Microsoft IP&L

The team player

portfolio to support the company’s business Horacio Gutierrez has been objectives. But how do we know if we’re Microsoft’s chief intellectual property successful?” officer for three years now. In that A question of metrics time he has built a 200-strong team During the meeting, team members and dealt with issues fundamental to reported on the work done to date in the company’s future developing various quantitative metrics to assess the business impact of the By David Kline company’s IP strategies. While many of the specifics of their discussion are The members of the Intellectual Property confidential, suffice it to say that the and Licensing (IP&L) finance team sat in a objective of this unique IP&L initiative is to conference room on Microsoft’s main be able to determine more reliably the value Redmond, Washington, campus last 9th of, say, a cross-licence with a large company March, trying to get to grips with a problem in a market in which Microsoft would like that has long confounded corporate IP to do business, compared to the costs and departments around the world. benefits of taking a different approach – Interestingly, the issue under discussion building a portfolio of its own, for example, was not how to achieve IP&L’s ambitious or acquiring a third-party portfolio. goals despite the recent imposition of a 15% It’s not just a simple matter of running budget cut in response to the current some net present value scenarios; not when economic crisis. Efficiencies, after all, were each of the potential IP strategies under already in place that had reduced the cost of consideration involves complexities that a first patent filing by 43%. And new cost- would challenge even the most Type A, saving initiatives underway would further numbers-driven individual (and Microsoft streamline the cost of building, maintaining is famous for filling its employee ranks with and leveraging Microsoft’s IP portfolio. such people). Rather, the question that really stretched As Gutierrez put it: “When you look at the minds of finance team members during your product and technology road maps, its bi-annual Practice Business Review you need to ask which innovations session with corporate vice president and differentiate our offerings from others in IP&L chief Horacio Gutierrez was how, the market, and what sort of IP protections precisely, to develop quantitative metrics by will enable greater market success and in which to assess the strategic business value turn increase our ability to invest in future of the company’s IP strategy. innovations? And, what’s the best path for Taylor Hawes, who was then just 64 securing those rights? Will we have the days into his job as IP&L’s new CFO, time and money to build our own portfolio? summed up the challenge: “How do we Or conversely, does it make sense to develop a common framework and language facilitate collaborative innovation with to understand and measure the benefits and others through something like a patent costs of various IP strategies?” cross-licence? What rights would I have to Gutierrez put the issue in even simpler trade for the rights the other company terms: “We know our job is to use our IP would give me? And what would be the www.iam-magazine.com Intellectual Asset Management July/August 2009 37 Microsoft IP&L

competitive implications of that bargain?” At that, one member of the team sighed and said: “My head hurts.” Everyone laughed, providing a brief respite from the tension. This new IP metrics initiative at Microsoft could potentially have relevance for other corporate IP departments. As Gutierrez noted in a later interview: “We’ve all heard the complaint for years that the kind of work that we do in IP really can’t be measured quantitatively since so much of it is strategically oriented. Legal work especially has always been seen as quality driven, not numbers driven. And it’s certainly true, you know, that when you get into issues of strategy, numbers really don’t tell the full story.” But, he continued, there is always something that can be measured: vision into concrete programmes that create Practice Business Review, Redmond, “Sometimes the best you can do is find tangible business value for the company. March 2009 proxy measures. But if you combine Says chief trademarks, copyrights and Gutierrez (centre) talks to Tom Rubin quantitative measures of the impact of your trade secrets counsel Tom Rubin: “Marshall (copyrights and trademarks); to his right IP investments with the more strategic came in and tore down the old building and Taylor Hawes (CFO), then Bart Eppenauer business considerations, which are by poured a new foundation. Horacio is the guy (patents) and David Kaefer (licensing) nature more subjective and qualitative, who rolled up his sleeves and built a very leaning back you’re going to get a much more accurate successful IP programme on top of that picture of the business value you’re foundation.” generating for the company. Not perfect, Indeed, Gutierrez has accomplished a but a much better picture.” good deal during his three-year tenure and Of special significance for corporate IP his plans for the future suggest more is to leaders everywhere, he believes, is the come. He led the team during Microsoft’s possibility that as such metrics continue to 2006 negotiations with Novell, for example, be developed, they will help to propel IP that came up with the creative work-around strategy issues more forcefully into to the restrictive patent provisions of the corporate executive suites, where they open source General Public License – rightfully belong. “CEOs understand providing a covenant not to sue to metrics,” Gutierrez notes. “They understand customers rather than licensing patents the bottom line. So this allows you to have a directly to Novell. This led to the world’s conversation with business leadership in first-ever IP collaboration between an open terms they can naturally relate to.” source and proprietary software firm. Gutierrez also created new IP policy An unlikely path and IP communications teams within IP&L The strategy metrics effort is just one of a to help Microsoft engage more effectively number of innovations in Microsoft’s 205- in the intensifying global debate over person IP group that the 44-year-old patent reform and the role that intellectual Gutierrez has undertaken since he succeeded property plays in innovation and economic Marshall Phelps as Microsoft’s chief development. In addition, he stepped up intellectual property officer three years ago. efforts to deploy an outside virtual law One might imagine that it has not been easy firm and also started offshoring some stepping into the shoes of such an outsized technical analysis and other operational personality as IP Hall of Famer Phelps, who tasks to India that have to date reduced attracted worldwide notice when he came to the average cost to the company of a first Microsoft in 2003 and committed the filing of a patent in the US from over company to a more open and collaborative IP US$14,000 to US$8,000. Gutierrez has licensing policy. This was in contrast to its also launched several experimental previous fortress mentality approach of changes in IP&L’s structure that have jealously guarding its technology. But improved the ability of its various teams Gutierrez, by nature more reserved and even to help support innovation strategy within self-effacing in his manner, appears at least each of Microsoft’s five major business on the surface to be unfazed by the challenge. groups in order to enable them to meet Perhaps that’s because he’s so focused on their market and business objectives translating Microsoft’s collaborative IP more effectively.

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Even the twice-yearly Practice Business thought about it, the more excited I got Reviews, during which each of IP&L’s six about the possibility of working with a practice teams (patents, licensing, IP leading company like Microsoft and dealing policy, trademarks and copyrights, with all these cutting-edge legal issues customer advocacy and finance) around computer law, intellectual property summarises the state of play in its work and competition law that were just gaining and the key challenges ahead, are an prominence at the time.” innovation Gutierrez brought from his So he joined Microsoft’s Fort Lauderdale previous position in Paris as head of office in 1998 as the company’s lead Microsoft’s Law and Corporate Affairs commercial lawyer for Latin America and Department for Europe, the Middle East the Caribbean (excepting Brazil, which was and Africa. the responsibility of a Brazilian attorney “With everyone so geographically hired the same day as Gutierrez). There he dispersed, the only way to really keep my continued to focus on software licensing, IP finger on the pulse of the work was to bring and international competition law. It was an people together to talk in person about the experience which would prove especially challenges they were facing,” he explains. valuable when Microsoft asked him two “The PBRs also helped break down the years later to move to Redmond and become inevitable silo mentality of each team. The the lead lawyer for the company’s volume benefits of these practice reviews were so software licensing programmes. clear to me that when I later took over the IP&L group, I decided to employ the same Competition challenges process here in Redmond.” What does international competition law Gutierrez came to his current role at the have to do with volume software licensing? helm of Microsoft IP&L by a rather More than you’d think, actually. But serendipitous route. Born and raised in software licensing was merely Gutierrez’s Venezuela, he received his bachelor’s and day job. Brad Smith – at the time a deputy then his postgraduate degrees in law from general counsel for international law and the Catholic University of Venezuela (he corporate affairs, and now the company’s would later also earn a master’s degree from general counsel – asked him to help develop Harvard Law School and a juris doctor some of the evidence for the European degree from the University of Miami). Upon antitrust investigations against Microsoft graduating in 1986, he began working for a then getting underway. This required local law firm that represented a number of Gutierrez and a colleague to spend a good international clients. He developed deal of time travelling around Europe and expertise in corporate law and cross-border obtaining written testimony from some 50 financing. He was also one of the few customers and partners on Microsoft’s IP attorneys in Venezuela at the time practices and the level of interoperability registering copyrights for software. offered in the company’s products In the mid-1990s, he came to the US and compared to those of other businesses. took a job at Morgan, Lewis and Bockius in So it did not come as a complete surprise Miami, where he specialised in IP issues in when the company asked him in 2002 to Latin America. A few years into his stint at relocate to Paris and lead its law and the firm, Gutierrez wrote an article for a law corporate affairs work for Europe, Africa and review on how companies should deal with the Middle East. Four years later, when Phelps international liability issues in addressing shifted to an ambassadorial role as corporate the much-feared (at the time) Year 2000 bug. vice president of IP policy and strategy, “After that article was published,” Gutierrez was called back to Redmond to lead Gutierrez recalls, “I got a call from someone the day-to-day work of IP&L. in the Microsoft legal department asking to The imprint of Gutierrez’s efforts at the meet with me in their Fort Lauderdale intersection of international competition office. And I was very excited. I thought, law and IP policy is evident in IP&L’s work ‘I’m going to land Microsoft as a client!’ So today. Take the IP Policy function, which I showed up at the meeting with my suit Gutierrez initiated 15 months ago. The and tie and a litigator’s case full of team is led by Richard Wilder, formerly brochures about the firm.” director of the Global Intellectual Property But the Microsoft representative had Issues Division of the World Intellectual other plans. “We’re not interested in the Property Organization (WIPO). Wilder also firm,” he told Gutierrez. “We want to talk to previously worked with the Bill and you about joining Microsoft.” Melinda Gates Foundation on its global Gutierrez says it took him quite a while health efforts. The IP Policy team’s mission to make up his mind. “But the more I is to develop a range of global policy www.iam-magazine.com Intellectual Asset Management July/August 2009 39 At the IAM website you can:

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Inside Microsoft Intellectual Property and Licensing

Horacio Gutierrez CVP, Deputy General Counsel

Katie Carter Jennifer Norris Executive Business IP&L Business Administrator Manager

Regan Wesley- Taylor Hawes David Kaefer Tom Rubin Richard Wilder Ted MacLean Bart Eppenauer Lori Harnick Kirschner CFO, IP&L GM, IP Licensing Chief Counsel, Associate General GM WW Customer Chief Patent Senior Director, HR Manager Trademarks, Counsel Advocacy & Counsel Public Relations Copyrights and IP Policy Licensing – LCA Trade Secrets initiatives dealing with everything from but in 2007 announced that it would accept patent reform and IP’s role in driving R&D the decision. Then in 2008, the EC in new healthcare and energy technologies, announced it would investigate the to the steps that governments ought to take company’s support for Microsoft Office’s to promote small business IP creation and Open XML format. And in January of this maintain a sustainable, balanced approach year, it decided also to investigate the to IP protections so that these continue to bundling of Microsoft’s Windows Explorer promote innovation and economic growth browser with the Windows operating system. around the world. Having spent so many years on the The challenge here is a big one. The continent working on IP and competition whole world over, debates are raging in policy issues, Gutierrez certainly recognises government, policy-making, academic and that there is a divergence of views between industry circles over whether intellectual the US and many Europeans on certain property in general, and software patents in aspects of the interplay between intellectual particular, continue to serve society by property and competition law and policy – promoting innovation and economic and in particular regarding the circumstances development. Especially as the economic under which a compulsory licence of crisis deepens, some argue that intellectual property may be warranted. governments ought to mandate a preference “At present we don’t have a coherent, for supposedly lower-cost open source- unified approach to applying antitrust only solutions and even abrogate IP rights principles to IP-related activities and in order to achieve greater interoperability. transactions,” Gutierrez says. “While some They condemn IP as a tool of monopolies limitations on abusive practices involving IP and cloak their arguments in the rhetoric of are necessary, care must be taken to ensure the “common good”. But many experts that antitrust doctrines do not believe that these proposals, if enacted, unnecessarily undermine the innovation- would cut the heart out of today’s vital enhancing effects of IP by imposing IT economy. compulsory licensing obligations upon the As Mark Blafkin of the policy group IP rights that constitute the basis of Association for Competitive Technology product differentiation and competition in recently put it: “We haven’t seen such the technology market.” intense hostility to IP in many decades, and despite decades of tangible, factual support Spreading the good news for IP’s benefits, I wonder if we’re actually As if the global IP debate and European losing the debate. At the very least, we’re antitrust challenges were not difficult enough not winning it – not yet, anyway.” for Wilder’s IP Policy team, Microsoft also This debate is especially intense in faces a special problem in the antipathy that Europe, where Microsoft has long been under many in the technology community feel for fire from European regulators. In the 2004 the company. Indeed, in some circles, ruling on its antitrust case, the European Microsoft has become the proxy for all things Commission ordered the company to “evil” – big companies, successful unbundle Windows Media Player from its companies, software patents, patent trolls and Windows operating system and pay a even intellectual property itself. This despite US$794 million fine. The company appealed the fact that IBM, for example, receives twice www.iam-magazine.com Intellectual Asset Management July/August 2009 41 Microsoft IP&L

as many patents as Microsoft, generates 10 times more revenue from patent licensing than Microsoft and litigates its patents far more often than Microsoft. In fact, Microsoft has filed only three patent infringement suits in its history – the latest being the recently settled case against GPS device maker TomTom, which generated fears in open source circles that Microsoft was preparing to launch a new war against open source even though the company continues to sign partnership deals regularly with companies that run or distribute open source software. On 27th April, the open source group Open Innovation Network announced it would try to invalidate three Microsoft file management patents that were the subject of the TomTom suit, the second time open source groups have attempted to do this. copyrights and trade secrets group took the Brothers in arms Given this hostile climate, how does lead in developing what the Wall Street Gutierrez flanked by Russ Pangborn (to his Microsoft’s IP Policy team makes its case to Journal called an “unusual cross-industry right) and Steve Tapia, both of the policy makers in Europe and elsewhere for accord” with Disney and a dozen high- Trademark and Copyright Group the maintenance of reasonable and balanced profile media and technology companies to IP protections? stand behind a set of rules – called the User “Our job is to engage in a dialogue with Generated Content Principles – to govern people on all sides of the debate and try to the contentious problem of the posting of present the facts, which we believe copyrighted content on social networking demonstrate that effective IP protections sites. More recently, Rubin’s team worked promote innovation, small business growth with the Electronic Frontier Foundation to and economic development wherever they create guidelines that enabled video game exist,” says Wilder. “And so we work now aficionados to use animated characters from with all kinds of intergovernmental Microsoft Xbox and other games – known organisations, NGOs, academics and cross- as “Machinima” – for their own creative industry organisations hopefully to move non-commercial purposes. the debate forward in a positive way.” “Some of the issues we’re working on Inside Microsoft, the search for that directly affect Microsoft’s businesses and proper balance in IP policy suggests a degree some do not,” notes Rubin. “But we strongly of flexibility and open-mindedness that believe that while IP protections certainly critics would have considered unimaginable need to adapt to today’s new conditions, just a few years ago. In a draft paper society has a fundamental interest in circulated by the IP policy team at its fostering a vibrant and sustainable new Practice Business Review in March, for media ecosystem that respects copyright example – entitled IQ + IP: A New IP Policy because it is the essential engine of Framework – the group recommended that continued content creation.” the company initiate a discussion around Given the unprecedented pace of whether to undertake a host of new technological and media changes in recent initiatives on the intellectual property front. years, it is no surprise that Microsoft’s These include: support for IP generation IP&L group devotes a good deal of attention assistance in the form of reduced patent to addressing IP policy issues. But Gutierrez filing and maintenance fees for SMEs; the still faces the challenge of innovating on a encouragement of new IP protections range of other fronts as well. through industrial design rights, in part to One of these is Microsoft’s IP Ventures cope with cross-border software downloads Program. This is a rather unique endeavour, and software-as-a-service offerings; and operating under an open innovation model support for the passage of Bayh-Dole-style that brings together Microsoft IP, legislation in developing countries to entrepreneurs, VCs, technologists and even promote the commercialisation of governmental economic development university-sponsored innovations. agencies to help launch new companies and The IP Policy team, of course, is not the new technologies into the marketplace. In only group Gutierrez has put to work on the last 12 months alone, the IP Ventures cutting-edge intellectual property issues. In Program approach has helped launched October of 2007, Tom Rubin’s trademarks, three new companies, with three new

42 Intellectual Asset Management July/August 2009 www.iam-magazine.com Microsoft IP&L

“My head hurts” Hawes, Gutierrez and Rubin at the IP&L finance team’s Practice Business Review meeting

products, in three different industries, in again in December 2008, the Institute of three different countries. Electrical and Electronic Engineers (IEEE) And, according to Gutierrez, IP Ventures ranked Microsoft the leader among all will continue to look at new and creative technology companies, up from seventh ways to use IP to create economic place in 2006. And in its January 2008 opportunity for Microsoft and others, and quality scorecard, the Patent Board ranked to advance innovation in the marketplace. the company’s patent portfolio number one in both Technology Strength and A question of patents Science Strength. But whatever other new initiatives the IP&L But will a general belt-tightening across group undertakes, a key focus of its effort the group, due to the current economic will probably always lie within the work of crisis, force a retreat in the company’s the patent team, headed by 44-year-old patent position? Chief Patent Counsel Bart Eppenauer. “There’s no doubt that we’re going to His mission is twofold: first, to build and have to dial back some of our patent maintain a large, high-quality patent filings,” says Eppenauer. “We’re still going portfolio, and to do so evermore cost- to file a substantial number, but it’s effectively; and, second, to provide strategic probably going to be closer to 2,000 filings and tactical counselling to each of this year than 3,000. We’re also going to re- Microsoft’s five major business groups (as evaluate some of the patents in the portfolio well as its advanced research division) on the that aren’t as strategically aligned with our ways in which the company’s IP portfolio can business goals, which just makes good help support innovation strategy and enable business sense.” them to meet their technology, market and Of course, this is precisely where the business objectives as effectively as possible. rubber meets the road in patent work – how On the first challenge, there is no to align strategically the company’s IP with denying the success Eppenauer’s team has the needs of its product groups, and use it had in recent years in building one of the to help them meet their business objectives. world’s largest and most valuable high- And here, the work appears to be, if quality patent portfolios. Ranked 34th in US anything, getting stronger. patent issuances when Phelps came on Patent counselling teams are now board in 2003, today Microsoft is among the embedded within the Server and Tools top five US patentees with over 55,000 Division, Entertainment and Devices, issued and pending patents worldwide. On Online Services, Windows and other 10th February, Microsoft announced it had platforms, Microsoft Research, and the received its 10,000th US patent, related to Business Division which handles Microsoft its new Surface technology. This enables Office, Exchange and other users to place real objects such as a mobile communications products. Their job, says phone on the Surface computer’s table-like Eppenauer, is to “deeply understand the display and automatically receive data or technology and the business strategy of media associated with that object. each group and help them succeed with What’s more, patent quality appears to their products and services”. have improved substantially under In practical terms, this means working Eppenauer’s tenure. In November 2007 and with the leaders of each business group to www.iam-magazine.com Intellectual Asset Management July/August 2009 43 Microsoft IP&L

focus innovation and IP efforts on the that can more effectively support the highest-value market needs that can business strategy.” produce the most successful differentiated What were the results of this cross- products and services, and then to group trial programme, which was led by prioritise their patent filings and other IP outbound senior licensing manager investments where they will be most likely Tanya Moore? to produce success in the market. “We got a much better understanding Sometimes that entails building a strong of where the business is going and how they portfolio of Microsoft’s own in a particular see their IP priorities, and the business got market. On other occasions it means a much better understanding of how to deciding to acquire a portfolio to add analyse and choose the right mix of IP strength to Microsoft’s own, or even options that can help them achieve their pursuing a cross-licence with another objectives,” says Gutierrez. major player in the market to create the And the chief lesson he learned from the possibility of even greater success for both pilot programme? than either could achieve on its own. “That this cross-team structure is “We take both a bottom-up and top- absolutely the right thing to do. Because the down approach,” says Eppenauer. “We work outcome of a process that’s designed in this at the front line of the business units. And way from the start is going to be better than we also get feedback and guidance from the outcome of one in which each Brad [Smith, the company’s general functional team contributes its own, counsel], and now that Bill [Gates] is gone, necessarily more narrow, expertise.” who used to be deeply involved in IP Gutierrez pauses a moment. “And matters, from Craig [Mundie] and Ray another lesson we learned is that [Ozzie] as well [the chief research and leadership of this kind of structure needs strategy office and chief software architect to reside in a single person. Because you’re respectively].” going to face some inevitable resistance The input of senior leadership is from people who feel the new approach especially important in guiding the undermines their traditional relationship direction of advanced research and the with the leaders of the business group. So “forward ideation” work led by John it can’t be a debating society. One person Weresh, which seeks to create innovative has to lead.” solutions and associated IP in new As for the future direction of IP&L’s technology arenas that may only become work within Microsoft, Gutierrez says he will crucial five or 10 years down the road. continue to pursue a two-pronged strategy. The effort is also cross-disciplinary, First, continue expanding Microsoft’s says Eppenauer, because often the patent collaborations with others in the industry – counselling teams will need to collaborate more than 500 agreements are now in place with Tom Rubin’s team on trademark – to create new business opportunities in issues, or David Kaefer’s licensing group on today’s open innovation environment. which patents to license in or out for And second, keep building, protecting strategic value, or Taylor Hawes’s finance and leveraging the IP portfolio of what he team on metrics for analysing the costs and believes is one of the world’s most benefits of various IP options available for innovative companies in order to create achieving the business’s objectives. tangible value both for customers and for the company. Tackling weaknesses The current economic downturn, not to But Gutierrez discovered that even with mention regulatory challenges in Europe, is this cross-disciplinary approach, there certainly not making his job any easier. But were still weaknesses in the effort. “I got Gutierrez, ever the pragmatic optimist, feedback from people who felt we were prefers to view these as opportunities to still working in too fragmented a way, keep innovating the work of Microsoft’s attacking problems piecemeal,” he IP&L group to keep pace with a business explains. “So we recently started a pilot and technology world in rapid transition. programme with the front-line legal teams supporting the Microsoft Business Division, which produces Microsoft Office, David Kline is an IP consultant and the co- where we put together a single team made author, with Marshall Phelps, of the new book up of people from copyrights and Burning the Ships: Intellectual Property and trademarks, from patents, from finance the Transformation of Microsoft. Kline also and so on, to think across boundaries and co-wrote the best-selling Rembrandts in the work together on developing an IP strategy Attic: Unlocking the Hidden Value of Patents

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