Microsoft Proves in Law And Business, The Best Defense is (Still) A Good Offense

Best settle your patent cases now; the rules are about to change. In its final appeal of a massive $290 million jury verdict, Microsoft argued in front of the Supreme Court that the standards for patent infringement should be loosened to allow more frequent legal challenges and, ostensibly, to promote competition. Strangely, if the law changes and eases the requirements for patent infringement, Microsoft will be one of the first to lose.

The IFI Claims Patent Service reports that Microsoft was approved 3,094 patents in 2010—placing them third behind leaders IBM with 5,896 and Samsung with 4,551. This compared to just 563 patents for Apple, ranked 46 on the same list last year. Of all the recent gadgets, however, it is Apple’s products that stand out. The iPod, the iPad, and certainly the iPhone opened not only new markets in the computer, mp3, and smartphone industries, but created utter obsessions within the techno-elite and new generations alike. 

So after spending $9 billion per year on research and development, why is Microsoft struggling to innovate? Reuters’ investigative team attempted to answer this question. Its Special Report found:   

“Microsoft’s been playing defense for the last 10 years,” said [a] former executive. “They are trying to protect existing revenue streams rather than taking risks. New revenue streams put the old ones at risk, and those old ones support thousands of people in the company. It’s a difficult situation to be in.”   

And again, in 2011, Microsoft is suffering a similar fate of always being the bridesmaid, and never the bride. With $200 million in damages at stake in a Supreme Court Case—Microsoft Corp v. i4i Limited Partnership (No. 10-290)—Microsoft, once again, is on the defensive. But even if Microsoft wins, and the Supreme Court does alter prior precedent for patent protection, the company loses. Microsoft’s 2009 10-Q reveals it has over fifty other patent infringement cases pending, including ten with trial dates in the 2010 fiscal year. Expect these already high numbers to skyrocket once the law changes the standards for patent infringement—Microsoft becomes an easy target for finding loopholes in new legal language. Also, the already measly reward for its large R&D investment plummets, as other companies will start to swipe Microsoft’s creations without fear of prosecution.

In the technology world, maintaining a strict defensive is often called the “innovator’s dilemma.” This occurs when a company concentrates on protecting existing markets as opposed to establishing new ones, and when they blindly follow the adage that good managers keep close to their customers. Instead, success is often driven by the uniqueness of internal management—about getting the right people in your firm, and then properly motivating them (See Duly Noted: Post-Its Show Law Firms How To Stick With It and The Surprising Science of Motivation).  

So, before your firm sets out a legal defense, be sure of its consequences and effects on your other cases and clients. Be careful about clients’ influence over the direction of your legal arguments, but be certain that winning a case does not come at the cost of their future business outlook.  

Within the firm, balance your portfolio of plaintiff and defense suits to ensure litigation trends favoring one over the other doesn’t unravel your bottom line. And, most importantly, when it comes to internal firm management, be sure your partners and senior associates are adequately rewarding risk and innovation on the part of younger attorneys.  

Microsoft’s fate is not in the hands of the Supreme Court, rather its own management decision-makers. Stories surrounding Microsoft tend to focus on turf wars and power struggles. Although not ranked as high in terms of patents, Apple’s corporate culture is about innovation and collaboration, which define success more than numbers.                                                                          

-WB  

Read about Microsoft’s Supreme Court defense here.

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