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Barnes & Noble Exposes Microsoft's "Trivial" Patents and Strategy Against Android ~pj Updated
Sunday, November 13 2011 @ 06:02 PM EST

Barnes & Noble has done the world a tremendous favor, by pulling aside the curtain and revealing Microsoft's patent campaign tactics against Android in lurid detail.

It reveals the assertion of "trivial" and "invalid" patents against Barnes & Noble and some shocking details about an "oppressive" license agreement that would have controlled hardware and software design features that Microsoft presented, thus limiting to what degree Barnes & Noble could offer upgrades and improved features to its customers if it had signed it, features it says none of Microsoft's patents cover. Microsoft worked so hard to keep it all secret, and I think you'll see why. It's ugly behind that curtain.

We saw the letter to the ITC from Barnes & Noble, and the slide presentation to the US Department of Justice, attached as Exhibit C to the letter to the ITC, and both have been covered widely in the media. But now I'll show you the other exhibits, Exhibits A, B, D, E and F, so you can get the full picture of what Barnes & Noble is accusing Microsoft of doing. Take a look especially at Exhibit D, where there is a long detailing of the incredibly insignificant patents Microsoft has the nerve to use against Android, claiming control of the entire operating system with what is pretty much a handful of stupid patents no one really needs or which are so trivial that the fees it claims become outrageous. At least that is Barnes & Noble's position. It made my blood boil to read it. As always, if you shouldn't look at patents, don't click to read the rest of the article.

Skip To Comments

Here are the rest of the exhibits attached to the Barnes & Noble ITC letter:

  • Exhibit A: Barnes & Noble letter, dated March 28, 2011, to The Hon. Christine Varney, [then-]Assistant Attorney General, US DOJ

  • Exhibit B: a letter to James J. Tierney, Chief, Networks and Technology Enforcement Section, Antitrust Division, US DOJ, dated April 25, 2011

  • Exhibit D: Kenyon & Kenyon letter, dated July 14, 2011, to Anurag Maheshwary, John Filippini, Frances Marshall, and Erica Mintzer, Esqs., Networks & Technology Enforcement Section, Antitrust Division, US Department of Justice and to Pamela Cole, Esq. at the Antitrust Division, US DOJ, re: "Overview of the Triviality of the Patents Asserted by Microsoft Corp. During Pre-Suit Discussions with Barnes & Noble and in Connection with the Certain Handheld Electronic Computing Devices, Related Software and Components Thereof, ITC Inv. No. 337-TA-769 and Microsoft Corp. v. Barnes & Noble, Inc. et al, Case No. 2:11-cv-00485 (W.D. Wash.) Matters"

    Exhibit E: Cravath, Swaine & Moore letter to Gene I. Kimmelman, Chief Counsel for Competition Policy and Intergovernmental Relations, Antitrust Division, US DOJ, dated October 17, 2011, re: "Microsoft/Nokia/MOSAID"

  • Exhibit F: White Paper of Timothy J. Bresnahan
The patents, we read, "cover only arbitrary, outmoded and non-essential design features" and yet Microsoft is demanding "prohibitively expensive licensing fees", in effect asserting "veto power" over Android's features. One aspect of the license, Barnes & Noble tells us, was a demand to control design elements, requiring designers to adhere to specific hardware and software specifications in order to obtain a license. That, Barnes & Noble says, is "oppressive and anticompetitive". I think it's accurate to say that the company believes it is illegal.

Barnes & Noble asserts that Microsoft is attempting "to use patents to drive open source software out of the market," saying it, in essence, is acting like a patent troll, threatening companies using Android with a destructive and anticompetitive choice: pay Microsoft exorbitant rates for patents, some trivial and others ridiculously invalid or clearly not infringed, or spend a fortune on litigation.

A large company like Amazon might be able to pay, but Barnes & Noble can't afford to pay such rates, which in any case it believes are ridiculous, given the quality of the patents, or lack thereof:

In addition to the oppressive restrictions and prohibitions in Microsoft's proposed licensing agreement, Microsoft is also demanding exorbitant licensing fees for the use of Android. Indeed, shortly after Microsoft sent Barnes & Noble a proposed licensing agreement on or about January 6, 2011, Microsoft confirmed to Barnes & Noble that it was demanding licensing fees [redacted] for each NookTM and [redacted] for each Nook ColorTM. It is Barnes & Noble's understanding that these licensing fees that Microsoft demands for the use of the Android are the same, or higher, than the licensing fees that Microsoft charges for its own Windows Phone 7 -- despite the fact that Microsoft only claims ownership of only trivial and non-essential design elements in Android-based devices, as opposed to an entire operating system.
Why is Microsoft doing this? Why, I can't help but wonder also, does it think it can do it and suffer no legal consequences? In one letter to the US Department of Justice, asking it to initiate an investigation, Barnes & Noble put it succinctly:
Simply put, Microsoft is attempting to monopolize the mobile operating systems market and suppress competition by Android and other open source operating systems by, inter alia, demanding oppressive licensing terms directed to the entirety of Android, asserting this dominant position over Android on the basis of patents covering only trivial design choices and entering into a horizontal offensive patent agreement with Nokia....

Instead of focusing on innovation and the development of new products for consumers, Microsoft has decided to invest its efforts into driving open source developers from the mobile operating systems market. Through the use of offensive licensing agreements and the demand for unreasonable licensing fees, Microsoft is hindering creativity in the mobile operating systems market.... Through the use of oppressive licensing terms that amount to a veto power over a wide variety of innovative features in Android devices of all kinds, as well as its prohibitively expensive licensing fees, Microsoft is attempting to push open source software developers out of the market altogether.

In discussions with Microsoft, Barnes & Noble says, Microsoft itself was unable to fully explain how the Nook or Nook Color infringed one of the patents asserted. Would you like to know the details? Here's how it went down, according to Barnes & Noble:
In July 2010, Microsoft first met with Barnes & Noble to discuss "patent issues" related to Barnes & Noble's eReader. Microsoft specifically alleged that Barnes & Noble's NookTM was infringing six patents purportedly owned by Microsoft. When Barnes and Noble asked Microsoft for more detailed information related to these patents, Microsoft refused, claiming that the information was confidential and could not be shared unless Barnes & Noble first executed a non-disclosure agreement ("NDA"). Because both the patents and Barnes & Noble's NookTM product are public -- meaning there was no need for an NDA -- Barnes & Noble refused to sign one. In December 2010, Microsoft and Barnes & Noble then met to discuss Microsoft's assertions of patent infringement. In this meeting, Microsoft claimed that its patents were sufficient to entirely dominate and control the use of the Android by the NookTM or Nook ColorTM, but Microsoft again refused to provide the basis for these claims unless Barnes & Noble entered into an NDA. To move the process forward, Barnes & Noble agreed to a very narrow NDA -- one limited in scope to discussions relating to Microsoft's claim charts at this single meeting.

In January of 2011, Microsoft then sent a proposed patent license agreement to Barnes & Noble. Although, as noted, the NDA executed in December was narrow and applied only to discussions of claim charts, Microsoft asserted that its proposed license agreement was confidential and subject to this NDA (which it is not). This proposed licensing agreement covered Barnes & Noble's use of Android on its existing eReader devices but is structured in such as way as to presume that Microsoft's portfolio of patents dominate, and thereby control, the entire Android operating system and any devices that use Android. Indeed, the proposed license would have severely limited and, in some cases, entirely eliminated Barnes & Noble's ability to upgrade or improve the NookTM or Nook ColorTM, even though Microsoft's asserted patents have nothing to do with such improvements.

It is bullying, Barnes & Noble seems to be saying, in that Microsoft is asking for rates comparable to what it would charge for an entire operating system, claiming credit for Android, but when you look at the patents, they are for things that are utterly trivial or, in some cases -- a patent that only comes into play on dial-up connections, which obviously the Nook doesn't need -- for functionality Barnes & Noble products don't use or need. Even when it might need it in peripheral scenarios, the patents are so utterly in the insignificant category, it's overreaching to try to charge what Microsoft is asking for them, or to block from the market, the entire Android operating system, which Microsoft didn't invent.

As for the proposed licensing agreement, here's what Barnes & Noble says about it:

Microsoft's assertion of confidentiality is simply a means to cloak its oppressive and anticompetitive licensing proposal and is another element in Microsoft's larger scheme to restrict competition in the mobile operating systems market.

The patents that Microsoft is asserting against Barnes & Noble do not even purport to cover hardware elements or basic software functions for mobile devices, and Microsoft thus has no right to require designers to adhere to any particular hardware or software specifications in order to obtain a license for those patents. Yet Microsoft is doing just that -- abusing and seeking to expand the scope of its patents to control design elements over which Microsoft has no legitimate claim. This conduct is plainly anticompetitive and threatens Barnes & Noble's ability to modify and offer improved products to consumers.

Have others signed such agreements? If so, why would we want to buy their hobbled products? Why are they not instead doing what Barnes & Noble is doing? Seriously, Amazon et al. Why? In footnote 4 in Exhibit B, Barnes & Noble says it signed, along with HTC, to avoid the costs of litigation. It reminded me of the US Supreme Court Justice who asked recently in one oral argument session if the USPTO had really issued a lot of invalid patents? Was it really a problem? I hope if that question arises again, someone shows them the Barnes & Noble exhibits. They demonstrate, to me, anyway, that there is a major problem, one so serious it is possible for a cynical player to use stupid patents that should never have issued and figure they can get away with it. Wait til you see these patents and what Barnes & Noble says about each one. He might also want to take a look at The Private and Social Costs of Patent Trolls, by James Bessen, Jennifer Ford, and Michael J. Meurer:
Abstract

In the past, non-practicing entities (NPEs) — firms that license patents without producing goods — have facilitated technology markets and increased rents for small inventors. Is this also true for today’s NPEs? Or are they “patent trolls” who opportunistically litigate over software patents with unpredictable boundaries? Using stock market event studies around patent lawsuit filings, we find that NPE lawsuits are associated with half a trillion dollars of lost wealth to defendants from 1990 through 2010, mostly from technology companies. Moreover, very little of this loss represents a transfer to small inventors. Instead, it implies reduced innovation incentives.

What stands out to me also, in perusing the exhibits, is how long this has been going on, as Exhibit A is a Barnes & Noble letter to the US Department of Justice dated March 28, 2011. It turns out that Barnes & Noble also wrote in that letter to complain about the then-proposed sale of Novell patents to CPTN in that letter, and the letter reveals that the Commerce One patents Novell purchased in 2005, beating out Intellectual Ventures, and then donated as the foundation patents to create OIN's patent sharing safety zone, were patents that Barnes & Noble worried might end up in Microsoft's hands if it was allowed to buy Novell's patents. So now we know what all that was about.

As you know, the complaints about the sale bore some fruit, so let's start with that exhibit and follow the story as it unfolded.

This is what I love about the law, one of many things -- that you find out what *really* happened behind the closed doors by means of legal filings.

So, let's start with Exhibit A, back when it was Barnes & Noble's General Counsel writing to Christine Varney, then Assistant Attorney General, Antitrust Division, at the DOJ. Varney now works at Cravath, which as I pointed out in an update to our earlier article means she can't appear before the DOJ on any matter that she was involved in while at the DOJ. Here's the letter, as text:

EXHIBIT A


[Barnes & Noble Letterhead]

March 28, 2011

The Honorable Christine Varney
Assistant Attorney General
Antitrust Division
United States Department of Justice
[address]

Dear Assistant Attorney General Varney,

Barnes & Noble submits this letter: (1) to object to the anticompetitive effects of Novell's sale of 882 patents to CPTN Holdings LLC, a consortium of companies led by Microsoft, and (2) to request that the DOJ initiate an independent investigation regarding Microsoft's anti-competitive behavior surrounding its actions to suppress Android operating system competition, and (3) to seek DOJ to petition the International Trade Commission ("ITC") to dismiss Microsoft's anti-competitive Android related patent action against Barnes & Noble.

In our opinion as a competitor that uses the Android operating system and as a victim of Microsoft's attempts to use patents to drive open source software out of the market, we believe that the sale of Novell's patents is another element of Microsoft's attempts to monopolize the operating system markets. Microsoft has shown in the past year that it will use any patents it owns to bully smaller companies out of the market with threats of litigation and forced licenses, as it attempted to claim ownership of the Android operating system used in Barnes & Noble's NookTM e-Reader, as well as Android smartphones, the Kindle e-Reader, and many other popular consumer devices. In the context of Microsoft's behavior regarding the Android operating system and similar behavior regarding Google's open source VP8 video codec, its acquisition of Novell's patents can only be seen as part of an attempt to claim ownership of any free operating system that might compete with Microsoft. Microsoft's business practices, and the acquisition of yet more patents that could be used to suppress competition from open source software, would certainly have the effect of substantially lessening competition, or tending to create a monopoly.

As you are well aware, members of the open-source community have expressed apprehension with regard to Novell's potential sale to Microsoft. The reason for this apprehension in part stems from Novell's acquisition of patents in 2005, which may be part of the current transaction between Novell and Microsoft. Novell is a member of the Open Invention Network (OIN) which claims to enable and protect certain open source software. In 2005 Novell, as a subsidiary of OIN, acquired a set of patents from Commerce One focusing on XML and e-commerce, for which OIN subsequently offered royalty free nonexclusive licenses. Although the details of the


March 28, 2011
Page 2

882 patents Microsoft is attempting to purchase are not public, there is a concern that this deal will result in Microsoft's ownership and enforcement of patents, including the Commerce One patents and others that may read on the underpinnings of open source computing, which could cripple open source computing. Microsoft's acquisition in 2005, along with its attempted purchase of Novell's patents and numerous other actions, show a pattern of attempts to dominate and either drive out or reduce competition from open source software.

This pattern of behavior most recently came to the fore on Monday, March 21, 2011, when Microsoft filed complaints for patent infringement against us in the Western District of Washington and before the International Trade Commission, alleging that Barnes & Noble's NookTM eReaders, which use the Android operating system, infringe Microsoft's patents.

It is clear from Microsoft's actions and statements that its issue is not with Barnes & Noble, but instead is with the Android operating system developed by Google, which has achieved in a short period what Microsoft, with all its resources, has failed to do over the past years. Namely, to develop a mobile operating system that would be embraced by both mobile smart device manufacturers and by the public, and for Microsoft to eliminate competition. Instead of directly addressing this issue with Google, Microsoft has decided to target Barnes & Noble, who merely incorporates the Android operating system into its eReaders.

The filing of the actions also included a press release by Microsoft and blog entries by Horacio Guitierrez, Microsoft's Deputy General Counsel, suggesting that it is a foregone conclusion that Barnes & Noble and other Android operating system users must take a license from Microsoft and pay it royalties is disputed by Barnes & Noble, just as other handheld device manufacturers have disputed this assertion. There is no legitimate basis for Microsoft's assertion of dominance over the Android free-source operating system which was not invented at or by Microsoft, but instead was developed in large part by Google.

The suit and ITC actions filed by Microsoft against Barnes & Noble and its suppliers is more akin to the conduct of what has come to be known as a "Patent Troll" than to the actions of an innovative R&D-based high-tech company. Microsoft in apparently seeking to dominate the operating system marketplace, serves no public interest, and will instead serve only to stifle innovation and competition.

Over the past year, Microsoft has aggressively worked to force companies manufacturing products that use the Android operating system to take a prohibitively expensive license to Microsoft's patents. As Microsoft is in the market for smartphones and tablets, these licenses raise competitors' costs and reduce their ability to compete with Microsoft's products, such as smartphones using Microsoft's Windows Phone 7 operating system. Barnes & Noble, a small player in the eReader market, could not agree to Microsoft's extortionate license (and also does not believe the infringement claims to be valid), and when we refused to pay, Microsoft filed its lawsuit.


March 28, 2011
Page 3

Microsoft's press release regarding its lawsuit against Barnes & Noble states that the Android platform generally infringes Microsoft's patents, and that all Android device manufacturers must license Microsoft's patents.1 Microsoft's corporate vice president stated that it would be forced to assert its patents against any company whose products run the Android operating system; such companies would either have to take an expensive license from Microsoft or fight a protracted and costly battle in federal court.2 These statements show an intent to force any user of the Android operating system to pay an expensive license or get out of the market. That behavior reduces competition and innovation, as Google, in a public statement, said: "Sweeping software claims like Microsoft's threaten innovation."

The patents Microsoft is asserting against Barnes & Noble relate to features that add absolutely trivial, if any, value to handheld devices such as the NookTM eReader. Microsoft's lawsuit against Barnes & Noble is therefore not a legitimate attempt to protect actual invention, but a misuse of acquired patents to bully a competitor into taking an unaffordable license. It is also a tactic that would become available in even more market areas Microsoft wishes to dominate should the purchase of Novell's patents be allowed.

Microsoft has shown its intent to drive out other open source software using overaggressive patent enforcement. The Microsoft dominated MPEG-LA consortium recently sent out a request for patents that would cover Google's VP8 video codec, and one company has already filed a private antitrust complaint against MPEG-LA for this behavior.3 MPEG-LA is a patent pool organized to collect and license patents on the H.264/MPEG video codec, a method of digitally encoding video files and decoding them for playback. Google is attempting to introduce its own codec, the VP8 codec, to compete with the MPEG codec. Once again, by seeking non-essential patents to assert offensively rather than defensively, Microsoft intends to drive out competition from open source developers.

Microsoft had already tried and failed in 2007 to overpower open source software subject to the GNU Public License (GPL), in a scheme conducted in concert with Novell. Given Microsoft's history, it must be assumed that it intends to use any patents it acquires to dominate the open source software market.

Microsoft's patent acquisition and litigation practices lessen competition in multiple ways. Microsoft's willingness to bully small players with expensive litigation raises a substantial barrier to entry in any market in which it claims dominance. Microsoft's exorbitant licenses for its patents entrench the dominant players in the relevant markets because those players can afford to take a license, while small players cannot -- for example, in the eReader market, dominant Amazon could afford Microsoft's fees, which the small competitor Barnes & Noble could not. Similarly, very small players such as independent developers not only cannot afford Microsoft's

_____
1 http://www.microsoft.com/presspass/press/2011/mar11/o3-21corpnewspr.mspx
2 http://blogs.technet.com/b/microsoft_on_the_issues/archive/2011/03/21/android-patent-infringement-licensing-is-the-solution.aspx
3 http://www.osnews.com/story/23346/Nero_Files_Antitrust_Case_Against_MPEG-LA


March 28, 2011
Page 4

fees, but cannot begin to afford the legal fees necessary to fight Microsoft's patents. Microsoft's license fees are set at a high enough level that it also reduces competitor's abilities to compete with Microsoft's own products, such as smartphones using the Windows Phone 7 operating system. In addition to harming competitors, this behavior directly harms consumers, who often prefer systems using open source operating systems such as Android and Linux to Microsoft's operating systems, and who will never realize the benefit from independent developers that Microsoft drives out of the software industry.

Sincerely,

[signature]
Eugene V. DeFelice
Vice President, General Counsel & Secretary

Here's Exhibit B, the April 2011 letter to the DOJ, asking them to initiate "an investigation of Microsoft's anticompetitive conduct in the mobile operating systems market", as text:

EXHIBIT B


[Barnes & Noble letterhead]

VIA FEDERAL EXPRESS

April 25, 2011

James J. Tierney
Chief, Networks and Technology Enforcement Section
Antitrust Division
United States Department of Justice
[address]

Dear Mr. Tierney:

On March 28, 2011, Barnes & Noble submitted a letter (a copy of which is attached) to the Antitrust Division objecting to the proposed acquisition of close to 900 Novell patents by CPTN Holdings, LLC ("CPTN"), a consortium of companies led by Microsoft. As described in that letter, Barnes & Noble objected to the acquisition as part of Microsoft's larger scheme to drive open source software -- including the Android Operating System ("Android") -- out of the mobile operating systems market.

Although we understand Microsoft subsequently agreed to modify the CPTN-Novell deal in order to try to address antitrust concerns -- and that, in light of these modifications, the Department decided not to challenge the transaction1 -- Barnes & Noble continues to be deeply concerned with Microsoft's anticompetitive behavior in the market for mobile operating systems. This anticompetitive behavior extends well beyond the CPTN transaction and continues unabated. Simply put, Microsoft is attempting to monopolize the mobile operating systems market and suppress competition by Android and other open source operating systems by, inter alia, demanding oppressive licensing terms directed to the entirety of Android, asserting this dominant position over Android on the basis of patents covering only trivial design choices and entering into a horizontal offensive patent agreement with Nokia.

_____________
1 See "CPTN Holdings LLC and Novell Inc. Change Deal in Order to Address Department of Justice's Open Source Concerns" (April 20, 201l), available at
http://www.justice.gov/atr/public/press_releases/2011/270086.htm.


CONFIDENTIAL INFORMATION REDACTED

April 25, 2011
Page 2 of 6

All of these actions by Microsoft pose serious anticompetitive concerns. Indeed, the Department of Justice's prior concern that the CPTN-Novell transaction would "jeopardize the ability of open source software, such as Linux, to continue to innovate and compete in the development and distribution of server, desktop, and mobile operating systems, middleware, and virtualization products", remains equally valid with respect to Microsoft's other anticompetitive behavior.

I. Microsoft's Demand for Oppressive Licensing Terms and Exorbitant
Licensing Fees.

Instead of focusing on innovation and the development of new products for consumers, Microsoft has decided to invest its efforts into driving open source developers from the mobile operating systems market. Through the use of offensive licensing agreements and the demand for unreasonable licensing fees, Microsoft is hindering creativity in the mobile operating systems market.

In July 2010, Microsoft first met with Barnes & Noble to discuss "patent issues" related to Barnes & Noble's eReader. Microsoft specifically alleged that Barnes & Noble's NookTM was infringing six patents purportedly owned by Microsoft. When Barnes and Noble asked Microsoft for more detailed information related to these patents, Microsoft refused, claiming that the information was confidential and could not be shared unless Barnes & Noble first executed a non-disclosure agreement ("NDA"). Because both the patents and Barnes & Noble's NookTM product are public -- meaning there was no need for an NDA -- Barnes & Noble refused to sign one. In December 2010, Microsoft and Barnes & Noble then met to discuss Microsoft's assertions of patent infringement. In this meeting, Microsoft claimed that its patents were sufficient to entirely dominate and control the use of the Android by the NookTM or Nook ColorTM, but Microsoft again refused to provide the basis for these claims unless Barnes & Noble entered into an NDA. To move the process forward, Barnes & Noble agreed to a very narrow NDA -- one limited in scope to discussions relating to Microsoft's claim charts at this single meeting.

In January of 2011, Microsoft then sent a proposed patent license agreement to Barnes & Noble. Although, as noted, the NDA executed in December was narrow and applied only to discussions of claim charts, Microsoft asserted that its proposed license agreement was confidential and subject to this NDA (which it is not). This proposed licensing agreement covered Barnes & Noble's use of Android on its existing eReader devices but is structured in such as way as to presume that Microsoft's portfolio of patents dominate, and thereby control, the entire Android operating system and any devices that use Android. Indeed, the proposed license would have severely limited and, in some cases, entirely eliminated Barnes & Noble's ability to upgrade or improve the NookTM or Nook ColorTM, even though Microsoft's asserted patents have nothing to do with such improvements. At the risk of inciting even more baseless litigation by Microsoft, Barnes & Noble does not feel comfortable sharing all of the details of the proposed license agreement in light of Microsoft's baseless assertion that it is confidential and covered by an NDA. Nevertheless, Barnes & Noble urges the


CONFIDENTIAL INFORMATION REDACTED

April 25, 2011
Page 3 of 6

Department of Justice to use its subpoena power to demand a copy of the proposed licensing agreement, and any other relevant documents, from Microsoft. Microsoft's assertion of confidentiality is simply a means to cloak its oppressive and anticompetitive licensing proposal and is another element in Microsoft's larger scheme to restrict competition in the mobile operating systems market.

The patents that Microsoft is asserting against Barnes & Noble do not even purport to cover hardware elements or basic software functions for mobile devices, and Microsoft thus has no right to require designers to adhere to any particular hardware or software specifications in order to obtain a license for those patents. Yet Microsoft is doing just that -- abusing and seeking to expand the scope of its patents to control design elements over which Microsoft has no legitimate claim. This conduct is plainly anticompetitive and threatens Barnes & Noble's ability to modify and offer improved products to consumers.

In addition to the oppressive restrictions and prohibitions in Microsoft's proposed licensing agreement, Microsoft is also demanding exorbitant licensing fees for the use of Android. Indeed, shortly after Microsoft sent Barnes & Noble a proposed licensing agreement on or about January 6, 2011, Microsoft confirmed to Barnes & Noble that it was demanding licensing fees [redacted] for each NookTM and [redacted] for each Nook ColorTM. It is Barnes & Noble's understanding that these licensing fees that Microsoft demands for the use of the Android are the same, or higher, than the licensing fees that Microsoft charges for its own Windows Phone 7 -- despite the fact that Microsoft only claims ownership of only trivial and non-essential design elements in Android-based devices, as opposed to an entire operating system.

Through the use of oppressive licensing terms that amount to a veto power over a wide variety of innovative features in Android devices of all kinds, as well as its prohibitively expensive licensing fees, Microsoft is attempting to push open source software developers out of the market altogether.

II. Microsoft's Assertion of Trivial and Non-Essential Patents.

In seeking to extract its restrictive licensing terms and prohibitively expensive licensing fees, Microsoft is asserting patents that cover only arbitrary, outmoded and non-essential design features. As noted in Barnes & Noble's March 28, 2011 letter, Microsoft filed complaints in the U.S. District Court for the Western District of Washington and before the International Trade Commission alleging that Barnes & Noble's eReaders -- i.e., the NookTM and the Nook ColorTM -- infringe five of these non-essential patents.2 Notably, in the discussions that preceded Microsoft's lawsuits,

________
2 Google, which has not been sued by Microsoft, issued a statement in response to Microsoft's litigation tactics in which it stated that "sweeping software-patent claims like Microsoft's threaten innovation. While we are not a party to this lawsuit [against Barnes & Noble], we stand behind the Android platform and the partners who have helped us to develop it". See "Microsoft takes aim at Google's Android again", available at
http://www.marketwatch.com/story/microsoft-fires-shots-at-google-software-2011-03-21.


CONFIDENTIAL INFORMATION REDACTED

April 25, 2011
Page 4 of 6

Microsoft asserted that Barnes & Noble's NookTM products infringed six specific patents. However, when Microsoft sued, it did not even mention five of these patents, making claims based on only one of these patents plus four other patents that had never previously been discussed. All of these patents that Microsoft is seeking to use as means to suppress open source software in the mobile operating systems market cover trivial design elements such as the compatibility of file names between new and old operating systems or the placement of a loading status icon in the content viewing area of a browser. Indeed, Horacio Gutierrez, Microsoft' Corporate Vice President and Deputy General Counsel, has publicly stated that the five patents on which Microsoft has sued cover only (1) the "display of a webpage's content before the background image is received, allowing users to interact with the page faster"; (2) "easy ways to navigate through information provided by . . . device apps via a separate control window with tabs"; (3) "the select[ion] [of] text in a document and adjust[ment] [of] that selection"; (4) "the ability to annotate text without changing the underlying document"; and (5) permitting "apps to superimpose download status on top of the downloading content".3

None of these features drive consumer demand for Barnes & Noble's, or its competitors', products. And these trivial features do not give Microsoft lawful control over the market. Microsoft did not invent, research, develop or make available to the public mobile devices using the Android or other open source operating systems. Nonetheless, Microsoft has commenced a campaign to assert control over the open source Android by requiring Android users to either pay exorbitant licensing fees to Microsoft -- thereby, in essence, agreeing that Microsoft's trivial and non-essential patents in effect give it control of Android -- or face the costs of a protracted patent infringement lawsuit.

And of course Barnes & Noble is not alone in being subjected to Microsoft's patent litigation campaign.4 By Microsoft's own count, twenty-five of its

_________
3 Id.

4 In order to avoid the protracted costs of litigation, both HTC Corp., a large electronics manufacturer, and Amazon, which sells the Kindle eReader, have entered into license agreements with Microsoft. See "Microsoft and Amazon.com Sign Patent Agreement", available at http://www.microsoft.com/presspass/press/2010/feb10/02-22msamazonpr.mspx; "Microsoft Announces Patent Agreement with HTC", available at http://www.microsoft.com/presspass/press/2010/apr10/04-27mshtcpr.mspx. In contrast, because Motorola could not agree with Microsoft on a licensing agreement, Microsoft filed a lawsuit against Motorola for patent infringement. See "Microsoft sues Motorola over Android phones", available at
http://money.cnn.com/2010/10/01/technology/microsoft_motorola/index.htm.


CONFIDENTIAL INFORMATION REDACTED

April 25, 2011
Page 5 of 6

patents are now "in litigation for infringement by Android smartphones, tablets and other devices".5

III. Microsoft's Anticompetitive Agreement with Nokia

Microsoft's anticompetitive conduct and intent to drive open source developers out of the market is further evidenced by its recent horizontal offensive patent agreement with Nokia. On February 11, 2011, Microsoft announced plans to form a strategic partnership with Nokia. As part of those plans, Microsoft is paying Nokia $1 billion and Nokia is committing to replace its Symbian operating system with Microsoft's Windows Phone 7 operating system as "its principal smart phone strategy".6 Microsoft is thus paying to drive one competitive operating system out of the market and to substantially increase Microsoft's footprint in the mobile operating systems market. In the fourth quarter of 2010, Nokia was the second largest smartphone provider, with a global market share of 30.6 percent, and Microsoft had a global market share of 3.1 percent (Microsoft has about a 10 percent share in the U.S. market). The only larger provider of smartphone operating systems besides Nokia is Google, with a global market share of 32.0 percent. Indeed, Microsoft and Nokia have identified Google's Android as their fiercest competition. As Nokia's CEO, Stephen Elop, stated to the press shortly after the Microsoft-Nokia partnership was announced, "This Windows phone ecosystem, more than anything else, must compete effectively with Android. . . ." and our "[n]umber one priority is to compete with Android".7

As part of Microsoft's and Nokia's strategy to "compete" with Android, Microsoft and Nokia have apparently agreed upon a strategy of coordinated use of their patents to drive out competitors -- that is, a horizontal offensive patent agreement. As Mr. Elop stated:

It is the case, and it was absolutely a topic of discussion with Microsoft, that Microsoft plus Nokia has a remarkably strong intellectual property portfolio. That is something that we will use appropriately within the context of our ecosystem, which means both defending the ecosystem from outside attacks as well as appropriately ensuring that the value that
_______________
5 Horacio Gutierrez, Corporate Vice President and Deputy General Counsel, "Android Patent Infringement: Licensing is the Solution", available at
http://blogs.technet.com/b/microsoft_on_the_issues/archive/2011/03/21/android-patent-infringement-licensing-is-the-solution.aspx.

6 "Open Letter from CEO Stephen Elop, Nokia and CEO Steve Ballmer, Microsoft", available at http://conversations.nokia.com/2011/02/11/open-letter-from-ceo-stephen-elop-nokia-and-ceo-steve-ballmer-microsoft.

7 Nokia Conversations: Q&A videos, break down", available at
http://conversations.nokia.com/2011/02/22/qa-videos-break-down.


CONFIDENTIAL INFORMATION REDACTED

April 25, 2011
Page 6 of 6

we have created through our patents are properly collected from other people who may choose to take advantage of that technology.8
Thus, instead of actually competing with the open source Android, Microsoft and Nokia have agreed to a coordinated offensive to assert patents in order to remove open source software from the market altogther. Microsoft's partnership with Nokia, coupled with Microsoft's demand for licensing fees for the use of Android, has created a great risk that Microsoft will garner substantial market power in the upstream market for operating systems. After Microsoft's CEO Steve Ballmer initially labeled the Android nothing more than a "press release" and contrasted Android with Microsoft's "many millions of customers, great software, many hardware devices" while "welcom[ing]" the Android to "[Microsoft's] world",9 Microsoft has now determined that Android is only welcome to the extent Microsoft controls the open source operating system through either exorbitant licensing fees or lengthy courtroom battles. By establishing "an industry-wide patent licensing program for Android device manufacturers",10 coupled with its partnership with Nokia, Microsoft has continued its campaign to control the mobile operating systems market -- i.e., "[Microsoft's] world".

* * *

For the reasons outlined in this letter as well as those in Barnes & Noble's March 28, 2011 letter to the Department of Justice, Barnes & Noble respectfully submits that the Department of Justice should initiate an investigation of Microsoft's anticompetitive conduct in the mobile operating systems market.

Please feel free to contact me if you have any questions about either of Barnes & Noble's letters.

Sincerely

[signature]

Eugene V. DeFelice
Vice President, General Counsel & Secretary

_________________
8Id.

9 "Google Android Just a Press Release, Says Ballmer", available at
http://www.pcworld.com/businesscenter/article/139421/google_android_just_a_press_release_says_ballmer.html.

10 Horacio Gutierrez, Corporate Vice President and Deputy General Counsel, "Android Patent Infringement: Licensing is the Solution", supra at note 2.


[Ed: the remaining pages of this exhibit are the letter dated March 28, 2011 to the DOJ, which you can read as Exhibit A, above.]

Later, in July of 2011, following a meeting with the DOJ, Barnes & Noble sent another letter, Exhibit D, from its outside law firm Kenyon & Kenyon, to a group of lawyers at the DOJ's Antitrust Division, specifically about the trivialness of the patents Microsoft is asserting. It's 32 pages, so here are the highlights, until we can do it as text in full:

EXHIBIT D


....

Microsoft has told Barnes & Noble that it has over 60,000 patents. Of the patents in its portfolio, Microsoft asserted only five patents against Barnes & Noble in the litigations (the same patents were asserted in both litigations). Prior to filing the actions, Microsoft has threatened Barnes & Noble with infringement claims in connection with six patents, only one of which was asserted in the litigations. All ten of the patents from its portfolio that Microsoft has identified to and asserted against Barnes & Noble are trivial in terms of both their commercial significance and patentability.

[Lists the patents.]...

These Microsoft patents can be divided into several basic categories: (1) the '372 and '780 patents relate to web browsers; (2) the '551 and '233 patents relate to electronic document annotation and highlighting; (3) the '522 patent relates to resources provided by operating systems; (4) the '517 and '352 patents deal with compatibility with file names once employed by old, unused, and outmoded operating systems; (5) the '536 and '853 patents relate to simulating mouse inputs using non-mouse devices; and (6) the '913 patent relates to storing input/output access factors in a shared data structure. Importantly, while Microsoft's infringement allegations appear to be centered on the Nook's and Nook Color's use of the Android operating system ("Android"), none of these patents are specific to or describe the novel technical features of Android. Microsoft cannot argue that it invented Android which, in fact, was the result of the exemplary effort of many talented programmers, including programmers in the open source community. Rather, as this letter highlights, the patents that Microsoft has asserted against Barnes & Noble -- patents that are part of the same portfolio that Microsoft has publicly alleged allows it to dominate the entire cell phone, tablet, e-reader, and other mobile device operating system market -- are nothing more than trivial implementations of known, non-essential features of an operating system. These trivial features, long present in the prior art, including highlighting documents, displaying the foreground of an electronic document before downloading background content, and locating a loading status icon over a content area rather than in a tool bar area. Moreover, and as one would expect in view of the triviality of the Microsoft patents, Barnes & Noble has formidable invalidity and non-infringement defenses in connection with the patent claims asserted by Microsoft in the litigations. Several (but certainly not all) of these defenses are summarized in this letter. Simply stated, the very nature of the patents asserted by Microsoft belies their public assertion of total dominance over the Android mobile operating system.

The following includes a detailed discussion of the triviality of the asserted Microsoft patents in light of their commercial insignificance and legal weakness in terms of invalidity and non-infringement, namely for each of the five patents in the ITC and District Court actions, and a summary of the other patents Microsoft had identified to Barnes & Noble prior to filing the suits.

I. '372 Patent (Web Browser Background Image Loading)

The '372 patent was filed April 18, 1996. Very generally, the patent relates to an outmoded system for retrieving an electronic document like a webpage that includes an embedded background image, which may have a bearing on very old web browsers connected to the Internet via slow, dial-up connections, but has little application in the context of improved, modern Internet connections....

A. Invalidity

As an example of its many invalidity defenses, the prior art web browser Netscape Navigator 2.0b3 and documents describing this browser, provide Barnes & Noble with a substantial defense that both asserted claims 1 and 5 of the '372 patent are invalid as anticipated.

Netscape Navigator 2.0b3 is a particularly apt prior art reference because the '372 patent itself discusses and points out supposed shortcomings of an even earlier version of Netscape Navigator.... The '372 patent explains that this earlier version of Navigator would otherwise meet all of the limitations of the patent's claims, except that it "requests the background image and waits for the background image to arrive before displaying the HTML document. Once the background image is received, the Navigator then draws an initial display of the HTML document....Release notes and other documentation relating to Netscape Navigator 2.0b3, which again was available five months before the '372 patent was filed, state that this version of Navigator "no longer waits for the background image to completely arrive before displaying any text and images on the page. When the background image has been decoded the page is redrawn to include the background." This is the precise functionality that lies at the heart of claims 1 and 5 of the '372 patent.

Among other reasons for invalidity, Barnes & Noble also has a substantial argument that asserted claims 1 and 5 of the '372 patent are invalid under 35 U.S.C. Section 112 for failing to provide an adequate written description of, or enable one skilled in the art to use, the subject matter embraced by those claims. While the specification notes the desired functionality of the claimed web browser, it provides no software code, points to no exemplary web browsers, and provides no other technical details explaining how a browser should actually go about producing an initial display without a background image, and then redraw that display with a background image.... This dearth of disclosure calls into question whether Microsoft even created a browser that fell within the scope of the claims of the '372 patent prior to its filing date. Further, if Microsoft did create such a browser, its failure to include technical details regarding that browser in the specification of the '372 patent violated Section 112's mandate that the specification set forth "the best mode contemplated by the inventor of carrying out [the] invention."

In sum, Barnes & Noble maintains that the '372 patent inadequately describes a technique for downloading and displaying an electronic document having an embedded background image, and is anticipated and unpatentable in any event because the very functionality it purports to claim was already provided by a prior art Netscape browser before Microsoft filed its patent application. Moreover, as explained in further detail below, the very purpose of the '372 patent was to deal with the long wait times users were subjected to in the 1996 time frame (due to the use of slow, dial-up modems) when downloading and displaying complex electronic documents like webpages with embedded background images. Since Barnes & Noble's Nook and Nook Color products employ modern, high speed Internet connectivity and other related technology, the purported reduction in the perception of delay provided by the browser set forth in the '372 patent, and the prior art Netscape browser is irrelevant to and simply has no bearing on those products....

II. '522 Patent (Operating System Provided Tabs)

The '522 patents was filed December 13, 1994. The patent relates to a single, simple tool provided by an operating system (such as Windows) that allows applications running on that operating system to have a common look and feel. Since operating systems provide many such tools, the patent amounts to nothing more than a trivial design choice. In particular, and despite the fact that this concept is in the prior art, the '522 patent's method allows for the creation of tabs. The tabs are analogous to dividers like those found in a notebook or to labels found in a file cabinet, and allow the user of an application to navigate between multiple pages of information in the same window by clicking on the tabs....

A. Invalidity

A programming guide published by IBM in connection with its OS/2 2.0 operating system, entitled IBM OS/2 2.0 Programming Guide Volume II ("the Guide"), provides Barnes & Noble with one of many substantial defenses that asserted claims 1,2, and 12 of the '522 patent are invalid as anticipated. The Guide was published in 1992, and is thus prior art to the '522 patent pursuant to 35 U.S. C Section 102(b)....

III. '551 Patent (Electronic Selection with "Handles")

On its face, the '551 patent purports to claim priority back to a November 10, 2000 filing date. Generally, the '551 patent relates to another simple and trivial feature that is not only disclosed by numerous prior art references, but is certainly not central to an operating system like Android -- selecting or highlighting text or graphics within an electronic document. The patent provides that a user selects a word or phrase, for example, by tapping on a touch screen display or clicking with a mouse. Such a selection may be shown by highlighting the selected word or phrase. The user is presented with "selection handles" on one or both ends of the selected areas. These "selection handles" can be moved by the user to highlight more or less text or graphics....

A. Invalidity

Among numerous other references, U.S. Patent No. 6,151,426 to Lee et al. ("the '426 Lee patent"), which issued November 21, 2000 and was filed October 1, 1998 (more than two years before the '551 patent) and is prior art Section 102(e), and U.S. Patent No. 6,683,631 to Carroll ("the '631 Carroll patent"), which issued January 27, 2004 and was filed December 31, 1998 (one year and nine months before the '551 patent) and is also Section 102(e) prior art, provide Barnes & Noble with a substantial argument that the asserted claims of the '551 patent are invalid as anticipated....

Barnes & Noble also has a substantial argument that asserted claims of the '551 patent's specification only describes the desired functionality, but does not provide code or other technical detail regarding how one of skill in the art would be able to accomplish the claimed selection methods....

IV. '233 Patent (Annotation of Electronic Documents)

The '233 patent was filed December 7, 1999. Like the other Microsoft patents, the '233 patent relates only to one small feature that has long been present in the prior art and is not central to Android or any other operating system. More specifically, the patent generally relates to a method for capturing annotations made in an electronic document (like an electronic book), without changing the electronic document itself....

A. Invalidity

While several other prior art references also apply to the '233 patent's claims, a document entitled Re: Mark Markup and Review for Adobe Acrobat Software User's Guide ("the Re:Mark Guide") anticipates claims 21 and 22 of the '522 patent. The Re:Mark Guide was published July 10, 1997....

V. '780 Patent (Web Browser Loading Status Icons)

The '780 patent was not filed until May 6, 1997, long after the first web browser came to market. In addition to being late to the game, the patent is directed to a very simple and obvious feature -- a temporary graphic element or status icon that is displayed to indicate that a hypermedia browser (such as a web browser) is loading content. When a browser is intended for use with a portable computer system with a limited display size, the '780 patent notes that it is desirable to maximize the browser's content display area (the portion of the browser that actually displays a website, not the menus, toolbars, or buttons). Thus, the patent makes a trivial design choice and provides that the graphic element or loading status icon is to be temporarily displayed in the content display area of the browser as opposed to a separate space such as the browser's menu bar, tool bar, or a separate status bar....

A. Invalidity

All the asserted claims of the '780 patent are obvious in view of a number of prior art references. While providing a complete listing of these references is beyond the scope of this letter, examples include the following: U.S. Patent No. 5,301,348 to Jaaskelainen ("the '348 Jaaskelainen patent"), which issued April 5, 1995.... [lists 3 others]

It cannot reasonably be disputed that web browsers included loading status indicators when the '780 patent was filed.... Either alone or together, the references make clear that the concept of moving a loading status icon from a web browser's status bar to a location over the content viewing area (the sole feature that distinguishes the '780 patent from the prior art) was known, contemplated, and obvious to one of skill in the art....

VI. Other Patents Identified by Microsoft Prior to Filing Its Suits

As noted above, in attempt to support its claim of dominance over Android, in addition to the '780 patent described above (the only overlapping patent that was asserted in the litigations as well as during discussions prior to the filing of the suits), Microsoft also identified five other patents to Barnes & Noble that are not at issue in the International Trade Commission and District Court actions. These include the '517, '913, '352, '536, and '853 patents. Like the patents asserted by Microsoft in the litigations, these other patents are also trivial and do not warrant dominance over an entire operating system. Indeed, the fact that Microsoft did not assert five of the six patents identified prior to the filings of its suit points to its own belief that the patents are trivial and do not cover an entire operating system.

As Barnes & Noble highlighted in its Response it filed with the International Trade Commission, the '517 and '352 patents deal with nothing more than the compatibility between file names employed by operating systems used and sold today, and more primitive file names employed by old, unused, and outmoded operating systems. This is of no importance to either the Nook or Nook Color, which are more modern products. Neither product infringes any valid, enforceable claims of the '517 or '352 patent.

The '536 and '853 patents relate to another minor feature, namely simulating mouse inputs using non-mouse devices. The '853 patent misrepresented the state of the art at the time the patent was filed by stating that "a need exists for permitting a user to perform all operations of a mouse-type device using a stylus." This, however is demonstrably incorrect. The '536 and '853 patents were filed in November 2000. Long before that time, numerous systems had been developed that enabled computer users to simulate mouse behavior with touch input devices. For example, U.S. Patent No. 5,327,161 to Logan et al., entitled "System and Method for Emulating a Mouse Input Device with a Touchpad Input Device" (the "'161 patent"), was issued in 1994, years before the '536 and '853 patents were even filed. The '161 patent discloses a touchpad input device or touch-sensitive device that "can be used to replace the mouse cursor locator/input device in mouse-driven personal computers." (Col. 1, 11.18-20.) The touchpad in the '161 patent performs functions of a mouse. Further evincing the lack of inventiveness of the subject matter set forth in the '536 and '853 patents, the '161 patent noted that touchpad technology had been disclosed in patents that issued as early as 1978....

The '913 patent relates to storing input/output access factors in a shared data structure, and which clearly could not preclude the use of an entire operating system. The '913 patent specification is deficient with respect to a written description of the alleged invention and failes to provide sufficient detail for a person of skill in the art to make the subject matter of the claims. This deficiency renders the patent invalid, and in any event the claims do not cover the Nook and Nook Color devices to the extent the subject matter can be understood in light of the deficiencies. Tellingly, Microsoft was never able to fully explain how anything in the Nook and Nook Color related in any manner to the concepts set forth in the '913 patent. Neither product infringes the '913 patent.

The above overview provides only a sampling of the triviality of the ten patents either mentioned in discussions by Microsoft prior to the filing of its lawsuits or asserted against Barnes & Noble in the litigations. This letter also has only provided examples of Barnes & Noble's many invalidity and non-infringement defenses to the patents asserted by Microsoft. All of these details throughout this letter point to the triviality of Microsoft's patents, with respect to both patentability and commercial applicability, particularly as these patents relate to the Android operating system.

Please let me know if you would like further details in this regard.

Very truly yours,

[signature]

Richard L. DeLucia

Cc: Peter T. Barbur, Esq.
Cravath, Swaine & Moore LLP
[address]

Gene V. DeFelice, Esq.
Bradley A. Feuer, Esq.
Jeffrey L. Snow, Esq.
Barnes & Noble
[address]

Here's Exhibit E, an October 17, 2011 letter from Cravath's Peter Barbur to "Dear Gene", Gene Kimmelman, Chief Counsel for Competition Policy and Intergovernmental Relations at the US DOJ's Antitrust Division, and I note it's Cravath that points out that Stephen Elop was formerly a Microsoft executive while discussing the Microsoft/Nokia patent alliance made even more unholy by the MOSAID connection:

EXHIBIT E


[Cravath, Swaine & Moore letterhead]

October 17, 2011

Microsoft/Nokia/MOSAID

Dear Gene:

Following up on our telephone call on Thursday, this letter provides some background concerning the recently announced horizontal agreement among Microsoft, Nokia, and MOSAID Technologies to license Nokia's wireless patents and split the proceeds. This is the latest in a series of tactics designed by Microsoft to raise its rivals' costs and prevent Android-based devices from taking away sales of Microsoft's Windows operating system. This description is based solely on publicly available information, and we suspect that nonpublic information relating to this agreement would be even more revealing.

On September 1, 2011, MOSAID announced that it had reached an agreement to acquire Core Wireless Licensing S.a.r.l., a patent holding company that held 2,000 Nokia patents related to wireless communications standards and implementation. MOSAID stated that it made "no upfront payments" for the patents,1 and MOSAID reportedly received the patents for free.2 MOSAID then announced that it had also reached an arrangement with Microsoft and Nokia regarding the licensing of those patents. Specifically, MOSAID will be responsible for asserting the patents against manufacturers of mobile devices such as cell phones, and MOSAID will hand over to Microsoft and Nokia 2/3 of any licensing revenue it obtains.3 Thus Microsoft will share in the profits even though Microsoft does not appear to have contributed anything of value to the arrangement.

____________

1 Press Release, "MOSAID Updates Shareholders On Special Committee Process, Addresses Wi-LAN Mischaracterizations", Sept. 12, 2011, http://www.mosaid.com/corporate/news-events/releases-2011/110912.php

2 Chris Velazco, "Mosaid Acquires 2,000+ Nokia Patents, Will Handle Licensing & Litigation For A Cut", Techcrunch, Sept. 1, 2011, http://techcrunch.com/2011/09/01/mosaid-acquires-2000-nokia-patents-will-handle-licensing-litigation-for-a-cut/

3 Id.


The parties are not shy about the power they think is afforded to them under the deal. In MOSAID's words, "the force of this [patent portfolio] is overwhelming",4 and 3G and 4G wireless telecommunications standards" practice the patents.5 MOSAID believes that "four of the top five global cell phone vendors" will soon require a license, and MOSAID is targeting "over a trillion dollars of unlicensed revenues" of mobile devices.6 MOSAID boasts that it is an aggressive licensor of its patents, noting that it achieved "complete saturation" of the DRAM market and "licensed all the DRAMs on the planet at one point".7 Because MOSAID is a "non-practicing entity" -- the euphemism for a patent troll -- the usual threat of counterlitigation for patent infringement will have no deterrent effect on its aggressive licensing plans.

The deal is presumably related to Microsoft's horizontal agreement with Nokia, announced earlier this year, to coordinate their use of patents to drive out competitors. In February 2011, Microsoft and Nokia announced that Nokia would soon drop its Symbian operating system and instead adopt Microsoft's Windows Phone 7 as the operating system for its devices. The target of the agreement between Microsoft and Nokia is clear. As Nokia CEO (and former Microsoft executive) Stephen Elop stated shortly after announcing the deal, the "[n]umber one priority is to compete with Android."8 The new deal with MOSAID -- the negotiations for which began around the time the Microsoft-Nokia partnership was announced -- appears to be the mechanism by which Microsoft and Nokia will use Nokia's patents to attack Android devices.

The MOSAID deal is further evidence of Microsoft's broader plan to shield itself from patent lawsuits while also eliminating competition from Android. Obviously, since Microsoft and Nokia are parties to and beneficiaries of the agreement governing MOSAID's patent assertion activities, MOSAID will not be going after Nokia phones or other products using Microsoft's mobile operating systems. Instead, as Microsoft and Nokia have made clear, the primary target is Android. MOSAID, as guided by Microsoft, will now be able to assert the Nokia wireless patents against Android devices that threaten Microsoft's business.

____________

4 Interview, "John Lindgren, CEO of MOSAID talks magnitude of Nokia/Microsoft deal", Sept. 13, 2011,
http://www.youtube.com/watch?v=37yzFT9xpys.

5 Statement of MOSAID Vice President Dr. Nima Ahmadvand, "MOSAID acquires 2,000 Nokia Wireless Patents", Sept. 13, 2011, http://www.youtube.com/watch?v=Bdq3_jtOy_E (emphasis added).

6 Press Release, "MOSAID Updates Shareholders On Special Committee Process, Addresses Wi-LAN Mischaracterizations", Sept. 12, 2011, http://www.mosaid.com/corporate/news-events/releases-2011/110912.php; Interview, "John Lindgren, CEO of MOSAID talks magnitude of Nokia/Microsoft deal", Sept. 13, 2011, http://www.youtube.com/watch?v=37yzFT9xpys.

7 Interview, "John Lindgren, CEO of MOSAID talks magnitude of Nokia/Microsoft deal", Sept. 13, 2011, http://www.youtube.com/watch?v=37yzFT9xpys.

8 "Nokia Conversation: Q&A videos, break down", available at http://conversations.nokia.com/2011/02/22/qa-videos-break-down.


Microsoft's attempts to direct how others enforce their patents are part of Microsoft's strategy of attempting to maintain its monopoly in PC operating systems by controlling and dominating the Android operating system. Android, which Google gives away for free, threatens Microsoft's traditional business model of licensing its proprietary operating system because OEMs no longer need to pay for a high-quality operating system. In addition, the open source Android operating system is superior to Microsoft's proprietary products. For those reasons, Android threatens Microsoft's core business. Application-rich Android devices such as tablets and smartphones now perform many of the functions once reserved for PCs, a trend that will reduce demand for PCs and PC operating systems, where Microsoft's Windows enjoys a powerful monopoly. Moreover, as operating systems such as Android become more popular, Android will become a viable candidate for adaptation to PCs, putting Android (and its companion, Chrome) into direct competition with Windows. Moreover, Microsoft has announced plans to run its flagship Windows operating system on tablets, and the popularity of Android-based tablets threatens the dominance of Windows.

In response to these competitive threats, Microsoft is embarking on a campaign of asserting trivial and outmoded patents against manufacturers of Android devices. Microsoft demands exorbitant licensing fees (similar to the fee for the entire Windows Phone 7 operating system) and imposes licensing conditions that restrict manufacturers' abilities to upgrade and improve their products with features consumers want. Microsoft is attempting to raise its rivals' costs in order to drive out competition and to deter innovation in mobile devices.

Microsoft's arrangement with MOSAID and Nokia, in conjunction with its improper use of its own patents, is causing and will continue to cause serious harm to competition. Microsoft's conduct will raise costs to consumers, reduce the quality of popular goods, and impede innovation in a technology-rich market. Microsoft's conduct poses serious antitrust concerns and warrants further exploration by the Department of Justice.

Very truly yours,

[signature]

Peter T. Barbur

Gene I. Kimmelman, Esq.
Chief Counsel for Competition Policy and Intergovernmental Relations
Antitrust Division
United States Department of Justice
[address]

VIA ELECTRONIC MAIL AND FIRST-CLASS MAIL

If any of you could help me with text of Exhibit F, I'd appreciate it a lot, because otherwise, it's all hand typing on my part, and I'm tuckered out. I think it's important to present everything, and I'll definitely do it if no one else is in a position to help out. Personally, I view this as one of the most intriguing developments in a long time.

I've long been writing that I thought there ought to be an antitrust case to be made, but I'm no expert in that area of law by any means, and yet here it is. Cravath, Swaine and Moore *are* experts in antitrust, and the fact that they are representing Barnes & Noble now, along with other outside firms like Kenyon & Kenyon, is significant to me.

Update: We have now finished one-half of Exhibit F, the report by an expert, Timothy J. Bresnahan, who says that Microsoft has been unable to compete in the mobile space, and so as an alternative made the deal with the devil Nokia apparently to attack competitors with trivial and outmoded patents. You will likely take it as proof that there is a God that he uses a FOSSPatents' article as evidence against Microsoft, in footnote 28:

EXHIBIT F


White Paper of Timothy J. Bresnahan

I. Introduction and Overview of Conclusions.

I have been asked by Barnes & Noble, Inc. ("Barnes & Noble") to provide an opinion as to Microsoft's current conduct with respect to mobile operating systems. I have based my analysis on publicly available evidence and representations made to me by Barnes & Noble. Further, I have relied on my prior knowledge about competition in operating systems, mobile devices and personal computers from over twenty years of studying the industry and, particularly, my study of and familiarity with Microsoft's pattern of anticompetitive conduct. Based on my extensive policy and academic experience in applying economics to antitrust analysis under both U.S. and EU law, including my prior work analyzing Microsoft's conduct in connection with its PC operating systems monopoly, this white paper offers the following conclusions:

  • Mobile operating systems, including those used for smartphones, e-readers and tablets, pose a competitive threat to Microsoft's monopoly in PC operating systems.

  • Microsoft's current conduct in asserting against Barnes & Noble patents that I am informed are trivial and outmoded is anticompetitive and appears to be part of a larger Microsoft campaign against the open-source Android mobile operating system.

  • Microsoft's current conduct with respect to mobile operating systems, particularly its anticompetitive conduct against Android, parallels its prior anticompetitive response to threats from competing operating systems (e. g., DR-DOS) and Internet technologies (e. g., Java and Netscape).
II. Qualifications.

My opinion is based on my extensive policy and academic experience in applying economics to antitrust analysis under the U.S. and EU laws. In particular, from 1999 to 2000, I was Deputy Assistant Attorney General and Chief Economist, Antitrust Division, U. S. Department of Justice. I am currently the Landau Professor in Technology and the Economy and Professor of Economics at Stanford University, and a Senior Fellow at the Stanford Institute for Economic Policy Research (SIEPR). At SIEPR, I have served as the Director of the Center for

Employment and Economic Growth, the Director of the Technology and Economic Growth Program, and the Gordon and Betty Moore Senior Fellow. I was one of the founders of, and later the leader of, the Stanford Computer Industry Project. I am also a Senior Fellow at the National Bureau of Economic Research and participate in the Productivity and Industrial Organization Programs that study technical progress and competition. I have been elected as a Fellow of the American Academy of Arts and Sciences, as a Fellow of the Econometric Society and as a Vice President of the American Economics Association. My areas of specialization include Industrial Economics, particularly the economics of high technology industries. I have had particular specializations in the uses of computer systems in large organizations, in the commercialization of computer systems, and in the analysis of competition and of competition policy. I have written books, book chapters, and peer-reviewed articles on the economics of technological change and competition in high technology industries. A number of these publications examine Microsoft's competitive conduct.1

III. Microsoft Has Failed to Compete Effectively in Mobile Operating Systems.

Microsoft has failed to compete effectively in mobile operating systems. As I explain below, it has failed to deliver a competitive product to consumers and has not been a leader in the innovation process for mobile operating systems. As a result, it has missed a profitable business opportunity and now faces a potentially serious threat to its monopoly in PC operating systems.

A. Overview of Mobile Operating Systems.

Mobile operating systems are used on a variety of devices, including smartphones, e-readers and tablets. Smartphones are high-end mobile phones with computing capability. Operating systems for these devices are supplied primarily by Microsoft, Apple, Google, Palm and Nokia. An e-reader is a portable electronic device designed primarily for reading digital books and periodicals, and is similar in form to a tablet computer. Examples include the Amazon Kindle and the Barnes & Noble Nook products. E-readers use operating system software supplied by Google, Microsoft, and providers of the open-source Linux operating

__________
1 A selected list of my publications related to Microsoft and competition is attached hereto as Appendix A.

2

system. Tablets are mobile devices that offer display screens of 7 to 12 inches and run a mobile or desktop operating system. Examples include the Apple iPad, Motorola Xoom, Blackberry Playbook, Dell Streak, and Samsung Galaxy.2 Tablets use operating systems supplied by Apple, Google, Research in Motion, Nokia, and others.

The direct customers for iOS, Android, Windows Phone 7 and other mobile devices are the mobile device manufacturers ("original equipment manufacturers" or "OEMs") that decide which operating systems to use for the devices they sell. All of these mobile operating systems also compete for adoption by end-users who choose which mobile device to purchase based in part on the operating system.

The structure of the mobile operating system marketplace is somewhat unusual. The leading company, Apple, is vertically integrated into hardware. This does not mean it is not a meaningful competitor for end-users of mobile systems. It means only that it does not rely on independent OEMs to put its software together with hardware and distribute the resulting product to end-users. Another leading supplier of mobile operating systems, Google, gives away its Android product to OEMs. The very attractive price at which Android is available to OEMs is one reason it has been so widely adopted. Microsoft's primary business model has been to sell its mobile operating systems to OEMs, the same business model it has used in selling its PC operating system.

Although these OS suppliers have pursued different business models, they have nonetheless been the leading competitors in mobile operating systems. Google and Apple have been successful competitors. Microsoft, in contrast, has not.

B. Microsoft Has Failed as an Innovator in Mobile Operating Systems.

To date, Microsoft has not been an important innovator in mobile operating systems. It has lagged behind Apple and Google in smartphones and has been strikingly uncompetitive in the tablet and e-reader segments.

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2 Given the recent emergence of tablet devices, industry analysts offer conflicting definitions, and some distinguish between media tablets such as the iPad and tablet PCs that run a full desktop operating system. See IDC press release, "IDC forecasts 7.6 Million Media Tablets to be Shipped Worldwide in 2010," May 20, 2010, http://www.idc.com/getdoc.jsp?containerId=prUS22345010. See also CNET News, "What makes a tablet a tablet? (FAQ)," May 28, 2010, http://news.cnet.com/8301-31021_3-20006077-260_html?tag=newsLeadStoriesArea.1.

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1. Microsoft Has Failed to Compete Effectively in Smartphone
Operating Systems.

Microsoft has a weak position in smartphone operating systems because it has not delivered a compelling product that can compete effectively with the operating systems offered by Apple and Google, among others. Both hardware (the handset) and the operating system affect the quality of the phone as experienced by the user. Apple has extended its business model used in PCs and iPods of combining striking hardware and a user-engaging operating system to create the very successful iPhone it introduced in 2007. Using this model, Apple had gained a 25% share of the U.S. smartphone installed base by December 2009,3 and had become the world's largest smartphone vendor by revenue in the first quarter of 20114

Sales of smartphones based on the Android operating system, introduced a year later than the iPhone, were propelled by a different, but also successful business model. Google has organized the supply of its mobile operating system to function as a public good. It offers its operating system free of charge on an open-source basis to OEMs, imposes no restrictions on the use of the operating system, and requires that users who improve the product make those improvements available to others. This approach has been attractive to OEMs. In 2008-2009, Android-based smartphones were launched by HTC, Samsung, Motorola and LG, among others.5 Despite entering the market more than a year after the iPhone, sales of Android-based smartphones surpassed sales of Apple's iPhone in the second quarter of 2010 in the United States.6 In the spring of 2011, industry experts were predicting that Android devices would account for nearly 50% of worldwide smartphone unit sales by 2012.7

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3 Much of the share gain came from sales to the rapidly expanding consumer base of smartphone users and some came by winning enterprise sales from RIM's Blackberry product line. Federal Communications Commission, "Implementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993 Annual Report and Analysis of Competitive Market Conditions with Respect to Mobile Wireless, Including Commercial Mobile Services," May 20, 2010 ("2010 Annual Report"), p. 166.

4 Strategy Analytics, "Apple Becomes World's Largest Handset Vendor by Revenue in Q1 2011," April 21, 2011.

5 2010 Annual Report, pp. 224-233.

6 CNET News, "Android hits top spot in U.S. smartphone market," August 4, 2010.

7 Gartner Group, "Gartner Says Android to Command Nearly Half of Worldwide Smartphone Operating System Market by Year-End 2012," April 7, 2011.

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Overall, smartphone sales have exploded since 2007. Unit sales of smartphone operating systems have grown by 34%.8 Sales of smartphones with the Apple or Google operating system account for most of this growth. Indeed, smartphones running iOS or Android grew from virtually nothing in 2007 to 35% of unit sales of smartphone operating systems in 2010.9

Despite the rapid growth in smartphone sales, sales of phones based on operating systems supplied by Microsoft have languished. Microsoft's primary business model in smartphone operating systems has been based on selling its OS to handset makers, and it has been successful in attracting OEMs. In 2008-2009, OEMs that offered Android-based phones generally offered handsets based on Windows as well. For example, HTC, LG, Samsung, Toshiba, and ZTE all offered phones running the Windows Mobile operating system.10 Nonetheless, the worldwide market share held by Windows-based smartphones declined from 12% in 2007 to 4.2% in 2010, and 2010 worldwide unit sales were below unit sales in 2007.11 Consumers have clearly preferred to purchase phones based on the Android platform when given a choice between the Android and Microsoft operating systems from the same handset manufacturer.

Microsoft has failed to compete effectively because it has failed to offer a product that can compete with the offerings of Apple and Google. In February 2007, the year the iPhone was released, Microsoft released a new version of its smartphone operating system, Windows Mobile 6.12 The product contained a number of serious deficiencies, including weak support for touchscreens, applications that required use of a stylus rather than a finger, and a poor mobile

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8 Gartner Group, "Gartner Says Worldwide Smartphone Sales Reached Its Lowest Growth Rate With 3.7 Per Cent Increase in Fourth Quarter of 2008," March 11, 2009, Gartner Group, "Gartner Says Worldwide Mobile Device Sales to End Users Reached 1.6 Billion Units in 2010, Smartphone Sales Grew 72 Percent in 2010," February 9, 2011.

9 Gartner Group, "Gartner Says Worldwide Smartphone Sales Reached Its Lowest Growth Rate With 3.7 Per Cent Increase in Fourth Quarter of 2008," March 11, 2009, Gartner Group, "Gartner Says Worldwide Mobile Device Sales to End Users Reached 1.6 Billion Units in 2010, Smartphone Sales Grew 72 Percent in 2010," February 9, 2011.

10 Microsoft press release, "Microsoft Unveils New Windows Phones Worldwide," October 6, 2009,
http://www.microsoft.com/presspass/press/2009/oct09/10-06WindowsPhoneLaunch09PR.mspx.

11 Gartner Group, "Gartner Says Worldwide Smartphone Sales Reached Its Lowest Growth Rate With 3.7 Per Cent Increase in Fourth Quarter of 2008," March 11, 2009, Gartner Group, "Gartner Says Worldwide Mobile Device Sales to End Users Reached 1.6 Billion Units in 2010, Smartphone Sales Grew 72 Percent in 2010," February 9, 2011.

12 Microsoft press release, "Microsoft Reveals New Windows Mobile 6 Smartphone Software, Improves World's Fastest-Growing Mobile Operating System," February 12, 2007, http://www.microsoft.com/presspass/press/2007/feb07/02- 11WM6SoftwarePR.mspx.

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browser.13 One industry analyst described Windows Mobile 6 as a "miserable" user experience.14 Microsoft began work in 2008 on a follow-on product, Windows Phone 7, that it planned to introduce in 2009, but due to development delays, the first handsets using Windows Phone 7 did not ship until November 2010. In the interim, handset manufacturers reduced or dropped support for Windows Mobile and turned to other operating systems, primarily to Android.15

Microsoft's record of failures in mobile operating systems extends to its "social phone" handset product, the Kin, which Microsoft introduced in April 2010.16 Targeting heavy users of social networks, the Kin relied on technology acquired from Danger, producer of the popular Sidekick phone. "Microsoft invested nearly two years in developing the Kin, but pulled it from the market a mere 48 days after the product launch after selling fewer than 10,000 units. Industry analysts described the product as "an absolute failure" and "a mistake from the get-go.18

Microsoft CEO Steve Ballmer has acknowledged Microsoft's costly missteps in mobile operating systems. He admitted in 2009 that Microsoft had "screwed up with Windows Mobile," and wished that Windows Phone 7 had already been launched.19 He characterized an interim 2009 release of Windows Mobile 6 as "an unwanted stopgap."20 And he stated in a 2010 Wall

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13 Ars Technica, "Windows Mobile 6.5 UI a big improvement, more work needed," February 16, 2009, http://arstechnica_com/microsoft/news/2009/02/ballmer-windows-mobile-65-phones-are-just-windows-phones.ars See also Ars Technica, "Microsoft casting about for viable mobile browser strategy," October 7, 2008, http://arstechnica.com/old/content/2008/10/microsoft-casting-about-for-viable-mobile-browser-strategy.ars.

14 Ars Technica, "Windows Phone 7 Series in the Enterprise: not all good news," March 16, 2010.

15 N.Y. Times, "Big Cellphone Makers Shifting to Android System," October 25, 2009, The Inquirer, "Palm dumps Windows Mobile," September 18, 2009, Ubergizmo.com, "Acer to Increase Focus on Android," November 27, 2009.

16 Microsoft press release, "Microsoft Ushers in the Next Generation of the Social Phone With KIN, a New Windows Phone," April 12, 2010, http://www.microsoft.com/presspass/press/2010/apr10/04-12NextGenSocialPhonePR.mspx.

17 TechFlash, "Confirmed: Microsoft Kin is Dead," June 30, 2010, http://www.techflash.com/seattle/2010/06/confirmed_microsoft_kin_is_dead.html. See also N.Y. Times, "Microsoft Calling: Anyone There?," July 4, 2010.

18 N.Y. Times, "Microsoft Kin Discontinued After 48 Days," June 30, 2010, www.nytimes.com/2010/07/01/technology/01phone.html.

19 Computerworld, "Ballmer: We 'screwed up with Windows Mobile'," September 25, 2009. See also MobileTechWorld, "Steve Ballmer wishes Windows Mobile 7 had already launched, but they screwed up," September 24, 2009.

20 Electronista, "Ballmer: Win Mobile 6.5 an unwanted stopgap," March 5, 2009.

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Street Journal interview that Microsoft had ‚"missed a cycle" and had "execution issues from an R&D perspective." 21

In the face of its competitive weakness, in February 2011, Microsoft entered into a strategic partnership with Nokia, the long-standing market leader in handsets, in which Nokia will make Windows Phone its primary operating system for its mobile devices. 22 Nokia‚'s smartphones have used the Symbian operating system, but its share of smartphone sales worldwide has steadily eroded under the Apple/Google onslaught. Phones running Symbian fell from 63.5% of worldwide unit sales in 2007 to 37.6% in 2010, 23 and market observers recently predicted that Symbian would yield its market-share lead to Android in 2012. 24 Under the terms of the deal, Microsoft paid Nokia more than $1 billion to launch the partnership. Nokia in turn will pay Microsoft a per-handset fee for the use of Windows Phone 7. 25

The Nokia alliance may allow Microsoft to compete more effectively with Apple and Google. Analysts now predict that Microsoft Phone will be the second-largest mobile operating system by 2015. 26 Microsoft has also recently announced agreements with ZTE, Acer, and Fujitsu under which their handsets will run the Windows Phone mobile operating system. 27

Whether consumers will choose to buy smartphones with a Microsoft operating system because the handset is offered by Nokia or these other OEMs remains an open question.

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21 Wall Street Journal, "Ballmer Aims to Overcome Mobile Missteps," October 3, 2010.

22 Microsoft press release, "Nokia and Microsoft Announce Plans for a Broad Strategic Partnership to Build a New Global Mobile Ecosystem," February 11, 2011, http://www.microsoft.com/presspass/press/2011/febl1/02-11partnership.mspx.

23"Gartner Says Worldwide Smartphone Sales Reached Its Lowest Growth Rate With 3.7 Per Cent Increase in Fourth Quarter of 2008," March 11, 2009, Gartner Group, "Gartner Says Worldwide Mobile Device Sales to End Users Reached 1.6 Billion Units in 2010, Smartphone Sales Grew 72 Percent in 2010," February 9, 2011.

24 Gartner Group, "Gartner Says Android to Command Nearly Half of Worldwide Smartphone Operating System Market by Year-End 2012," April 7, 2011.

25 Bloomberg Businessweek, "Microsoft Is Said to Pay Nokia More Than $1 Billion in Deal," March 7, 2011, http://wwwbusinessweek.com/news/2011-03-07/microsoft-is-said-to-pay-nokia-more-than-1-billion-in-deal.html.

26 Gartner Group forecasts a 19.5% share for Microsoft in 2015, while IDC predicts a 20.9% share. See Gartner Group, "Gartner Says Android to Command Nearly Half of Worldwide Smartphone Operating System Market by Year-End 2012," April 7, 2011. See also IDC press release, "IDC Forecasts Worldwide Smartphone Market to Grow by Nearly 50% in 2011," March 29, 2011, http://www.idc.com/getdoc.jsp?containerId=prUS22762811, N.Y. Times, "Microsoft + Nokia = a Challenge for Apple," April 2, 2011, http://www.nytimes.com/2011/04/03/business/03digi.html?_r=1&scp=1&sq=Microsoft%20Nokia&st=cse.

27 Microsoft press release, "Microsoft President Announces New Partner Benefits and Underscores Opportunity With Windows Phone 'Mango'," July 12, 2011.

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Public statements about the Nokia-Microsoft deal made by both companies raise another possible motivation for the deal (and in turn, the effect it might have on competition in mobile operating systems). The companies have announced that they intend to use their patents in a joint offensive effort against "infringing" users,28 suggesting that the deal was motivated by a strategy of forming an offensive patent pool. There are pro-competitive reasons for forming a patent pool. Often, however, a patent pool can have anticompetitive effects. Sorting the pro-competitive from the anticompetitive requires a careful investigation of why the patents would be more valuable used together than they would be used independently. Because Microsoft and Nokia have made public statements that they intend to use their patents offensively, and because Microsoft has targeted Android, which it deems its primary competitor, this arrangement raises antitrust concerns that warrant investigation.29

2. Microsoft Has Failed to Compete Effectively in Tablets.

Microsoft is currently even less competitive in tablets despite more than a decade of investment in operating system software for tablet computers. Just as with smartphones, the fact that Microsoft is not an important player in tablet computing can be traced to its failure to provide innovative, compelling products to consumers.

The tablet computer is not a new idea. Indeed, Microsoft, imitating earlier tablet offerings by GO and others that built on the tablet concept suggested by Alan Kay in 1968, first proposed development of a tablet PC in 2000.30 Microsoft's efforts, however, have failed to make it a player in this segment. Tablet PC products based on the Windows operating system have had little marketplace success outside specific, narrow niches such as transportation and healthcare.31 One industry analyst observed in 2010 that Microsoft's efforts to deliver a tablet

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28 Foss Patents, "Implications of Nokia's new strategy for the smartphone patent wars," February 11, 2011, http://fosspatents.blogspot.com/2011/02/implications-of-nokias-new-strategy-for.html. See also GigaOM, "Why Nokia deal with Apple may spark mobile patent war," June 14, 2011, http://gigaom.com/2011/06/14/why-nokia-deal-with-apple-may-spark- mobile-patent-war.

29 The Droid Guy, "Nokia CEO: Android Is Our Main Competition, S&P Lowers Ranking," March 30, 2011, http://thedroidguy.com/201 1/ 03/nokia-ceo-android-is-our-main-competition-sp-lowers-ranking/.

30 Microsoft press release, "Microsoft demonstrates Tablet PC Technology for Enterprise Computing Applications," Nov. 13, 2000, N.Y. Times, "Microsoft Brings In Top Talent To Pursue Old Goal: The Tablet," August 30, 1999.

31 CNET News, "Apple's iPad touches a nerve in Redmond," January 27, 2010, http://news.CNET.com/8301-13860_3-10442060-56.html.

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have "repeatedly bombed over the best part of a decade.‚"32 Microsoft first released a Tablet PC targeted at "corridor warriors" in 2002 that was poorly received,33 and subsequently proposed an ultra-mobile PC ("UMPC") in 2005.34 When released, UMPC devices were larger, slower, more expensive, and more power-hungry than planned, and Microsoft acknowledged that they would appeal only to "hard-core gadget fans."35 Another tablet PC project rumored to be under way at Microsoft in 2009, Project Courier, was cancelled in 2010.36

In sharp contrast, Apple achieved widespread consumer acceptance of the iPad it first released in 2010.37 Its success was based on a fundamental re-imagining of the tablet computer as a highly portable, long-lasting device with a focus on media consumption. The iPad is ideal for browsing the web, playing music, looking at photos and videos, playing games, and reading e-mail, all through a finger-based touchscreen user interface. Apple has not attempted to replicate a mouse-and-keyboard, desktop-based user interface in a smaller form factor - a failed strategy that Microsoft attempted with its Tablet PC and UMPC. The iPad does not run the Mac software Apple uses on its PCs nor does it perform the business-oriented tasks traditionally associated with PC computing. It is, in short, not just a small computer, as Steve Jobs insisted in a recent public appearance.38 Apple sold 14.7 million units in 2010, and 9.3 million units in the

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32 Ars Technica, "Ballmer (and Microsoft) still doesn't get the iPad," July, 2010.

33 Microsoft press release, "With Launch of Tablet PCs, Pen-Based computing is a Reality," November 7, 2002, http://www.microsoft.com/presspass/features/2002/Nov02/11-07tabletlaunch.mspx. See also Supersite for Windows, "Windows XP Tablet PC Edition: A Look Back," July 15, 2011, http://www.winsupersite.com/article/windows-xp2/ windows-xp-tablet-pc- edition-139838.

34 Microsoft press release, "Q&A: Microsoft Unveils Details for Ultra-Mobile Personal Computers," March 9, 2006, http://www.microsoft.com/presspass/ features/2006/mar06/03-09Mobile.mspx.

35 CNET News, "Reality check for the much-hyped Origami PC," March 9, 2006, http://news_cnet.com/Reality-check-for-the-much-hyped-Origami- PC/2100-1044_3-6047643.html?.

36 DailyTECH, "Microsoft 'Courier Mini-Touch Computer Concept Revealed," September 23, 2009, http://www.dailytech_comm/licrosoft+Courier+MiniTouch+ Computer+Concept+Revealed/article16314.htm. See also DailyTECH, "Microsoft Kills Courier Dual-screen Tablet Project," April 29, 2010, http: // www.dailytech.com/Microsoft+Kills+Courier+ Dualscreen+Tablet+Project/article18268.htm.

37 Apple press release, "Apple Launches iPad," January 27, 2010, http://www.apple.com/pr/library/2010/01/27Apple-Launches-iPad.html.

38 Business Insider, "Steve Jobs: Tablets Are Not PCs and Our Competitors Don't Get It," March 2, 2011, http://www.businessinsider.com/ steve-jobs-tablets-are-not-pcs-and-our-competitors- dont-get-it-2011-3.

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first quarter following shipment of the iPad2 in March, 2011. Gartner Group estimates sales of 47.9 million iPads in 2011.39

Rival device manufacturers are scrambling to manufacture competing tablet devices. By one count, more than 60 different manufacturers will introduce competing products in 2011.40 A variety of hardware manufacturers, including Acer, Asus, Dell, HTC, LG, Motorola, Samsung, and Toshiba, have adopted Google's Android operating system as the platform for competing media tablets they plan to ship in 2011.41 Gartner Group estimates that by 2012, Android-based tablets will capture 25% of media tablet sales, while other mobile operating systems, including QNX (Research in Motion), WebOS (Hewlett-Packard), and MeeGo (Nokia), will claim approximately 12% of sales.

Notably, Microsoft is not mentioned in Gartner's tablet sales forecast. Microsoft is reportedly planning to release a new operating system dedicated to media tablets in the fall of 2012, but has not formally announced its plans to do so.42 A fall 2012 release would put Microsoft two years behind Apple. Microsoft has announced that Windows 8 will run on the low-power ARM chips found in many media tablets and smartphones available today.43

In addition to general-purpose media tablets such as the iPad and Samsung's Galaxy, more specialized devices that substantially overlap with tablet functionality have been a commercial success in the marketplace for some years. Amazon's Kindle e-reader was introduced in November 2007, and was quickly followed by a number of e-reader products from other vendors, including Barnes & Noble. These devices run on Android, Linux, and Microsoft

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39 Gartner Group press release, "Gartner Says Apple iOs to Dominate the Media Tablet Market Through 2015, Owning More Than Half of It for the Next Three Years," April 11, 2011. See also Bloomberg, "Apple Profit Tops Estimates on Record Sales," July 19, 2011, http://www.bloomberg.com/news/2011-07-19/ apple-s-profit-beats-estimates-on-iphone-ipad- sales-shares-surpass-400.html.

40 The Economist, "The Difference Engine: Send in the clones," March 11, 2011.

41 CNET News, "CES: Android Tablet Preview," December 20, 2010, http://howto.cnet.com/8301-11310_39-20026183-285/android-tablet-preview/.

42 CNET News, "Report: Microsoft's tablet OS not due until 2012," March 3, 2011, http://news.CNET.com/8301-10805_3-20039105-75.html. See also Bloomberg Businessweek, "Microsoft Said to Plan Windows Release for Tablets in 2012," March 4 2011, http://www.businessweek.com/ news/2011-03-04/microsoft-said-to-plan-windows-release-for-tablets-in-2012.html.

43 Microsoft press release, "Microsoft Announces Support of System on a Chip Architectures From Intel, AMD, and ARM for Next Version of Windows," January 5, 2011, http://www.microsoft.com/presspass/press/2011/janl1/01-05socsupport.mspx.

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operating systems.44 Microsoft has not offered an e-reader product to compete with Amazon's Kindle or Barnes & Noble's Nook products.

When introduced, these devices were narrowly targeted as readers for electronic books, but manufacturers are adding a wider set of capabilities to follow-on products. For example, an updated version of Barnes & Noble's Nook Color released in April 2011 includes e-mail, support for Adobe Flash, and downloadable Nook apps and has been described as an iPad competitor and a "tablet in e-reader clothing."45 These changes make the e-reader a closer substitute for tablet computers.

C. Mobile Devices Present a Nascent Threat to Microsoft's Monopoly in PC
Operating Systems.

Mobile devices represent a clear, if nascent, competitive threat to Microsoft's Windows PC monopoly. This threat is currently particularly significant for individual users. Consumers who use their PCs primarily for email, Internet access and media now have increasingly good substitutes that do not rely on Microsoft operating systems. Tablets, for example, are attractive compared to PCs because they deliver "a richer experience around content consumption," and offer desirable characteristics for users engaged in social networking. For users who particularly value mobility, tablets and smartphones offer reduced power consumption, all-day battery life, and lighter weight. Tablet computers are the mobile device most similar to PCs, but the extent to which users rely on smartphones for search, email access and other "PC-like" functions implies that these devices also have the potential to reduce demand for PCs.

Mobile devices are unlikely to replace the personal computer in the short run, but analysts note that tablets are already serve as a substitute for some PC users. A Nielsen survey of tablet owners found that 32-35% of tablet owners who also own a PC reduced their PC use after purchasing a tablet. Further, 77% of tablet owners used tablets for tasks they would have previously performed with a laptop or desktop computer.

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44 Digital Book Readers, "Top 3 Operating Systems for E-Readers," January 12, 2010, http:/www.digital-book-readers.comltop-3-operating-systems-for-e-readers/.

45 See BN.com, nook color, http://www.barnesandnoble.com/nookcolor/ index.asp. See also MobileBeat, "Nook Color takes on iPad with possibly 3M units shipped," March 28, 2011, http://venturebeat.com/2011/03/28/ nook-color-3m-shipped/, MobileBeat, "Confirmed, Nook Color getting apps, tablet features with update," March 25, 2011, http://venturebeat.com/2011/03/25/ nook-color-tablet-features/.

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As would be expected from this substitution pattern, tablet sales appear to have reduced PC sales. Within the PC segment, mobile PCs for consumers have led PC sales growth over the past five years,46 but growth in this segment fell during the first quarter of 2011 while tablet sales surged.47 Acer, the industry's leading supplier of netbook computers -the "nearest neighbor" among PCs to tablet computers - has been particularly hard hit. Its U.S. unit shipments fell 42% in the U.S. and 16% globally in the first quarter of 2011, and Acer's management has publicly identified tablets as the cause.48

Microsoft's failure to innovate successfully in mobile operating systems has meant that it has been unable to take advantage of a growth opportunity. With its failure to compete effectively in mobile operating systems, Microsoft has not only missed a profitable business opportunity but has given rivals and new entrants an opportunity to challenge its Windows PC monopoly.

IV. Microsoft's Current Conduct in Asserting Patents Against Barnes & Noble Appears
to be Anticompetitive and Part of a Larger Campaign Against the Open-Source
Android Operating System.

Unable to compete in mobile operating systems and observing the success of competing systems that have the potential to undercut its monopoly in PC operating systems, Microsoft is apparently now engaging in an "industry-wide" patent offensive against the Android operating system.

I understand that Microsoft contacted Barnes & Noble in early 2010 to discuss "patent issues" relating to Barnes & Noble's Nook products. Microsoft alleged that Barnes & Noble Nook and Nook Color e-readers infringed certain Microsoft's patents. During that discussion and in subsequent discussions between Microsoft and Barnes & Noble, I am informed that Microsoft claimed that its patents allow it to control the entire Android operating system. In addition, Microsoft insisted that Barnes & Noble sign a non-disclosure agreement ("NDA") to

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46 Gartner Group, "Gartner Lowers PC Forecast as Consumers Diversify Computing Needs Across Devices," March 3, 2011.

47 Gartner Group, "Gartner Says Worldwide PC Shipments in First Quarter of 2011 Suffer First Year-Over-Year Decline in Six Quarters," April 13, 2011.

48 Asymco, "First Quarter PC Forecast: Windows Down 2%, Mac + iPad up 250%," April 14, 2011, http://www.asymco.com/2011/04/14/first-quarter-pc- forecast-windows-down-2-macipad-up-250.

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cover any discussions between the two parties even though Barnes & Noble claimed that the patents at issue were public information. Further, based on representations from Barnes & Noble, the licensing agreement that Microsoft proposed to Barnes & Noble limited, restricted or entirely eliminated Barnes & Noble's ability to upgrade or improve its Nook products. Indeed, Barnes & Noble describes the proposed licensing agreement as prohibiting it from incorporating innovative features into its Nook products, features unrelated to the patents at issue, without negotiating a new license fee with Microsoft. Microsoft also reportedly requested that Barnes & Noble pay a per unit fee that is higher than any reasonable rate for minor product features. Barnes & Noble has represented to me that the per-device fees demanded by Microsoft are the same or higher than those that Microsoft requires for OEMs licensing Microsoft's entire mobile operating system, Windows Phone 7. Because Barnes & Noble refused to sign a licensing agreement that it believed would have severely restricted its ability to innovate and required it to pay Microsoft a licensing fee for an entire operating system, Microsoft brought litigation against Barnes & Noble for its use of the Android operating system for its Nook products.

Moreover, Microsoft's conduct against Barnes & Noble has not occurred in isolation, but appears to be part of a larger Microsoft campaign against Android. Microsoft has acknowledged that it has an "industry-wide" licensing strategy aimed at the Android operating system.49 Microsoft's "industry-wide" program would require each OEM supplying Android-based mobile devices to make payments to Microsoft for each device shipped that contains an Android operating system. This program is reminiscent of Microsoft's per-processor license agreements for MS-DOS that resulted in a consent decree with the Government in 1995.

Indeed, Microsoft has apparently decided to use its patents to demand that manufacturers of an Android-based mobile device take a license from Microsoft and pay a licensing fee for the entire Android operating system similar to what Microsoft charges for a Windows Phone 7 license. If a manufacturer refuses to pay Microsoft a license fee for the entire Android operating system, it does so with the knowledge that Microsoft has not hesitated to pursue litigation against

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49 "The Android platform infringes a number of Microsoft's patents, and companies manufacturing and shipping Android devices must respect our intellectual property rights. To facilitate that we have established an industry-wide patent licensing program for Android device manufacturers."- Statement of Horacio Gutierrez, Microsoft Corporate Vice President and Deputy General Counsel, BGR, "Microsoft sues Barnes & Noble, Foxconn over Android eReader," March 21, 2011, http://www.bgr.com/2011/03/ 21/microsoft-sues-barns-noble-foxconn-over-android-ereader.

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such manufacturers. For example, Microsoft is currently suing Motorola with respect to patents allegedly infringed by the smartphone products supplied by them.50 My understanding is that these suits are based on the claim that Microsoft owns patents that are infringed by the Android operating system that is provided free of charge by Google and used in at least some of the mobile devices supplied by these firms. News reports also indicate that Microsoft recently demanded that Samsung pay a $15 license for each smartphone handset it makes that uses the Android operating system.51

Additionally, as noted in Section III above, Microsoft recently entered into an agreement with Nokia, one of the largest suppliers of smartphone handsets and the holder of over 10,000 patents, whereby the two companies will pool their patents to be used offensively. One of the main intents of Microsoft and Nokia in signing this agreement may be to form a patent pool that will be used to assert an even broader set of patents against the Android operating system or the devices that use the Android operating system.52

Further, Microsoft recently led groups of companies in attempts to purchase two patent portfolios each of which has the potential to be used offensively against Android. The first, Novell's patent portfolio, was purchased by CPTN Holdings, a consortium originally led by Microsoft.53 Novell's patent portfolio was intimately connected with open source Linux software. The U.S. Department of Justice intervened before Microsoft was able to acquire any of the Novell patents. The Department noted that the deal could have "jeopardize[d] the ability of open source software, such as Linux, to continue to innovate and compete in the development and distribution of server, desktop, and mobile operating systems, middleware, and virtualization

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50 CNET News, "Aiming at Android, Microsoft sues Motorola," October 1, 2010, http://news.cnet.com/8301-13860_3-20018305-56.html.

51 Reuters, "Microsoft wants Samsung to pay smartphone license: report," July 6, 2011, http://www.reuters.com/article/2011/ 07/06/us-samsung-microsoft-idUSTRE7651DB20110706.

52 The CEO of Nokia stated that "Microsoft plus Nokia has a remarkably strong intellectual property portfolio. That is something that we will use appropriately within the context of our ecosystem, which means both defending the ecosystem from outside attacks as well as appropriately ensuring that the value that we have created through out patents are properly collected from other people who may choose to take advantage of that technology." "Nokia Conversations: Q&A videos, break down,"
http://conversations.nokia.com/2011/02/22/ opne-letter-from-ceo-stephen-elop-nokia-and- steve-ballmer-microsoft.

53 PCWorld, "Microsoft Purchasing 882 Novell Patents," November 22, 2010, http://www.pcworld_com/businesscenter/article/211366/microsoft_purchasing_882_novell_patents.html.

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products."54 Second, another Microsoft-led group recently agreed to purchase Nortel's patent portfolio of more than 6,000 patents for a "staggering" $4.5 billion.55 While I am not familiar with the specifics of Nortel's portfolio, such an acquisition by Microsoft has the potential to be used offensively against Android. Indeed, by its own admission, Microsoft already has "a worldwide, perpetual, royalty-free license to all of Nortel's patents that covers all Microsoft products and services, resulting from the patent cross-license signed with Nortel in 2006."56 Given existing rights to use these patented technologies, the reason Microsoft is interested in acquiring the patents themselves would seem to be to assert the Nortel patents affirmatively against others. Further, the Microsoft-led group outbid Google by five times Google's offer price of $900 million. Google noted following the patent auction that Microsoft's purchase of the patents "is disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition."57

Taken together with Microsoft's "industry-wide" licensing program, litigation based on trivial and outmoded patents, the Nokia agreement and the CPTN transaction, the Nortel patent deal may have anticompetitive effects for mobile operating systems. Further, as demonstrated below, Microsoft has a pattern of attempting to harm competition and innovation when it cannot compete by offering better products at better prices. This conduct has been found to be anticompetitive by the antitrust authorities and the courts and has occurred in circumstances parallel to those currently faced by Microsoft with respect to mobile operating systems.

V. Microsoft's Current Conduct With Respect to Mobile Operating Systems,
Particularly Its Actions Against Android, Parallels Its Prior Anticompetitive
Conduct Related to MS-DOS and Browsers.

Microsoft's current conduct in mobile operating systems parallels its prior conduct when faced with a nascent technology that posed a threat to its PC operating system monopoly. In the

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54 U.S. Department of Justice, "CPTN Holdings LLC and Novell Inc. Change Deal in Order to Address Department of Justice's Open Source Concerns," April 20, 2011, http://www.justice.gov/opa/pr/2011/April/11-at-491.html.

55 Forbes.com, "Nortel patents sell for staggering $4.5 billion," July 1, 2011, http://billionaires.forbes.com/ article/0dcg3o0fIi4Sy?q=Microsoft+Corporation.

56ZDNet, "Will Microsoft try to outbid Google for Nortel's patents?", April 4, 2011, http://www.zdnet.com/blog/microsoft/ will-microsoft-try-to-outbid-google-for-nortels-patents/9088.

57 Tech Crunch, "Google Responds to Nortel Patent Loss: 'The Outcome Is Disappointing'," July 1, 2011, http://techcrunch.com/2011/07/01/google-nortel-patents/.

15

past, Microsoft has responded to such threats with anticompetitive conduct that exploited its dominant position in PC operating systems to stifle competition. The latest threat to Microsoft comes from the Android mobile operating system, and Microsoft's efforts at innovation appear to have failed. Assuming that Barnes & Noble's characterization of Microsoft's patents and its use of those patents is correct, Microsoft has again turned to anticompetitive tactics to defeat a new threat to its dominant position.

Given the historical parallels between Microsoft's prior conduct and its current conduct in mobile operating systems, it is useful to quickly review some history to provide further insight into Microsoft's current strategy for attacking Android. In the recent past, when faced with an actual or potential threat to its dominance, Microsoft has attempted to reduce competition. This pattern of conduct includes at least two sets of events: (1) the operating system threat to Microsoft's MS-DOS operating system in the late 1980s, and (2) the browser and Java threat to Microsoft's Windows 95 operating system in the mid-1990s.

A. Microsoft Responds to the OS Threat With Anticompetitive Conduct.

In the late 1980s, Microsoft's MS-DOS was the dominant PC operating system. MS-DOS had the same advantages of incumbency and network effects that later protected its Windows product. "Network effects" is a general term used to describe a phenomenon in which the use of some product becomes more valuable to an individual user when more users adopt it. As a result of Microsoft's incumbency and network effect advantages, competition against MS-DOS was effectively barred to any standalone operating systems product that might seek to replace the dominant MS-DOS standard. That did not, however, preclude potential entrants from attempting to use other strategies to compete with MS-DOS and that possibility created concern within Microsoft, leading it to create additional entry barriers.

One entry strategy pursued by potential entrants was to market a product that could compete within the MS-DOS standard as a "clone" of MS-DOS. A clone product would not need to replace the MS-DOS standard and therefore would not be impeded by the network effects that made replacing the standard so difficult. The cloning strategy had proven to be very successful in the PC industry of this era. In fact, clones of IBM's standard PC offered by competing OEMs had created intense competition in PC hardware. Similarly, in operating systems, Microsoft had become a competitor for PC operating systems by buying a clone of an

16

operating system supplied by Digital Research. Because cloning can be an effective entry strategy, Microsoft had reason for concern when Digital Research in turn marketed an MS-DOS clone called DR-DOS at the turn of the decade.

A second entry strategy of concern to Microsoft at that time was that sellers of complementary applications might use their customer relationships with PC buyers to enter the OS business or to form an alliance with an OS firm other than Microsoft. This strategy would be attractive to participants in the PC ecosystem because it would limit the share of the PC rents Microsoft could capture through its monopoly power. One kind of firm that might have been able to successfully sponsor a competing OS was a firm currently selling a widely successful application to PC customers. A likely candidate at the time was WordPerfect Corporation, which sold the market-leading WordPerfect word processing application.

Another similar threat faced by Microsoft came from important innovations in complementary markets. When such innovations lead to new ways to use PCs or permit new kinds of PC applications, they can weaken the entry barriers associated with established network effects. One such complementary innovator was Novell, whose Network Operating System (Netware) had the potential to enable new, network-based applications and permit new uses of PCs. This was a potential competitive threat in which many end user applications would be network centric - as they are today - rather than run primarily on the PC, as they did at that time.

Faced with the problem of potential entry from cloners -including the firm against which Microsoft had earlier entered as a cloner - and from strong, innovative suppliers of popular complementary software, Microsoft turned to buttressing the entry barriers that arise from network effects by constraining distribution and restricting innovation by independent software vendors (ISVs).

First, Microsoft required PC OEMs to sign a so-called "per processor license" agreement as a condition for installing MS-DOS on any computer sold by the OEMs. Under the per-processor license, an OEM would pay Microsoft a fee for each PC it sold, whether or not that particular PC had MS-DOS installed on it when sold. This was accurately characterized by FTC Bureau of Competition head Tom Campbell as one of the most nakedly anticompetitive contracts ever seen. This contract directly imposes costs on customers, the OEMs, for using the product of a Microsoft competitor. If an OEM installed DR-DOS rather than MS-DOS, for example, it

17

would have to pay Microsoft as well as Digital Research. The payment to Microsoft when a competitor's OS was installed was not linked to any value provided by Microsoft to the customer. Rather, it was effectively a tax on competitors that Microsoft could impose because it was the dominant supplier of PC operating systems. No OEM could compete for PC buyers without offering some PCs on which MS-DOS was installed. As a result, no OEM could refuse to pay the Microsoft tax on competition. For an OEM to be willing to install DR-DOS on a new machine, its supplier would have to reduce the price of the operating systems enough to reimburse the OEM for the payment to Microsoft.

In defense of its anticompetitive conduct, Microsoft alleged that the per-processor license was a reasonable mechanism to prevent users from violating its copyrights. Under this theory, Microsoft claimed that when an OEM shipped a PC without MS-DOS installed, the end customer would install an illegal copy of MS-DOS on the computer thereby evading paying for the OS. This theory gained considerable credence in policy circles, despite the fact that brief consideration of the OEM business quickly reveals it as specious. First, the OEM business was extremely competitive, and firms other than those under contract with Microsoft could have supplied the “bare"machines on which illegal copies of the OS could have been installed. Thus, the contractual restriction imposed by Microsoft could not have accomplished its alleged goal. Second, the leading OEMs did not compete by selling bare "boxes" but rather by providing fully configured, easy-to-use machines.

A second strategy used by Microsoft in that era was to compel ISVs to sign very restrictive NDAs as a condition of getting information about how to write applications that could interact with MS-DOS. These NDAs restricted the ISVs from entering the OS market themselves or from working with another ISV with a competing OS. The pro-competitive purpose of protecting confidential information was used as a cover for anticompetitive terms.

These strategies have clear analogues in Microsoft's conduct as described by Barnes & Noble today. Requiring an OEM to pay a tax (license fee) for every handset on which a competitor's product (Android) is installed is directly comparable to the "most nakedly anticompetitive contract ever seen" that required a per-processor fee. Similarly, Microsoft's requirement that Barnes & Noble sign an NDA to discuss publicly available information

18

parallels Microsoft's use of overly restrictive NDAs associated with MS-DOS to stifie competition.

B. Microsoft Responds to the Browsers and Java Threats with Anticompetitive
Conduct.

Microsoft's "per processor license" agreements for MS-DOS and its restrictive NDAs were not the only prior instances in which Microsoft sought to block the innovation of actual or potential competitors.

By the early 1990s, Microsoft had a monopoly in PC operating systems. Its Windows product line was the dominant PC operating system and nearly all PCs ran on Windows. While a small share of personal computers ran the MacOS from Apple, and a few exceptionally adept personal computer users relied on some version of UNIX, the world of personal computing for consumers and enterprises was a Windows PC world. Individual computer users were particularly captive to Microsoft's operating system dominance. Whereas enterprises could substitute to mainframes or servers, either of which might use some non-Windows OS, for at least some computing needs, individuals had no good substitute for PCs. Unlike the situation facing Microsoft today, the smaller devices available at the time, such as the Newton or the Palm Pilot, did not materially affect the demand for PCs.

Further, network effects again created very high barriers to entry for any competing operating system. In PCs, users want to use an OS that enables them to use applications (like spreadsheet and word processing programs) that are compatible with those used by others. Users also want to use an operating system that has many available applications. ISVs that develop applications want to write applications that run on the most popular operating system. As Windows became the dominant PC operating system, more users adopted it and more ISVs developed applications for it, reinforcing its dominant position. In the 1998 antitrust action against Microsoft brought by the U.S. Department of Justice and twenty state attorneys general, the network effects that created high barriers to entry were called the "applications barrier to entry." 58

__________________
58 See Findings of Fact, United States v. Microsoft Corp., 84 F. Supp. 2d 9 (D.D.C. 1999) (98-1232) ("Findings 0f Fact"),
http://www.usdoj.gov/atr/cases/f3800/msjudge.pdf, ¶¶ 36-52.

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The threat to Microsoft's monopoly position in this period, however, came not from a competing operating system supplier but from a fundamental change in computing. Independent inventors, including academics, entrepreneurs, and large companies, developed a set of important technologies which would transform and extend mass market computing. Today, we call this collection of technologies "the Internet," a label that encompasses a wide range of technologies, including parts of telephony, the worldwide web, and, most importantly for Microsoft, new ways for users to acquire the functionality that had been the sole province of the PC and Windows. In particular, the Internet browser created an avenue for applications that were OS independent and Java provided a way for developers to create OS-independent applications.

These new technologies were mostly organized as open-system platforms and therefore facilitated interoperability of complementary software and hardware supplied by competing firms. As a result, there was an open invitation for both new entrepreneurial firms and existing firms, such as Microsoft, to participate in the invention of a new, network-oriented form of mass-market computing. The capabilities of Microsoft's products before Bill Gates called out the importance of Internet computing in his now-famous "Internet tidal wave" memo suggest that Microsoft gave little attention to the emerging importance of Internet-based computing.59 The widespread use of the Internet was driven by other firms.

Microsoft's position changed radically in the spring of 1995, when Microsoft realized that there was a threat to its dominant position in mass-market computing as a result of the network-centric innovations by others. Microsoft launched a broad, concerted effort to catch up with the early innovators and to become the technological leader. But the central locus of the competitive challenge was in technologies, such as the browser and Java, where Microsoft lacked both products and a technological base. The firm found itself far behind in a number of new standard-setting races, including the race that became known as the "browser war."

Microsoft threw enormous resources into competition with the more Intemet-oriented firms, and in browsers it succeeded in developing and improving its Internet Explorer. It was, however, unable to develop a product that could compete with its new competitors on

_______________
59 See Memo from Bill Gates to Microsoft staff "The Internet Tidal Wave," May 26, 1995, http://www.justice.gov/atr/cases/exhibits/20.pdf

20

technological merit. In the end, Microsoft won the browser war by imposing anticompetitive restrictions on the ability of its new competitors to gain widespread distribution. But for those restrictions, Microsoft could well have lost the browser war, and would have been at risk that new and effective competition would undercut its Windows monopoly.

Microsoft used a variety of anticompetitive tools in its attempt to stop the commercialization of innovation by its competitors. For example, it offered to split the browser market with Netscape, ceding to Netscape markets for browser software on certain hardware platforms in return for Netscape's agreement not to market a browser for PCs running Microsoft's Windows 95 operating system.60 But the most effective of Microsoft's anticompetitive tools were restrictions on the distribution of competing browsers. Microsoft, for example, was able to almost entirely exclude Netscape's browsers from distribution with new PCs through contractual restrictions it imposed on the OEMs making and selling Windows and Macintosh personal computers. These contracts required OEMs to bundle Internet Explorer with every PC and charged a higher price for its Windows operating system - effectively imposing a tax on the OEM - for every PC that also included Netscape Navigator. Because an OEM would be willing to include Netscape Navigator only if Netscape absorbed the cost of the tax, this was effectively a tax Microsoft imposed on a competing product. Netscape browsers were also excluded almost entirely from distribution through Internet Service Providers (ISPs) who offered the second most important distribution channel for browsers. Microsoft paid ISPs to distribute its browser rather than Netscape's to avoid, in the words of a Microsoft executive in open court, "losing side by side product comparisons with Netscape."61 Ultimately, the browser war was won by Microsoft not because of superior products but because of restrictions on the distribution of Netscape's products. Once the browser war was won, the competitive threat to Window receded.

Microsoft also undertook other anticompetitive strategies to preserve its Windows monopoly that, while less effective than restricting distribution, were also aimed at preventing competition. ISVs were contractually banned from working with technologies Microsoft viewed as part of the competitive threat. Since the entrants creating the new, network-centric computing

________________
60 Findings of Fact, ¶ 83.

61 See Plaintiffs' Joint Proposed Findings of Fact (Redacted), United States v. Microsoft Corp., http://www.justice.gov/atr/cases/f2600/2613overview.pdf, p. 1.

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paradigm consisted of an open-systems cluster of firms, denying them the opportunity to work with existing ISVs (and suppliers of other complementary technology) struck at the core logic of the entrants' strategy.

There is a serious debate among economists as to the merits of open-systems competition and competition among closed, sponsored platforms as models for organization of platform industries. Economists largely agree, however, that customers and society as a whole will realize greater benefits from open-systems competition when important innovations will arise from exploring a new area that will yield new applications and new users. The development of the Internet was just such an opportunity for exploration. The open-systems approach of the firms that pursued a network-centric approach to mass-market computing - most notably Netscape, Sun Microsystems, and the numerous technology firms interested in development of Java-based applications - was therefore well-suited to the task. Today, the mobile arena, populated by smartphones, tablets and media readers from a wide variety of companies, and by applications and infrastructure software from an even wider variety of companies - from the smallest entrepreneurs to some of the largest and most successful companies in the world -is similarly ripe for exploration. As in the early days of the Internet, there is now substantial uncertainty about how mobile technologies and the use of those technologies will evolve. It is a time of exploration, and open systems like the Android operating system are an appropriate response to the challenge of innovation in mobile operating systems.

Furthermore, even those who claim that closed, proprietary architectures are superior note that they have different performance characteristics than those of open systems. They invent different kinds of things. In a time of uncertainty about the future direction of innovation, society would be very well served to have a competitive innovation race between an open-systems approach and a closed, proprietary architecture. Microsoft's attack on the open-systems Internet entrepreneurs denied society that valuable heterogeneous competition among innovators. An attack on open-systems innovation today would once again reduce the heterogeneity of innovative efforts, an outcome that is clearly bad for society if open and closed systems provide different innovations to society (regardless of whether or not one is superior to the other).

All the anticompetitive strategies embraced by Microsoft in the 1990s attacked the fundamental premise of entry and competition by open-systems firms. Netscape's Navigator

22

browser and Sun's Java development language could only succeed if a large number of firms worked with them. Only if OEMs put these technologies on PCs, only if ISPs distributed them, only if developers wrote applications that worked with them could these technologies be commercially successful. Attracting a wide variety of hardware and software developers to supply complementary products is critical to the success of open systems innovation. Absent collaborators, open systems platforms are unlikely to be able to compete.

Using contracts rather than technology, Microsoft succeeded in blocking not only widespread distribution of these new technologies, but also widespread collaboration with them. Today, we see the same assault on open-source software in mobile operating systems. Unable to compete with mobile operating systems like Android on the merits, Microsoft is seeking to prevent third parties - handset manufacturers, for example - from working with the open-source software by imposing prohibitively expensive costs on those manufacturers.

Microsoft has attempted to frame its attack on Android as a simple matter of exercising its intellectual property rights, claiming that its ability to exercise its patent rights is essential to its ability to innovate. This argument echoes its claim that the Government was restricting its "freedom to innovate" when it blocked (or attempted to block) Microsoft's contractual assault on the new, Internet-centric model of computing. Now, as it did then, Microsoft wraps itself in the mantle of "innovation," this time saying that as a patent holder it has the right to prevent or heavily tax the innovation of others. Now, as it did then, Microsoft seeks to block competing innovators from working with the complementors that are essential to the commercial success of the new platform.

VI. Conclusion.

Microsoft has failed to compete effectively in the rapidly growing business of mobile operating systems. Its failure to compete has deprived it of the ability to participate in a new, vibrant and profitable business, and because Microsoft has been unable to compete in mobile operating systems, other companies have begun to develop and commercialize technologies that have the potential to erode Microsoft's monopoly in PC operating systems. In particular, manufacturers' adoption of the open source Android operating system poses a substantial, possibly the greatest, threat to Microsoft's PC monopoly. While it may be premature to view PC

23

operating systems and mobile operating systems as interchangeable, these systems have the potential to converge as the technology of mobile operating systems continues to advance and as consumers substitute consumption of mobile device services for PC services. Therefore, the threat that Microsoft faces from Android and other mobile operating systems should be viewed through the prism of Microsoft's larger fear that Android will erode its monopoly in PC operating systems.

Additionally, Microsoft's conduct toward Barnes & Noble, including the demand that Barnes & Noble pay a per-device licensing fee for the entire Android operating system similar in magnitude to the Windows Phone licensing fee based on the assertion of trivial patents, parallels Microsoft's prior anticompetitive conduct vis-a-vis competing operating systems and other technology firms that threatened its monopoly in operating system software. As in the past, Microsoft has not hesitated to engage in anticompetitive conduct to maintain its monopoly in PC operating systems, a monopoly it has maintained for over twenty years now despite challenges from new entrants and new technologies. Microsoft's current "industry-wide" campaign targeted at manufacturers that use Android is another example of such anticompetitive conduct.

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Appendix A:
Selected Publications by Timothy J. Bresnahan on Competition in High Technology
Industries

1. "Creative Destruction in the PC Industry," Chapter 4 (pp. 105-140), in Perspectives on Innovation, Cambridge University Press 2007, Stefano Brusoni and Franco Malerba, eds.

2. "Pro-Innovation Competition Policy: Microsoft and Beyond," in the Proceedings of the Competition Policy Research Center, Fair Trade Commission of Japan Inaugural Symposium, 2003.

3. "Why the Microsoft Settlement Won't Work," IEEE Spectrum, September 2002.

4. (with Franco Malerba) "The Value of Competitive Innovation," in Technology and the New Economy edited by Chong-En Bai and Chi-Wa Yuen MIT Press, 2002.

5. "A Remedy that Falls Short of Restoring Competition," Antitrust, v 6. n. 1, December 2001.

6. (with George Hay, Richard Gilbert, Daniel Rubinfeld, Lawrence White, and Bruce Owen (all former chief economists of the antitrust division)) "Brief of Economists Amicus Curiae in US v Microsoft."

7. "Competition Cooperation, and Predation in Innovative Industries," in Fighting Cartel Why and How? The 3rd Nordic Competition Policy Conference in Stockholm. Konkurrensverket, Swedish Competition Authority, September 2000.

8. (with Pai-Ling Yin) "Economic and Technical Drivers of Technology Choice: Browsers," Annales d'Economie et de Statistique, November, 2006, Special Issue from the Zvi Griliches Memorial Conference, Jacques Mairesse and Manuel Trajtenberg, eds.

9. (with Pai-Ling Yin) "Reallocating Innovative Resources Around Growth Bottlenecks," Industrial and Corporate Change 2010; Volume 19, Issue 5, pp. 1589-1627.

10. (with Shane Greenstein and Rebecca Henderson) "Schumpeterian competition and diseconomies of scope, illustrations from leading historical firms in computing," forthcoming in the NBER 50th Anniversary Volume of the Rate and Direction of Technical Change, Josh Lerner and Scott Stern, eds.

11. (with Pai-Ling Yin) "Standard Setting in Markets: The Browser War," in Standards and Public Policy, Cambridge University Press 2007, Shane Greenstein and Victor Stango, eds.

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We'll add the last half as soon as we finish, but this is surely enough to satisfy your immediate curiosity.

Update 2: We've finished. Thank you, guys, for helping out. And wasn't it worth it to see this expert point out that the old Microsoft and the "new" Microsoft look pretty much the same?


  


Barnes & Noble Exposes Microsoft's "Trivial" Patents and Strategy Against Android ~pj Updated | 180 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections here
Authored by: SilverWave on Sunday, November 13 2011 @ 06:36 PM EST
:-)

---
RMS: The 4 Freedoms
0 run the program for any purpose
1 study the source code and change it
2 make copies and distribute them
3 publish modified versions

[ Reply to This | # ]

Off Topic Here
Authored by: SilverWave on Sunday, November 13 2011 @ 06:37 PM EST
:-D

---
RMS: The 4 Freedoms
0 run the program for any purpose
1 study the source code and change it
2 make copies and distribute them
3 publish modified versions

[ Reply to This | # ]

News Picks Here
Authored by: SilverWave on Sunday, November 13 2011 @ 06:38 PM EST
;-)

---
RMS: The 4 Freedoms
0 run the program for any purpose
1 study the source code and change it
2 make copies and distribute them
3 publish modified versions

[ Reply to This | # ]

Comes Stuff Here
Authored by: SilverWave on Sunday, November 13 2011 @ 06:39 PM EST
:-

---
RMS: The 4 Freedoms
0 run the program for any purpose
1 study the source code and change it
2 make copies and distribute them
3 publish modified versions

[ Reply to This | # ]

Preventing upgrades and improvements
Authored by: Anonymous on Sunday, November 13 2011 @ 06:42 PM EST
the proposed license would have severely limited and, in some cases, entirely eliminated Barnes & Noble's ability to upgrade or improve the Nook(TM) or Nook Color(TM)
Perhaps this might also help explain that chart which showed up recently, showing how few Android phones are receiving "upgrades and improvements"..?

[ Reply to This | # ]

Wow this really is a bit of a bomb shell :-)
Authored by: SilverWave on Sunday, November 13 2011 @ 07:15 PM EST
The only problem I have is seeing anything been done about it in light of
previous experience.

That said maybe the EU will have a look into this?

Also things have changed in at least one respect, that is MS is now fighting
some one with large financial resources, at least at at distance, if not
directly.



---
RMS: The 4 Freedoms
0 run the program for any purpose
1 study the source code and change it
2 make copies and distribute them
3 publish modified versions

[ Reply to This | # ]

People never learn
Authored by: Anonymous on Sunday, November 13 2011 @ 08:42 PM EST
Microsoft claims its precious IP is threatened. Microsoft
refuses to be specific and forces NDAs on everyone to
silence them. When it finally comes to light, Microsoft has
nothing ... no precious IP is being violated, and the
licensing deals are just protection money paid to avoid
baseless lawsuits.

Yet no matter how many times this happens, the Microsoft
apologists keep saying that open source is "stealing" from
Microsoft and must be punished. On the contrary, Microsoft
is doing the stealing, using an oppressive and broken patent
system that allows bullies willing to lie to extract
penalties for irrelevant patents ... simply because the
target is too poor to defend themselves.

It is sick. When is this society going to stomp Microsoft
into the ground and put their board and executives in jail
where they belong?

[ Reply to This | # ]

This is the Big Bomb...
Authored by: Anonymous on Sunday, November 13 2011 @ 08:57 PM EST
1. My understanding is that it is the responsibility of the patent applicant to
disclose existing prior art.

2. As I read the excerpts from the Barnes & Noble letter, they have
identified material examples of prior art, that should have been disclosed by
the applicant to the patent examiner, and which, if disclosed, would have
precluded issuance of the several patents.

3. As I read the letter, it appears that Microsoft did not so disclose...

4. It is a crime, I believe a felony, to, in general, make a false statement to
a federal official in furtherance of official business. In particular, I
believe there are specific crimes associated with false statements (including
omission of required disclosure) in patent matters.

5. The assertion of fraudulently obtained patents, as part of an attempt to
create or maintain a monopoly would link both sets of actions into a single
criminal conspiracy.

6. Forget about Microsoft, the corporation, there are individuals whose names
are on the patent documents, and on the correspondence with Barnes & Noble,
and the other 'licensees'. Those individuals have personal criminal liability
for all criminal actions taken in furtherance of the criminal conspiracy by ANY
of the conspirators.

7. As for Microsoft the corporation, they have a history...

Barnes & Noble has just pulled the trigger on the largest thermonuclear
device ever fabricated in modern legal practice. Forget fines and money, if
this goes the distance, some people will spend the remainder of their lives in
federal prisons.

This is a really really big deal.

I remain, NOT A LAWYER
JG

[ Reply to This | # ]

Support Barnes and Noble
Authored by: Anonymous on Sunday, November 13 2011 @ 09:52 PM EST
Not that most consumers usually give a rip, but I hope that
conscientious buyers will take B&N's brave stance into
account and choose the Nook Color over the Kindle Fire. I
like Amazon too, but B&N gets my dollars here because they
took a principled stand, whereas Amazon knuckled under.

(OTOH, Amazon is not knuckling under to the RIAA with regard
to the rights of consumers to keep their files on servers and
access them for personal use).

[ Reply to This | # ]

What is the penalty for violating an NDA?
Authored by: artp on Sunday, November 13 2011 @ 11:29 PM EST
I ask because something like this really makes me think that
someone should have reported a crime long before this.

I shall have to remember this. If some criminal tells me not
to tell anyone what he is doing, and I don't, then I am
criminally liable as an accomplice for what he was doing.

However, if I have a lot of money, a brand name and a
distribution channel, then I can call that promise an NDA,
and apparently get off scot free. What is the legal standing
of all the other companies who saw this coercion happening
from a convicted monopolist and didn't report it? Shouldn't
they be tried as accomplices, too?

One of the axioms of computer security is that bad security
only inconveniences honest people. The criminals find a way
around it and script it long before most people find out
about it in the first place. NDAs only keep honest people
from reporting crimes. NDAs allow crooks to keep doing what
they want. Although, I should mention that NDAs could
conceivable be used in a good manner, too.

---
Userfriendly on WGA server outage:
When you're chained to an oar you don't think you should go down when the galley
sinks ?

[ Reply to This | # ]

Finally!
Authored by: celtic_hackr on Sunday, November 13 2011 @ 11:40 PM EST
Finally someone makes the argument I've been waiting to hear. I've read bunches
and bunches of these useless software patents, and I really shouldn't. As one at
least ordinarily skilled in the art I can tell you not much more than a single
one of the patents I've read have disclosed the art by which I could proceed to
implement the patent. That is an absolute requirement to the issuing of the
patent. The only two patents I can recall that disclose the art are the MSDOS
filename patents and the gif patent.

Finally B&N plainly state this abuse and resulting invalidity "While
the specification notes the desired functionality of the claimed web browser, it
provides no software code, points to no exemplary web browsers, and provides no
other technical details explaining how ...".

The other thing that bothers me is that there is no longer a requirement to have
a functional model. Whereas in software, there is really no huge cost preventing
one from doing this. It should be an absolute requirement for a software patent
to include at a minimum the algortihm(s) invented.

If one can't produce either pseudocode or an algorithm, how do we know they
invented anything? Without either algorithm or pseudocode it's mere conjecture
you've invented something. Until you've actually written the code or proven it
you have only got an idea in your head.

Same thing goes for the real world. You might have a marvelous "idea"
to build an airplane, but unless you've proven your design either on paper, in a
software program or actually built a working model how does anyone know if that
you can actually build a working model. It doesn't matter how brilliant or
innovative your idea is, unless you have the actual skills to build it, or to
direct another on how to build it.

That, is a major reason why the patent system of today doesn't work. Lawyers are
sitting in boardrooms "inventing" software patents, lawyers who
probably couldn't program their way out of a virtual paper bag.

[ Reply to This | # ]

netbook redux
Authored by: sumzero on Monday, November 14 2011 @ 01:56 AM EST
sounds like a continuation and extension of the strategy ms
used to hobble the early netbook market, where ms got to
dictate hardware specs to oems...

sum.zero

---
48. The best book on programming for the layman is "alice in wonderland"; but
that's because it's the best book on anything for the layman.

alan j perlis

[ Reply to This | # ]

Working on Exhibit F
Authored by: kattemann on Monday, November 14 2011 @ 04:38 AM EST
I'm on it.
tesseract did a good job, but the footnotes have to be typed ...

[ Reply to This | # ]

The unasserted patents
Authored by: NigelWhitley on Monday, November 14 2011 @ 06:09 AM EST
According to Exhibit D, the '517 and '352 patents relate to file name
compatibility and were used in discussions prior to Microsoft initiating legal
action against B&N, but not asserted in that action.

These patents appear to be the same ones which previously were used to
"encourage" the likes of Samsung to sign agreements on the use of USB
sticks with a Linux kernel, in particular using fat filesystems. IMHO (IANAL) it
seems curious that MS declined to assert patents which it had previously used
successfully. One might imagine that MS would go with its strongest weapons and
the track record of 8.3 file name patents seem to place them in that category.

The decision to "yank" those patents suggest at least a couple of
interesting possibilities, other than the simplistic one that MS just randomly
picked which patents to assert. The first is that the changes to the way the
kernel handles fat compatibility have pre-empted any claim for infringement and
MS didn't want to test that in court. Another is that MS didn't want to risk
losing one of its big sticks by having to discuss its claims outside an NDA,
thereby risking the wider community seizing the opportunity to expose the
weakness of their claims.

The latter might be even more damaging to MS because, in the course of
explaining why the particular patents do not infringe, it could indicate to the
less enlightened journalists just how ludicrous the patent FUD spread by MS
truly is. It might even help them to see how hopelessly broken the US patent
system is when it permits patents on mathematics and arbitrary choices.

Microsoft's negotiating tactics remind me of those employed by a scandal-monger
to the Duke of Wellington, and BN's response mimics the the Duke's alleged
response "Publish and be damned". In this case, the reluctance to
"publish" those patents seems most damning of all.
---------------------
Nigel Whitley

[ Reply to This | # ]

Linux on the desktop...
Authored by: Anonymous on Monday, November 14 2011 @ 06:10 AM EST
I guess we've all concluded something like this was happening for desktop linux
for quite some time. Whenever larger OEMs would offer linux on desktops it
would be almost impossible to find or buy the actual machines on their websites.
In addition, "OEM X recommends Windows Y" would be plastered on every
page of their site/handouts.

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At what point could...
Authored by: hAckz0r on Monday, November 14 2011 @ 07:43 AM EST
At what point could the other Android agreements/contracts with Microsoft be subpoenaed? If they include NDA's I would assume they would still be redacted or even not available to the public? Does B&N first need to be sued by Microsoft or would the ITC just start requesting copies of contracts for their own internal investigation without an actual lawsuit in progress?

Also, Is there an official way for other parties to contact the ITC and point out such things as the Android Update chart with respect to the dates of their own Microsoft Agreements? I would bet there is a strong correlation to the lack of updates with respect to the date of the M$ extortion agreement/NDA. That little fact would be quite telling of the actual success of Microsoft's intellectual property extortion program.

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DRM - As a "solution", it solves the wrong problem; As a "technology" its only 'logically' infeasible.

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Barnes & Noble Exposes Microsoft's "Trivial" Patents and Strategy Against Android ~pj
Authored by: Anonymous on Monday, November 14 2011 @ 08:49 AM EST
The DoJ is run by politicians. I think politicians are a
fickle lot. They go which ever way the most favorable wind
takes them (i.e. they have no principles or moral compass.)
I'd guess that should this get serious, unbiased (ya, right)
major media coverage many politicians will begin to distance
themselves from M$ money. Politicians can be honest, if it
suites their needs.

The other thing here that others have pointed out is that
many of the software patents are in direct violation of
the laws set forth by Congress regulating patent grants.
It would seem to me that the courts are duty bound to
void such patents. If the average citizen can see that
a patent application didn't meet all the requirements,
it should be no-brainer for a judge.

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Why is Microsoft doing this?
Authored by: Anonymous on Monday, November 14 2011 @ 09:21 AM EST
Easy answer:
1) Control
2) Damage to competition
3) Advantage to their products
4) Revenue Stream
5) They feel they can get away with it (and have so far)

Did I forget anything?

--not logged on 'cause I forgot my password

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Infringer says patents are stupid and invalid, news at 11.
Authored by: Anonymous on Monday, November 14 2011 @ 10:17 AM EST
Really, why even bring this up here? This is standard fare in patent litigation. The only difference is B&N is complaining to the DoJ, probably because they have absolutely nothing to use against MS, whereas the other Android OEMs at least had a few patents to cross license.

Also, having had experience with patent trolls before, the sign-an-NDA- before-we-tell-you-anything approach seems to be SOP. It's a huge pain because often the guy won't even tell you why he's calling until you sign an NDA. Only if you've been through it before would you guess that he's going to talk infringement and/or licensing.

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Exhibit F as HTML sent to PJ
Authored by: feldegast on Monday, November 14 2011 @ 10:36 AM EST
I have emailed PJ an OCR of Exhibit F: White Paper of Timothy
J. Bresnahan, with HTML

---
IANAL
My posts are ©2004-2011 and released under the Creative Commons License
Attribution-Noncommercial 2.0
P.J. has permission for commercial use.

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Mice Replacements
Authored by: Anonymous on Monday, November 14 2011 @ 11:19 AM EST

In terms of their being needs for devices to provide the functionality of a mouse, I remember reading about a product called NOD back in the mid 1980's which seemed quite novel to me. Wikipedia has a little writeup on NOD, and the company it came from (Sage/Stride).

Sage Computer Technology

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  • Mice Replacements - Authored by: Anonymous on Wednesday, November 16 2011 @ 05:20 PM EST
On the FAT patents...
Authored by: Anonymous on Monday, November 14 2011 @ 12:04 PM EST
"As Barnes & Noble highlighted in its Response it filed with the
International Trade Commission, the '517 and '352 patents deal with nothing more
than the compatibility between file names employed by operating systems used and
sold today, and more primitive file names employed by old, unused, and outmoded
operating systems. This is of no importance to either the Nook or Nook Color,
which are more modern products. Neither product infringes any valid, enforceable
claims of the '517 or '352 patent."
While this may be true if the Linux kernel in the Nook do not contain the FAT
filesystem, I'd emphasize the importance of the patents for interoperability
with the dominant Windows operating system and how MS only supports patented
filesystems in Windows (FAT, exFAT, NTFS).

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"The Microsoft dominated MPEG-LA consortium"!???
Authored by: Anonymous on Monday, November 14 2011 @ 02:03 PM EST

That's quite a stretch for that letter to call MPEG-LA "Microsoft dominated". Microsoft owns some patents that are in the pool, but their share pales compared to Panasonic, Fraunhofer, LG, and Toshiba, all of which have many more patents in the pool. In addition, there are a very large number of company with only a few patents in the pool (Apple, for instance, has 4), so in terms of the total pool, Microsoft is even less significant.

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Barnes & Noble Exposes Microsoft's "Trivial" Patents and Strategy Against Android ~pj Updated
Authored by: Anonymous on Tuesday, November 15 2011 @ 07:29 PM EST

Why is Microsoft doing this? Why, I can't help but wonder also, does it think it can do it and suffer no legal consequences? In one letter to the US Department of Justice, asking it to initiate an investigation, Barnes & Noble put it succinctly:

Sadly the answer to your question should be obvious. Microsoft has been found guilty numerous times of monopolistic practices. What has been their punishment thus far? Have they changed business practices and become a better company?

Business as usual it seems. Give lots of money to lobbyists that give lots of money to politicians and do what ever you wish to do.

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James Watt: Monopolist
Authored by: Anonymous on Wednesday, November 16 2011 @ 06:05 AM EST
or how patents held back the industrial revolution... see here

Once Watt's patents were secured and production started, a substantial portion of his energy was devoted to fending off rival inventors. In 1782, Watt secured an additional patent, made "necessary in consequence of ... having been so unfairly anticipated, by [Matthew] Wasborough in the crank motion". More dramatically, in the 1790s, when the superior Hornblower engine was put into production, Boulton and Watt went after him with the full force of the legal system.

During the period of Watt's patents the United Kingdom added about 750 horsepower of steam engines per year. In the thirty years following Watt's patents, additional horsepower was added at a rate of more than 4,000 per year. Moreover, the fuel efficiency of steam engines changed little during the period of Watt's patent; while between 1810 and 1835 it is estimated to have increased by a factor of five.

As far as I'm concerned, Microsoft has held back the progress of computing by possibly some 15 years from what we could have now...

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Is Google the New Apple?
Authored by: Anonymous on Wednesday, November 16 2011 @ 12:06 PM EST
In light of B&N claims, has Microsoft created a new Apple in forcing Google
to purchase Motorola? If this B&N news becomes widely known, i.e. OEMs
signing agreements to self-cripple their own products via less features and
updates, then Motorola becomes the one Android phone OEM that will have a
compelling, market leading Android product. I've recently left HTC for the Moto
Droid Bionic. Thank goodness I did for this B&N news would have left me
sick. (I often wondered why system updates and feature enhancements were few and
far between.) As an aside, I also purchased Moto's new Lapdock for it and have
been blown away with joy (It's what a smartphone should be).

For OEMs like HTC, Samsung, Amazon, et al to handcuff themselves for essentially
nothing is shameful. What this Microsoft give in (War, actually, with Nokia
joining in) amounts to is abuse of their customers who must bear the cost of
needlessly more expensive and less functional products.

With Microsoft picking off the weaker Android OEMs, Google, like Apple, may
stand alone as a vertical integrated software hardware player. Sue them
Microsoft.

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Barnes & Noble Exposes Microsoft's "Trivial" Patents and Strategy Against Android ~pj Updated
Authored by: jsusanka on Wednesday, November 16 2011 @ 12:28 PM EST
Barnes & Noble should bring up HP and their recent decisions
regarding the WebOS and then supporting windows 8 that isn't
even out yet. I think that needs investigating too.

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Barnes & Noble Exposes Microsoft's "Trivial" Patents and Strategy Against Android ~pj Updated
Authored by: Anonymous on Thursday, November 17 2011 @ 11:13 AM EST
Any way Groklaw subscribers/readers can participate? Petitions to DOJ?

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Todd (Nokia)
Authored by: Anonymous on Thursday, November 17 2011 @ 01:00 PM EST
Todd, you read this? It appears that M$ is wanting to take on the Android world.


Can you comment on some of this?

Tom B

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