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Anderer's "Old Think" Tries to Justify A Dying Business Model

Friday, March 12 2004 @ 08:54 PM EST

Mike Anderer speaks at last, and I'm glad he has, because his justification is inspirational, to say the least. I understand now what the plan is, or was, because he spills the beans, and I also get it now why investors were willing to put up their stone cold hard cash to buy into this lawsuit.

Sadly for the lot of them, they put their money on the wrong pony.

His argument, boiled down to its essence is: Microsoft and/or its proxies will sue over and over and over until FOSS cries uncle, and all the largest open source software companies go out of business or are forced to cross license with Microsoft and their gang. That is what they want. The weapon of choice will be patents. Grab as close as possible to standards, patent, and then crush the opposition by licensing until the other side runs out of patents, leaving them vulnerable, at which point businesses, they hope, will say, I don't like being vulnerable. I'll use Windows instead.

What a lovely plan. 50 or more cynical, bogus lawsuits until FOSS is nothing but a hobby platform, like in the goode olde days.

So you can judge for yourself whether I have accurately understood his message here are some snips from his letter on Newsforge:

In a world where there are $500 million dollar patent infringement lawsuits imposed on OS companies (although this is not completely settled yet), how would somebody like Red Hat compete when 6 months ago they only had $80-$90 million in cash? At that point they could not even afford to settle a fraction of a single judgment without devastating their shareholders. I suspect Microsoft may have 50 or more of these lawsuits in the queue. All of them are not asking for hundreds of millions, but most would be large enough to ruin anything but the largest companies. Red Hat did recently raise several hundred million which certainly gives them more staying power. Ultimately, I do not think any company except a few of the largest companies can offer any reasonable insulation to their customers from these types of judgments. You would need a market cap of more than a couple billion to just survive in the OS space.
Since the GPL type license agreements push the liability to the users, who do you go after? I think this is a key problem. Nobody wants to be the ultimate guarantor for software that was free (or close to it). I think the dispute with SCO would have been settled a long time ago if everybody knew this was the last one. The problem is there will probably be hundreds or even thousands of these disputes in the future and the targets will be the companies with the deepest pockets. Even if the large vendors disclaim all responsibility initially, I do not think the customers will accept this from their vendors for very long. In the meantime, I don't see anybody being in a hurry to write the first big check.
"The world of software is changing. I think everybody sees that part on the product side, but the economic underpinnings are changing too. It used to be you included R&D and patent development costs into your license add your costs and a markup and you could make a living. We relied on cross-licensing, licensing, and innovation, and our ability to prevent other people from copying our work without permission. Now things are shifting, but I am not certain anybody has completely figured out this new model, and if you think it is just any one company that is concerned about this, you are wrong.

There is just one problem with the plan. Most of the brains are on the other side of the table, as you may have discerned from the leaked memo and this article, and all of the pure love for software is, hence the backbone to fight to win is with us. If this is the plan, we will simply meet it. I believe the answer is vendor-neutral insurance, together with the will to fight each case to the death, so to speak, until these parasites decide to go sue somebody else.

Their loathsome litigation business model, which includes using the courts as an aggressive competitive weapon, is a misuse of the legal system. It's a form of blackmail, a leftover artifact from the dot.com bubble days. It can only work for so long before everybody gets sick of it and them and changes the patent laws, in my opinion.

But in the meanwhile, let me ask you this: how's it going for SCO? Are they raking in the dough from anybody in any quantities? Without MS propping them up, where would they be today? Even with MS, how're they doing? As well as they expected? No? Not well? And why is that?

Because there are millions of people in this world who love GNU/Linux software and despise SCO's way of thinking and their business model and are willing to stand up and say no. We're willing to research and testify and produce evidence and leak memos and use our considerable talents, for no money and at considerable risk, I might add, to defeat this monstrously ugly attack. SCO can't buy this at any price. Not even Microsoft can buy it, with all their billions. It's not for sale.

So far, we're winning by a mile.

Go figure.

Talk about your David and Goliath.

And we'll keep on doing it until they give up. Happily, the other side has forgotten something important. Businesses can't kill FOSS. They can benefit by using it if they play by the rules. The GPL rules. But they can't kill it. It wasn't and isn't predominantly written by business. It's written by individuals who wrote it for fun, not profit, and for the creative challenge. There are no weapons against that kind of creativity, barring martial law. And even then, it sprouts up like grass, pushing up through the sidewalk's concrete, reaching for the sun.

Here's how Novell's Matt Asay, Director, Linux Business Office & Open Source Review Board, puts it:

Commercial software developers need not fear Linux and the GPL that governs it. Instead, such companies should embrace Linux as an exceptional development platform, one that is free as water (and much more stable). Commercial hardware vendors and services firms like IBM have figured out how to make money on Linux - you should, too.
This, quite frankly, is what Microsoft fears. Microsoft can beat up on a Novell, or a WordPerfect, or name-your-favorite-computer-company. Microsoft cannot, however, beat up on a global, faceless army of developers who 'hack' 24/7. Now, life is bad enough for Microsoft when Linux encroaches upon its platform space (the Windows OS family). Microsoft will lose the OS war. More interestingly, as commercial software developers wake up to their rights to leverage the Linux platform and other GPL code, no computing device will be a safe-haven for Microsoft, including the desktop.

It doesn't hurt to have IBM ¹ and Dell ² and Intel ³ and Novell and maybe HP, on a good day, helping out. In a patent war between MS and IBM, IBM wins. They have more.⁴ Everybody has known for a long time that if you start a patent war, everybody loses. Patent law currently only works if everybody pretends it works.⁵ If every patent holder actually sued every time somebody used their patents, the entire system would collapse, because the simple truth is that there is no way for any company, including MS, to run a business without overlapping. Even the FTC has come out against the current patent system, because patents and software are not a good mix. It was a mistake. But it has given birth to cross-licensing, their business-model answer to the problem. Mr. Anderer's side has, it seems, come up with a plan to misuse that system to destroy FOSS.

Something, I am sure, will give on that battlefield. Businesses now face a real choice: do they side with Microsoft and prop up this bully and its dying business? Or do they decide to recognize that there is money to be made, ethically, by using free software to benefit themselves? Only Microsoft and its minions will choose the dark side, because no one else will benefit but Microsoft and its minions. They set the game up that way, and look at their history of how they treat their "friends", let alone their "enemies", and then make your choice.

Whatever business chooses, we don't care. If businesses are too foolish to adopt a better mousetrap, fine. We don't need business. We're happy to help them if they wish, but it's business that needs FOSS, not the other way around. And as you may have seen, the GPL is a potent weapon to keep interlopers out of FOSS software, if necessary.

That is exactly what has dying proprietary software companies so flummoxed. They can't play the game by the old rules. Well, as Alan Greenspan told a finance conference today, the working stiff has to be flexible and willing to change how he makes a living in this new world, maybe several times in a working life:

"Time and again throughout our history, we have discovered that attempting merely to preserve the comfortable features of the present, rather than reaching for new levels of prosperity, is a sure path to stagnation," he said.

He said it to justify outsourcing of jobs, the latest craze in business think. But if workers have to bend for the sake of the economy, so do businesses, like SCO and Microsoft. The world has changed, and MS and friends need to face it. The tombstone is already being written if they don't. If they think abusing the legal system will do anything but prolong their agony, they will find in the end that they are wrong.

And the thing about betting on the wrong pony is: you lose your money, not just the bet.

¹ How can we move beyond traditional notions of R&D and intellectual property creation to nurture the intersections that lead to real innovation? Along those same lines, how do we measure innovation? A group of influential business and academic leaders (including IBM CEO Sam Palmisano) is committed to a broad-based national innovation initiative that will study critical aspects of this challenge and present concrete recommendations at a summit meeting later this year.

Are we ready to rethink how we protect and reward those who spend time and resources to create something new and better? Currently, a sizable percentage of patent application fees are diverted away from an overburdened U.S. Patent and Trademark Office. When you consider that the licensing of U.S. patents contributed more than $150 billion to our economy in 2001, proposed congressional legislation that would end this diversion of user-paid fees to other agencies is the right step. IBM and nearly 100 other companies and 28 associations are supporting it--even though this legislation will cost us money. -- "The fallacy about patents" February 4, 2004, by Nicholas Donofrio

²"What we try to do," (Dell CIO Randy)Mott says, "is to have an expectation that the technology issues will be resolved." Dell sells Linux-based systems and uses the open-source operating system in its IT architecture. "Linux is a good strategy, it's a good technology," Mott says, and companies shouldn't let intellectual-property issues get in the way of an effective IT strategy.

³ There is another friction issue which has to do with Intellectual property that we should talk a great deal about. And the trends here are not particularly favorable to our increased productivity. The number of software patents issued has skyrocketed in recent years. The number of patent software patents in the backlog according to the head of the patent office are expected to reach a million items. This leads to terribly increased litigation. Let me call your attention to this chart, which shows the actual judgments rendered in software Intelectual software cases over a 15 or so year period of time. So what you see is 5 million to four billion dollars change over the 15 year period of time. A large portion of the software talent and managerial talent in this country is associated with issues of this sort representing another element of friction. . . .When it comes to friction, raise the hurdle for litigation so that we don't get involved in a litigation wave and make the patent office more discriminating and more expeditious in evaluating filed cases. -- Andy Grove, Intel,

⁴ The above table tends to suggest a significantly negative correlation between the number of software patents granted to a company and its ability to bring innovative software products to market. Companies that form the backbone of the software industry: Microsoft, Adobe, Lotus, Novell, Borland, Oracle, and Sybase, have relatively few software patents, while companies that hardly have any market share: Hitachi, AT&T, Toshiba, Sharp, and Xerox, have many. . . .

IBM has a very strong software patent portfolio. It is oversized even in proportion to the size of IBM itself. This is a result of IBM's patenting every single trivial idea every employee ever comes up with, rather than having any great propensity to be truly innovative. IBM has never been considered synonymous with innovative software. IBM even has a patent, #5,247,661, on a software application to permit employees to automatically document ideas for later patenting. -- Negative Correlation of Innovation and Software Patents, Revised version of Appendix D of the League for Programming Freedom's submission to the Patent Office, January 25, 1994.

⁵Software patents are a major legal issue in the information society. "Copyright is currently the right way to protect software publishers against piracy. Copyright provides a simple and very efficient protection to the software economy" says Matthias Schlegel, CEO of Phaidros. "Copyright is the prefered protection of SMEs and independent software developers." "EuroLinux strongly supports copyright." adds Harmut Pilch, speaking for the EuroLinux Alliance.

On the other hand, software patents allow one company to monopolize an idea of software (ex. patent EP0800142 on the conversion of file names between DOS and Windows) or an idea of business on the Internet (ex. EP0756731 on generating buying incentives from the distribution of cooking recipes), thus prohibiting other companies to use the same idea, even when implemented differently. Because software is always based on a creative arrangement of a few innovative ideas and many common ideas, all European software publishers are infringing on hundred patents among the 50.000 software patents owned by IBM, Microsoft, Sun or Sony, etc. "Thus, instead of protecting software publishers, software patents create a tremendous juridical uncertainty and allow large IT companies to completely control the software economy, block innovation and block competition by prohibiting one software to be compatible with another," says Stéfane Fermigier, CEO of Nuxeo.

"Software patents allow large IT companies to steal the intellectual property of smaller players, both by taking control of their copyrighted creations and by forcing them to disclose and trade their most competitive ideas in return for being allowed to live," adds Jean-Paul Smets, CEO of Nexedi. -- Collusion Discovered between BSA and European Commission

Anderer's "Old Think" Tries to Justify A Dying Business Model | 651 comments | Create New Account

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Baystar and RBC are holding the bag

Authored by: Anonymous on Friday, March 12 2004 @ 09:06 PM EST

[Saw this on Yahoo Finance and thought it was interesting] http://tinyurl.com/34olu

It seems to me that Baystar and RBC are holding the bag and are slowly coming to that realization.

They are now seeing that the company they gave their $50 million dollars to has produced $20,000 in Linux licenses. As far as growth stories go, this one stinks. So much for the "HOT TIP" from Microsoft.

I believe they were hoping for more MSFT and SUN like licenses. Somebody told them that was just the tip of the iceburg. Well now they are scratching their heads. Their options are either to try to get their cash back now or hope that SCO wins all its lawsuits and *then* starts collecting some real license fees. Hopeflly by now they had the chance to actually read up on many of the SCO cases and have listened to the disasterous quarterly meeting. And they may also be hearing from angry people whose money they are managing.

What would you do if you were them?