Small OEMs and ISV partners that ship or incorporate Microsoft software will get more assistance from Microsoft in fighting intellectual property (IP) lawsuits that involve that software. The move lets Microsoft become directly involved in legal disputes that might eventually affect its products, and helps the company cast doubt over the legal status of open-source products, such as Linux.

System Builders Get Full Protection

The revised indemnification policy most directly affects members of Microsoft's System Builder partner program—smaller OEMs. It applies to all Microsoft software that the system builder has licensed from a legitimate OEM distributor to ship on new PCs. If a third party claims that the covered software infringes on any of its copyrights, patents, trademarks, or trade secrets, and sues the system builder, then Microsoft will manage the system builder's legal defense, pay all legal expenses, and pay all settlements up to the amount the system builder paid for covered software during the prior one-year period. Previously, these partners got no indemnification coverage from Microsoft, unlike larger OEMs.

Microsoft is also offering identical coverage to ISV Royalty Partners—software vendors that bundle or ship Microsoft software (such as the Microsoft SQL Server Desktop Engine [MSDE]) in conjunction with their software. Previously, Microsoft only indemnified these partners against copyright claims.

Finally, for larger OEMs and OEM distributors, Microsoft has added indemnification against trade secret claims and removed a cap on paying these OEMs' legal expenses. However, as with system builders and ISVs, Microsoft is imposing a cap on legal settlements—the company will pay settlements only up to the amount that the OEM paid Microsoft during the term in which the OEM was sued.

The revisions are the latest step in Microsoft's effort to be more directly involved in lawsuits accusing its products of IP violations. For example, in Nov. 2004, Microsoft began indemnifying its end-user customers against any IP claims involving Microsoft products. By expanding its indemnification coverage, Microsoft gains early awareness and legal standing in cases that could eventually have broad effects on Microsoft products (e.g., if a company wins an IP suit against a Microsoft customer or partner, it could use that win as a precedent to sue Microsoft) and casts aspersions on Linux and other open-source software, whose vendors tend to offer weaker (or no) indemnification against IP claims.

The latest revisions are particularly significant because there's a legal history of suing OEMs over Microsoft software. In June 2002, Lucent Technologies sued Dell and Gateway over alleged patent violations for functions such as touch screens and voice and video encoding, which are partly enabled by Windows. In 2003, Microsoft countersued Lucent in hopes of invalidating some of the patents at issue. (That case has not yet progressed to trial, according to a Microsoft financial filing form Apr. 2005.)

Resources

An overview of Microsoft's indemnification policy for OEM partners and ISVs is at www.microsoft.com/windowsserversystem/facts/indemnification/partner_policy.mspx. However, partners should consult their partner contracts for specific legal details.

Indemnification for end-user customers is covered in "Indemnification Policy Expanded" on page 33 of the Dec. 2004 Update.