Microsoft to indemnify most customers from legal threats

'Mostly marketing' with little legal substance say experts

In a bid to further differentiate itself from open-source rivals, Microsoft says it will expand its indemnification program to cover the vast majority of its customers. The move, experts say, is great marketing but will have little impact on users.

For several years, Microsoft has indemnified, or protected, its volume license customers from possible legal threats stemming from their use of Microsoft software. Last year, Microsoft lifted the monetary cap on that protection. The vendor is now extending protection to virtually all users of its products.

"This expansion will cover several million more people," says David Kaefer, director of business development at Microsoft. "We performed a review of the indemnification we offer today and came to the conclusion that there really is no reason why we would not offer it to anybody."

Microsoft's indemnification program protects customers from exposure to legal costs and damage claims related to patent, copyright, trade secret and trademark claims, the company says.

Vendor indemnification programs have emerged as part of users' risk mitigation strategies, especially in the US, which is widely seen as a litigious society. This is particularly true for users of Linux as The SCO Group threatened them with copyright infringement lawsuits.

While having a form of free insurance is always nice, Microsoft's expanded indemnification appears to be mostly a marketing move, says David Elkins, a partner in the intellectual property practice of Squire, Sanders & Dempsey, in Palo Alto. Customers who might ever need the protection, the largest corporations, are already covered, he says.

"Microsoft is using its financial power to enhance its marketing advantage in this particular area," Elkins says. Smaller Linux vendors can't match Microsoft's blanket indemnification because they don't have the financial means, he says.

Indeed, Microsoft plans to make indemnification a more visible part of its Get the Facts campaign, a marketing effort by the company that favorably compares Windows with Linux, Kaefer says.

"Indemnification is one element in overall platform value, just like total cost of ownership, security or reliability," Kaefer says. "If you compare the leading Linux vendors to what we're offering, those vendors really have much narrower indemnification."

Several Linux vendors including Hewlett-Packard, Novell and Red Hat offer indemnification programmes with varying restrictions. IBM does not indemnify its Linux customers.

Al Gillen, a research director at IDC, says that Microsoft's indemnification program expansion won't mean much to software buyers in a practical sense. "The chances are that if a customer was sued over intellectual property violations by Microsoft software there is a pretty good chance that Microsoft would have to step into the fray anyway," he says.

According to IDC research, medium-sized businesses are most worried about protecting themselves against potential legal threats, Gillen says. Large corporations protect themselves with legal staff while small companies feel they are flying under the radar, he says.

The degree of concern depends on the line of business, Gillen says. Risk-adverse companies, such as financial services firms, are more concerned about indemnification than companies in other industries, he says.

Microsoft's indemnification program covers all products except for the embedded products such as, for example, Windows CE and Windows XP Embedded. Microsoft has less control over those products because partners can modify the source code, Kaefer says.

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