Richard Wilder has an insightful column on CNet on patent indemnification. (Wilder is a partner with law firm Sidley Austin Brown & Wood and is intellectual-property counsel for the Association for Competitive Technology.) My colleague Jim has written here on the growing trend of software manufacturers offering liability indemnification to customers, including Microsoft's program.

Wilder says such offerings are great for chief information officers, who understand the dangers of even "innocent infringement." But he raises the spectre of "patent terrorists":

Patent terrorists are companies whose business models are based on patent litigation as a threat and licensing as a revenue source. With no interest in selling a product or winning new customers, these companies are not bound by the norms of customer relationship building. They would not think twice about suing large software customers if it fit into their legal strategy.

While software makers such as Novell are offering indemnification programs involving countersuits with its own patent portfolio, Wilder says "the countersuit would have little deterrent effect" against patent terrorists. Microsoft's offer, by contrast, protects customers "against all patent and copyright claims."

Wilder doesn't rule out use of open-source software, but argues that indemnification should be a factor in considering any software purchase:

The burden is on CIOs to seriously consider the indemnification policies of their vendors before concluding big software purchases. Indemnification should not be the primary factor driving purchasing decisions but rather a key factor in calculating the total cost of ownership for any solution.

I like the phrase "patent terrorist," because these companies do seek to cause terror. A closer analogy might be a mafia shakedown artist, however, because terrorists tend to cause terror for its own sake, whereas an extortionist has a price at which they'll ensure you no further trouble. Still, the "patent terrorist" phrase has been around a few years now, and seems to be gaining a foothold in the general lexicon, which will make life difficult for Reuters reporters. They'll have to refer to "alleged patent terrorists."

posted by Patrick Ross @ 1:36 PM | Patents

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