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Это впечатляет - InterTrust


Да, это впечатляет! InterTrust заработала большие деньги, но и стоило это ей немало…
150 claims – это красиво…

Subject: Big Book equals MOAP
©2004 Law.com
Page printed from: http://www.law.com

In Security

Alan Cohen
IP Law & Business

When InterTrust Technologies Corp. sued Microsoft Corp. in 2001, the move was bold, cunning -- and more than a little bit desperate. After 10 years in development, InterTrust's digital rights management (DRM) technology had yielded little in the way of software, licenses or revenues. The company's stock price had plummeted from $97 in 2000 to under $1, dashing dreams of new products and Porsches alike. Aside from empty office space, patents were practically the only asset the Santa Clara, Calif., company had left. After a promising start, InterTrust looked like another dot-com failure -- until its Hail Mary suit paid off.

In April, Microsoft settled with InterTrust, paying the company $440 million for a 20-year license. The bonanza payout shows that even a company that fails miserably with its own products can strike gold with its patents -- if it's willing to go to extreme measures to develop, protect and enforce its intellectual property rights. "Litigation is an extension of business development by other means," says Talal Shamoon, InterTrust's cocksure 40-year-old chief executive.

But don't count on a fairy-tale ending just yet. InterTrust doesn't make products anymore. Licensing is the company's only revenue source, and even $440 million won't go far if InterTrust is unable to find licensees. The company hopes that having Microsoft as a powerhouse -- if reluctant -- licensee will bring more companies in line. "We want to be Qualcomm or Adobe," says Shamoon. Both companies developed technologies that have become de facto standards in their respective fields, he says. So far, InterTrust has sold licenses to Sony Corp. of America and Royal Philips Electronics N.V., which seems impressive -- but both companies own a stake in InterTrust. And it remains to be seen how the terms of the Microsoft license -- sweated out over months of intense negotiations -- will dictate which users, and uses, are fair game for InterTrust royalties.

Until the Microsoft settlement, thinking big had not worked well for InterTrust. Since its founding in 1990, InterTrust had focused on a tricky side of computer security: how to prevent someone authorized to view a file from passing a perfect digital copy to a hundred other people. InterTrust developed technology that would protect property even after it left an owner's physical control. It would let networks, computers, applications and files assure each other, for example, that a movie allowed to be viewed twice wasn't being viewed a third time; or that a program purchased for a work computer wasn't running on a home computer.

InterTrust's approach was brazen: Create the security language that all the applications would need to use, then sell tools that would enable every word processor, media player and spreadsheet on the planet to incorporate DRM. "It was a very, very ambitious project. We'd have to be involved in everything, and the security aspects are especially hard," says Douglas Derwin, InterTrust's senior vice president-intellectual property. "One hole, and everyone's applications and files are insecure. As a business model, it was very complicated."

Today, DRM technologies have made possible successful online music ventures like Apple Computer's iTunes Music Store, which uses a homegrown DRM system called Fairplay. But back in the early 1990s, DRM was uncharted -- and extraordinarily intricate -- territory. And InterTrust couldn't pull it off. Tools that the company announced in 1995 didn't hit the market for another three years, and they didn't provide all the features InterTrust had promised. By 1997, InterTrust realized that Microsoft was the only company dominant enough in every facet of computing -- from operating systems to applications to development tools -- to accomplish a global approach to DRM. So the two companies started licensing talks.

At the same time InterTrust began looking for ways to protect itself from Microsoft -- in case the software giant decided to do DRM alone. In 1997 the company brought in Derwin -- who had headed the strategic technology group at Weil, Gotshal & Manges' Silicon Valley office -- specifically to strategize a patent suit against Microsoft. "Our hope was that if we could patent DRM successfully, Microsoft couldn't steamroll us, à la Netscape," says Derwin.

But first, InterTrust had to have the right patents. Back in February 1995, the company and its patent lawyer, Robert Faris, a partner at Arlington, Va.'s Nixon & Vanderhye, had filed a Dickensian 1,000-page patent application. It was like a brain dump on DRM, says Derwin. "It was known around the office as The Big Book."

What looked like a voluminous mess was actually the product of some clever forward thinking. In the four-plus years it had been working on DRM, InterTrust had come up with a mass of DRM techniques and applications. But because no one was yet using DRM, it didn't know which of these techniques and applications would ultimately prove commercial. "The idea was to cover the whole field generally in a very broad application, and then, as time goes on, mine it and spin out lots of narrower patents, all of which get your original priority date," Derwin says.

Mining The Big Book also allowed InterTrust to develop patents that would be useful in a case against Microsoft. "We designed patents to cover every path they could have taken," Derwin says. Derwin personally drafted between 3,000 and 4,000 claims. Ultimately, InterTrust would spin out 30 to 35 patents from The Big Book -- and allege that Microsoft infringed 11.

Meanwhile, licensing talks with Microsoft continued in spurts. One of the chief problems: Microsoft was "very hesitant to allow an outside company to require certain things to be inside Windows," Derwin says. Microsoft declined to comment on that issue.

Talks came to a halt in 2000, when Microsoft introduced a DRM feature, called product activation, into its own Windows and Office products. The feature allowed Microsoft to ensure that only authorized users, on authorized PCs, could access the software. But product activation was just the beginning. Soon Microsoft was adding more DRM-like features to its products, some of which enabled its customers -- consumers and developers alike -- to secure their own creations. By bundling the technology with its products, Microsoft was essentially giving DRM away. Desperate to stay alive, in April 2001 InterTrust brought a patent infringement suit in federal district court in Oakland, Calif.

Almost from the beginning, InterTrust seemed in over its head. It hired Keker & Van Nest -- Derwin had worked with the firm while at Weil Gotshal -- with partner Michael Page as lead counsel. But it soon became apparent that the case "would have taken the whole firm," says Derwin. So InterTrust brought in Morgan, Lewis & Bockius.

Microsoft's response to the suit was "the standard," says Jeff McDow, InterTrust's senior vice president for intellectual property and chief patent counsel. Microsoft said it didn't infringe, and InterTrust's patents were invalid. Microsoft's commercial response brought more grief. It continued to release more products with DRM features.

Eventually, InterTrust would claim that 44 products infringed -- applications like Microsoft Outlook, operating systems like Windows XP, even the Xbox videogame console. In Outlook, for example, DRM can be used to send e-mail and files that are accessible only to authorized recipients. "It was very hard for us," says Derwin. "If we freeze the suit and move forward, we'll miss a lot of infringing products. But if we keep amending the complaint, we'll never move forward." Between 2000 and 2002, InterTrust amended its complaint four times; ultimately it covered some 150 claims.

As InterTrust homed in on Microsoft, the market homed in on InterTrust. Its disappointing products, combined with the dot-com collapse, sent shares plummeting. Employee ranks went from near 400 to about three dozen.

The Microsoft case was getting bigger, longer and costlier -- and by early 2003 had still not gone to trial. In January, InterTrust was bought by a joint venture controlled by Sony and Philips for $453 million. Soon after, InterTrust seemed to revive. In May, Sony licensed its patent portfolio for $28.5 million plus royalties. And in July, it scored a huge win in the Microsoft suit's Markman hearing. Judge Saundra Brown Armstrong accepted InterTrust's claim constructions and denied Microsoft's motion for summary judgment. (Orrick, Herrington & Sutcliffe represented Microsoft.) "It was about as one-sided a decision as you can imagine," says Derwin.

By late 2003, Microsoft and InterTrust were talking settlement. Microsoft won't explicitly acknowledge that the Markman ruling spurred those talks, but the company hints this was the case. "You win some, you lose some, you always have to factor it in," says David Kaefer, director of business development, intellectual property and licensing at Microsoft, who participated in the talks.

Even with the parties ready to negotiate, the case was tough to resolve. Microsoft wanted to pay a flat fee and no royalty. It also didn't want to alienate its customers by forcing them to buy their own InterTrust licenses if they wanted to use DRM features within Microsoft products. "We don't want our customers to be in the middle of a patent dispute," says Kaefer. But, if all of Microsoft's customers were covered by one license, it would dry up InterTrust's licensing well. Complicating matters: It was unclear what types of future uses DRM would have.

After four months -- and some prodding from San Jose, Calif., federal judge Ronald Whyte, who had volunteered to oversee the talks -- InterTrust and Microsoft hit on a solution. Microsoft's license would cover all "normal and expected uses of Microsoft technology." Someone hitting a DRM button in Word in order to secure a document would not be hounded by InterTrust. But companies that use Microsoft tools to "create something new," Derwin says, such as a new application, would be fair game.

Since neither Microsoft nor InterTrust wanted to lock itself into specific uses, they settled on 30-40 'test' cases -- scenarios describing customer uses that were and weren't covered by the license. These test cases will be used as analogies to decide what unexpected uses fall within Microsoft's license. Test cases will "give a judge or arbitrator analogies to see where the lines should be drawn." says Derwin. (Under the terms of the settlement, examples of test cases are confidential.)

That these test cases were designed with judges and arbitrators in mind highlights how murky the licensing waters may be for InterTrust, which may often find itself in court to resolve what Microsoft's license covers. InterTrust's hope is that the payoff will make up for the hassle. "We think that this space, all the people doing something smart with Microsoft development tools, is going to be worth hundreds of millions, even billions of dollars, over the coming years," says Shamoon. "This is the big chunk, and we've got it."

To exploit its chunk, InterTrust is setting up licensing programs -- the first of which was expected to begin this summer, as we went to press. All of four of the company's in-house lawyers -- Derwin, McDow, IP director Eric Olsen, and associate general counsel Bill Rainey -- work on licensing. InterTrust also hopes to launch a DRM patent pool sometime next year. The pool, which would aggregate and license DRM patents from InterTrust and other companies, would be a sort of one-stop shop for companies interested in acquiring rights to DRM. It would be managed by MPEG-LA, the licensing agency that has had success marketing MPEG patents. So far InterTrust is the only member of the pool. The company is also in negotiations with several large companies interested in taking direct licenses to its portfolio. Shamoon hopes to announce agreements soon. All of this, Shamoon says, is a direct result of the settlement.

Yet as Apple's Fairplay system shows, InterTrust is not the only DRM developer in town. Even Microsoft has its hands in other DRM patent portfolios. The company has an equity stake in a company called ContentGuard, a spin-off from Xerox Corp., from whom it also licenses DRM rights. So InterTrust is hedging its bets, working on new patents that focus on interoperability between DRM systems. "The market wants different DRM systems, and we want to create ways to let them talk together," says Shamoon.

If Shamoon is right, the Microsoft settlement will open doors to partners -- and slam them on rivals: "Kicking Microsoft's butt in litigation sends a strong signal that we're serious about enforcing our rights. But the settlement shows that we're interested in doing business, too."



Gordon S. Alward

P.O. Box 2250
Del Mar, California 92014-1550

Office:                  760-776-6787
Fax:                       760-776-6518
Mobile:                760-774-5158

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