Microsoft Expands Its Indemnity ProgramMicrosoft Expands Its Indemnity Program

Microsoft will extend legal protections it offers PC makers that become targets of intellectual-property lawsuits involving Microsoft products they distribute.

The software company is removing caps on the legal fees it would reimburse to PC makers that are the subject of such suits and will cover the costs of legal settlements or adverse judgments up to the amount of annual business those companies do with Microsoft. The moves apply to the largest PC makers, such as Dell, Gateway, Hewlett-Packard, and Lenovo, as well as to smaller distributors and system builders. Collectively, the companies and independent software vendors that use Microsoft technology in their products--also covered by the program--account for more than $18 billion of Microsoft's annual revenue. Microsoft says the largest PC makers had asked it to step up its coverage amid an environment of increased intellectual-property-rights litigation in the technology industry.

Microsoft already indemnifies distributors, business customers, and retail customers against lawsuits that charge infringement of patents, copyrights, trademarks, and trade secrets as a result of using its products, with varying degrees of compensation. Now it's trying to be more consistent. "We want to set a high bar we think others aren't matching in our industry as a reason to partner with Microsoft," says David Kaefer, director of business development for intellectual property and licensing.

A number of intellectual-property lawsuits in recent years has led companies such as HP, IBM, Red Hat, and Sun Microsystems to offer or expand the protection they give customers. Three years ago, Lucent Technologies Inc. filed suit against Dell and Gateway alleging the PC makers had infringed on patents held by Lucent's Bell Labs and contained in Microsoft software, which Dell and Gateway distributed on their computers.

The Lucent lawsuits are "the marquee example" of what Microsoft is trying to avoid, Kaefer says. Litigants who own software intellectual-property portfolios often file suit against small distributors that don't have the resources to defend themselves, he says. Even large companies often don't have extensive patent portfolios for defending against countersuits.