Managing the IP risks of Cloud services

By Nicolas Schifano

We are witnessing an unprecedented digital transformation as more and more aspects of our lives become interconnected, from self-driving cars and the ‘internet of things’ (IoT) to the apps that deliver our groceries and schedule our maintenance appointments. It’s an exciting time for developers, startups and tech companies, as well as established businesses across industries that might be thinking about using digital and Cloud-based services for the first time. However, with a new pace of innovation comes a complex world of new challenges and hidden landmines, not least of which are the potential lawsuits over intellectual property (IP) in such new developments and services.

As companies move their data and applications online into the Cloud, and as internal and independent developers create new applications for managing, protecting and using such data in the Cloud, they can find themselves faced with potential claims that these products and services violate someone else’s patents. 

In particular, companies that are successful in their digital transformation may find themselves in uncharted waters for potential patent infringement and litigation from non-practicing entities (NPEs) or large operating companies. For example, a study in February 2017 by RPX showed that these patent assertion entities targeted cloud applications in software-as-a-service (SaaS), customer relationship management (CRM) and cloud storage applications in particular in 2016.

Additionally, according to a recent study by IPlytics, patent assertion entities have increased their acquisition of cloud-related patents by 130 percent since 2011. We saw a similar litigation trend follow the last huge technology disruption – the advent of the internet in the 1990s.

And when a small business finds itself in patent litigation – NPEs actually prefer small companies – the outlook can be bleak. A Santa Clara study found that 40% of small companies involved in NPE litigation reported a ‘significant operational impact’, including delayed hiring or achievement of key milestones, a change in their product, a shut-down of a business line or their entire business, and/or lost valuation.

Microsoft has recently announced a very practical programme to help Cloud users and developers manage some of these IP risks related to Cloud services.  The programme is three pronged: it offers uncapped IP indemnification protection for regular customers’ use of Microsoft’s Azure Cloud services, which also covers open source technologies incorporated in these services; 10,000 patents to help consuming customers deter and defend against patent lawsuits (called the ’patent pick’); and in the unlikely event that Microsoft transfers a patent to a NPE, a springing license so that the patent cannot be used against Azure consuming customers in the future.

The Azure IP Advantage website explains the details of how this programme works; a TechInsights report has found the Microsoft patents included in this programme to be one of the industry’s top Cloud-related portfolios.

So, how does this help Cloud users actually manage IP risks? Let’s look at an example. Last year, a litigious NPE contacted two financial companies, both Azure customers, claiming that their use of open source software in Azure infringed its patents. The companies contacted Microsoft asking for help as part of the indemnification offering available to Azure customers. Microsoft engaged with the NPE to assess its allegations of patent infringement. Microsoft – using its IP, legal, and engineering resources – resolved the NPE’s allegations of infringement, and the NPE dismissed its claims earlier this year, sparing the companies an extremely expensive and potentially disruptive lawsuit.

Not just large companies, but particularly startups and application developers face a myriad of demands when trying to establish or grow a business, including the hard work of inventing, funding, and creating new products and services. Many times, managing intellectual property issues can be an after-thought for small companies, due to a lack of resources or a misunderstanding of the risks. In that situation, all too often, companies can find themselves embattled in an expensive and potentially crippling patent infringement lawsuit as they employ new technologies such as Cloud services. Now more than ever, there is a need for companies large and small to think about protection of their technology and innovations, to analyse their risks and to define a risk mitigation strategy.

We are trying to play our part in helping software developers, startups and small and large businesses manage some of the IP risks that can arise as they make the transition to exciting technologies like the Cloud, and to focus on what they do best and respond to the changing needs of their business and their customers with agility and confidence.

Nicolas Schifano is Senior Director Cloud and IP Policy and Strategy at Microsoft