(Photo: Diego M. Radzinschi/ALM)
(Photo: Diego M. Radzinschi/ALM)

Editor’s note: This article was updated on March 2, 2017. Information from Microsoft customers concerning the product was added to the original article on February 25.

Based on feedback from its cloud clients, Microsoft’s recently announced an IP “umbrella” program that offers various protections.

Known as the Azure IP Advantage, the program makes 10,000 patents available to Microsoft customers who use its Azure cloud platform, expands Microsoft’s indemnification program to cover its open source cloud software, and makes sure any future Microsoft patents transferred to nonpracticing entities (NPE) can be asserted against Azure clients.

But whether such a program is a necessity in the modern IP litigation environment is debatable, with some IP experts seeing this more as a smart business move than an essential protection against NPEs colloquially known as “patent trolls.”

“The Azure IP Advantage Program obviously serves a valuable marketing purpose for Microsoft,” said Richard Hung, partner and co-chair of the IP litigation group at Morrison & Foerster. But he added that “this shouldn’t detract from the fact that Microsoft is agreeing to protect its customers.”

In a statement to Legaltech News on the need for the umbrella protection, Erich Andersen, vice president and deputy general counsel of Microsoft’s IP group, highlighted a Boston Consulting Group study that showed “a 22 percent growth rate in cloud-based IP lawsuits over the last five years in the United States.”

He added that the study also reported “that nonpracticing entities (NPEs) increased their acquisition of cloud-related patents by 35 percent over the same period.” 

How much of those increases can be attributed to the fact that cloud technology has become more widespread over the past five years, however, is unknown. Hung noted that without the raw numbers, it is difficult to conclude whether the increases were significant or not, but he added IP litigation cases have been stabilizing and even slightly declining over that period as well.

According to Lex Machina data of 56,563 patent cases from 2000 to 2016, patent litigation dropped significantly in 2016 when compared to 2015. Both years also saw fewer patent cases than 2013, when patent litigation hit its peak over the most recent five-year period.

Such trends also held when looking exclusively at what Lex Machina classifies as “high-volume plaintiffs,” which are those that file a minimum amount of patent cases a year.

Richard Sampson, shareholder and IP attorney at Boston law firm Davis, Malm & D’Agostine, believes the tapering off of IP litigation is the result of the Supreme Court case Alice v. CLS Bank International and its related cases. They “have severely limited the ability to obtain and to enforce a lot of software patents of the type that have been very popular among the NPE community,” he explained.

But he cautioned that such cases are “not going to disappear entirely,” even though courts and patent offices are moving to favor patents that are “legitimately meritorious improvements of a technical nature over what’s been done before.”

Yet even if IP litigation were rising significantly, Sampson said an umbrella protection that makes proprietary patents available to clients would likely afford little help to those defending against NPEs, in no small part because NPEs only litigate patents based on the IP they hold.

“The problem is that NPEs by definition don’t have exposure to patent infringement counter-claims because they don’t infringe anything, so making patents available for counter-claims would just be inapplicable to that particular problem,” he said.

The patents offered by Microsoft, Sampson added, would “be useful for defending against practicing entities, but that’s not nearly as big a problem as the NPEs or [other] patent trolls.”

Microsoft, though, said it is preparing for a crucial risk it sees emerging in the marketplace, especially following conversations with current Azure customers: litigiousness from operating companies. In a blog post for the company, Andersen wrote that it is supposed to help that it is supposed to help “defend against patent lawsuits brought by operating companies against their cloud service offerings that run on Azure.”

To be sure, Andersen noted to LTN Microsoft’s effort to make 10,000 patents available was directed at the threat of litigation from operating companies and that overall, the Microsoft’s Azure IP program “is broader than simply a form of protection against ‘patent trolls,”

“We designed Azure IP Advantage to take into account the different types of IP risks our customers face and offer benefits that map well against those risks,” he said.

Azure IP Advantage customers that Microsoft put in touch with LTN corroborated Andersen’s view. Greg Richards, vice president of Global DevOps at Itron, said, “As we transform our business to create a more resourceful world, our ability to accelerate innovation in the cloud for the benefit of our customers is increasingly important. Azure IP Advantage delivers unique benefits that are important for us and our customers in this respect.”

Geoff Walker, executive vice president and chief strategic technology officer at Mattel, added, “Mattel is a place of invention and imagination, and we aspire to spend as much of our time and energy creating as possible. Azure IP Advantage will let us focus on innovating and transforming our business, not fighting patent lawsuits.”

Andersen added that Microsoft’s indemnification program for its open source software has already started to help limit the risk of NPE litigation for Azure users by allowing Microsoft to engage NPEs directly on their client’s behalf. In one customer example, two major financial institutions contacted Microsoft following an NPE claim that two pieces of software hosted on Azure infringed upon their patents. In response, Microsoft engaged the NPE throughout 2016, resolved the NPE’s allegations of infringement, and the NPE dismissed its claims earlier this year.

IP issues, however, are not usually the prime consideration for cloud clients. “The two things that cloud customers focus on most are the platform itself, and price. Only after the CIO or decision-maker has landed on those key decisions do issues like indemnification and IP protection really come in play,” Hung said.

“If a customer views those secondary issues as key—and admittedly some do—those can be negotiated or be traded for other terms, such as preferential pricing,” he added. “So the concept of umbrella coverage is nice, but not a necessity.”