SCN: Net royalties

Wed May 22 17:05:50 PDT 2002

x-no-archive: yes

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(David Berlind, ZDNet)---Just prior to launching my investigative 
report on whether Microsoft and IBM were plotting to take over the 
Internet, I received a phone call from my colleague and fellow 
columnist David Coursey, asking me if I had forgotten to take my 
daily medication. 

He had good reason to wonder whether I had lost my mind. I'll be 
the first one to admit that the idea that two companies--even ones 
as big as Microsoft and IBM--could conspire to take over the 
Internet on the basis of software patents and royalties is, well, "out 
there."  

Casting further doubt upon my theory was Coursey's subsequent 
interview with Microsoft platform strategy group general manager 
Charles Fitzgerald, who said: "While this may be disappointing to 
some conspiracy theorists, Microsoft has absolutely no ambition, 
plan, or desire to collect a royalty on Internet traffic." Fitzgerald 
went on to say, "Burdening the underlying standards with 
additional costs would both undermine this strategy and fly in the 
face of our business strategy of delivering high-volume, low-cost 
software."  

We should thank Coursey for getting this official statement from 
Microsoft. When coupled and compared with the testimony of one 
of the same company's highest-ranking officers, it is clear to me 
that one of two things happened. Either the company attempted to 
deceive Coursey, his readers, ZDNet, and the public; or Fitzgerald, 
a Microsoft general manager, didn't know what the company's 
official position was. You decide.  

The conspiracy theorist Fitzgerald refers to is me, and the rest of 
what Fitzgerald said lies in stark contrast with the testimony of 
Microsoft VP Jim Allchin during the ongoing antitrust proceedings. 
Kevin Hodges, an attorney representing the litigating states, 
probed for the truth about Microsoft's intent with respect to its 
intellectual property rights over technologies that were submitted to 
the World Wide Web consortium (W3C) for consideration as 
standards. The line of questioning speaks for itself:  

Hodges: And if you look at the bottom of the page, is it correct that 
once again Microsoft has reserved the right to charge a royalty for 
its technology used in this submission? 

Allchin: Yes. If you have intellectual property and you follow the 
laws that the--the laws, the patent submission guidelines for W3C, 
if you have intellectual property, it's pretty reasonable that you get 
paid for it. We haven't decided that we're going to charge royalties.

Hodges: But you've reserved the right, correct?  

Allchin: Yes.  

Hodges: And I take it you haven't decided you're not going to 
charge royalties?  

Allchin: Um, I'm not going to make that statement here today. We're 
thinking about it.  

"We're thinking about it." That's a bit different from what Fitzgerald 
told Coursey, that "Microsoft has absolutely no ambition, plan, or 
desire to collect a royalty on Internet traffic."  

So far, Fitzgerald has refused to comment on the issue. Over a 
period of one week, several attempts were made to schedule a 
telephone interview to give Fitzgerald an opportunity to explain the 
discrepancies between what he said to David Coursey and what 
Jim Allchin said to the court. Through Microsoft's public relations 
firm Waggener-Edstrom, Fitzgerald declined a telephone interview, 
offering only to answer my questions via e-mail by end-of-day May 
20, 2002, which I reluctantly accepted. However, Fitzgerald and 
Waggener-Edstrom's self-imposed deadline have come and gone, 
without any correspondence via telephone or e-mail from either.  

Just in case this debate degenerates into an argument over 
semantics, Microsoft may indeed have no ambition to charge 
royalties on Internet traffic itself. But any royalty charged to anyone 
(for example, another software vendor) for complying with an 
Internet standard ultimately shows up in the cost of creating traffic 
that's based on that standard. Either that, or the royalty is so 
expensive that no one pays it, and the only way to comply with the 
standard is to buy the technology from Microsoft. Now you 
understand why the question is relevant to an antitrust hearing.  

More important is the issue of trust. Microsoft apparently responds 
differently when it's under oath than when it's not--for example, 
when journalists have the same questions that lawyers do. If you're 
not convinced, the previous example isn't the only one. In a story 
that explored Microsoft's and IBM's motives for not inviting Sun 
Microsystems to be one of the founding members of the Web 
Service Interoperability Organization (WS-I), officials from both 
companies concocted logic for the decision that was almost too 
easy to debunk.  

But just in case anybody thought I forgot to take my medication on 
that day as well, the very same court transcript revealed that the 
decision to exclude Sun from the WS-I came right from the very 
top. In responding to the idea of the WS-I, which was code-named 
"Foo" at the time, Microsoft CEO Bill Gates wrote in an e-mail: "I 
can live with this if we have the positioning clearly in our favor," 
and "in particular, Sun not being one of the 
movers/announcers/founding member."

In an interesting bout of clairvoyance that took place the week 
before the revelation of Gates's e-mail, IBM mysteriously 
backpedaled on its resistance to allowing Sun into the WS-I as a 
board member. Now that the truth is out of the bag, it's easy to 
understand IBM's interest in distancing itself from a situation that's 
not only embarrassing, but that could easily lead to an antitrust 
inquiry of its own. 

Formed by IBM and Microsoft, the WS-I is an organization that will 
produce Web specifications; these specifications, if left unchecked 
(and much to the chagrin of the W3C), stand a good chance of 
becoming the de facto standard protocols that will make up the 
next-generation infrastructure of the Internet. If IBM and Microsoft 
own the intellectual property to those specifications, they could 
end up with a duopoly over the Internet.  

Why Microsoft continues to dig itself into a grave of mistrust is 
anyone's guess. Surely, the company must understand that no one 
is going to want to do business with a company that has one story 
when it's under oath, and another when it's not. Perhaps Gates 
should delete the word "computing" from his "trustworthy 
computing" initiative and just work on the first part for now.  

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