Expert: Regulators “slow to catch up” to Microsoft patent bullying

Google and at least one of its Android partners—Barnes and Noble—have been agitating for a government antitrust investigation of Microsoft's patent licensing practices. Last month, Barnes and Noble submitted a formal request for the Department of Justice to launch a probe.

According to Barnes and Noble, Microsoft claims to have over 60,000 patents. Fewer than 20,000 of those were granted by the patent office; Microsoft presumably purchased the other 40,000 from other firms. The result is one of the world's largest "patent thickets." Microsoft has so many patents that it's difficult to build a software product as complex as a mobile operating system without infringing dozens, maybe even hundreds, of them.

And Microsoft is taking full advantage of that fact, approaching each Android-based phone manufacturer in turn and demanding stiff licensing fees—fees that are allegedly at least as high as the fees Microsoft charges for its own Windows Phone 7 operating system. Microsoft has also been cagey about identifying the specific patents allegedly infringed by Android vendors. Some observers (including me) have characterized the process as a shakedown.

So does Microsoft's conduct run afoul of antitrust law? Michael Carrier, an antitrust scholar at Rutgers-Camden, is skeptical. "I'm concerned by a lot of this conduct," he said, but antitrust law has "limited tools" to deal with it. And antitrust regulators tend to be slow to adapt to changing market circumstances.

An uneasy relationship

There's an inherent tension between antitrust law and patent law. Antitrust law exists to prevent the abuse of monopoly power. Patent law deliberately fosters monopoly power. To a large extent, the courts have dealt with this tension by simply giving patent holders the benefit of the doubt.

"Antitrust gives leeway to the [patent] monopolist to set its price," Carrier told Ars. "In fact it even goes beyond that—it says you can refuse to license your patent completely. If a company can refuse to license, then setting a high price is probably OK."

So Microsoft is probably on safe ground when it comes to its basic strategy of using its patent thicket to extract revenues from Android licensees.

One way Microsoft could become vulnerable is if regulators become convinced that Microsoft is using its patent portfolio to kill off competition to its dominant desktop operating system. Carrier said a key sign of anticompetitive behavior would be "activity that made no sense other than harming rivals, like convincing Intel not to use interoperable Java." But Microsoft doesn't seem to have engaged in that kind of predatory conduct in recent years, he said.

Microsoft might also be vulnerable in cases where it coordinates its patent strategy with other firms. For example, Nokia also has a potent patent arsenal, and there's speculation that the Nokia-Microsoft alliance includes plans to pool their patent portfolio and license them jointly to Android vendors. Carrier said the potential for collusion means that such an alliance would attract closer scrutiny than unilateral actions by either firm by itself.

Unfair competition?

So far, the Department of Justice has been the lead agency on Microsoft-related antitrust issues. But another way the government could challenge Microsoft's patent strategy is for the Federal Trade Commission to charge the firm with using unfair methods of competition under the Federal Trade Commission Act. The unfair competition standard established by the FTC Act is broader than the traditional antitrust rules enforced by the Department of Justice, and Carrier said that the FTC could use the increased flexibility provided by the FTC Act to challenge Microsoft's patent strategy.

"The FTC could say 'we're looking at the pattern of conduct,'" Carrier said. "It could decide Microsoft's conduct had an adverse effect on Android and consumers."

However, he said, this would be "uncharted territory." The FTC's power to regulate unfair competition is "one of the really controversial issues in antitrust law today."

"Slow to catch up"

Changes in patent law during the 1990s have allowed the emergence of unprededented patent thickets, and the regulatory authorities have not figured out what, if anything, to do about them. Microsoft's strategy "doesn't fall neatly into any particular behavior that has been challenged in the past," Carrier said. "This really is the cutting edge" of antitrust law.

And unfortunately, he said, "the Department of Justice is sometimes slow to catch up to the realities of how patents are used in the industry."

Unsurprisingly, Microsoft doesn't believe its actions violate antitrust law. "All modern operating systems include many patented technologies. Microsoft has taken licenses to patents for Windows and we make our patents available on reasonable terms for other operating systems, like Android. We would be pleased to extend a license to Barnes & Noble."

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