Burst.com, in Santa Rosa, Calif. In 2000, Burst became an official partner of Microsoft Corp. The company signed an NDA and shared details of its patented video-delivery technology with the software giant.

It’s going to be a long year for Microsoft, who it seems is not doing everything they can to win the race, but rather everything they can not to lose it. Subtle but very important difference. 

Listening to: Randy Travis - It Was Just a Matter of Time - Whisper My Name
Posted by Eric at August 31, 2003 03:37 PM | TrackBack
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