Gates Says Microsoft Will Increase Patent Push

Hoping to keep its edge in software in part by producing a torrent of technological innovations, Microsoft (Nasdaq: MSFT) is planning to push hard to secure more patents in the coming year.

Chairman and Chief Software Architect Bill Gates told analysts at the company's annual meeting yesterday that Microsoft plans to file up to 3,000 patent applications before next July, well above the some 2,000 it sought in the last year.

At that level, Microsoft could overtake IBM (NYSE: IBM) as the leading patent seeker in the U.S. Big Blue has held that title for 11 years in a row, filing more than 3,000 patents last year.

Regardless of the exact number, Gates said, Microsoft is bringing forth patents that have a potential to make a difference in a number of areas, from interactive television and gaming to office productivity.

"We think, patent for patent, what we're doing is, if anything, more valuable than what others are doing," Gates said. "We try to make sure Microsoft research is not separate from the product groups," he said.

Property and Casualty

The patent push is part of Microsoft's "cycle of innovation" that will include protecting its intellectual property while seeking to create other technology for use in its product offerings.

The ambitious plan shows that Microsoft understands what's important to its future success , Enderle Group analyst Rob Enderle said.

"Owning and controlling intellectual property is a key to their ability to keep existing customers and attract new ones," Enderle told the E-Commerce Times. Microsoft's claim throughout its antitrust dealings has been that it won dominance in the operating system and browser markets through innovation, he noted.

Enderle added that while Microsoft's own research and development teams are capable of churning out large quantities of patents, and the licensing program will enable it to work with application developers, the company will also consider buying smaller firms, including those in early stages of starting up, in order to acquire additional intellectual property.

"They'll certainly keep a sharp eye out for those types of acquisitions that give them additional features they can roll into their products," he said.

Flack Warning

Pushing the patent envelop is likely to bring Microsoft more flack. Already some of its patents have come under fire for being too broad or too basic. For instance, Microsoft's acquisition of a patent on the clicking of buttons on handheld devices created a stir when it was announced earlier this summer.

But most critics blame the U.S. Patent Office, rather than the software giant, for issuing such patents. The Electronic Frontier Foundation has launched a challenge to many recently issued technology patents.

Tom Franklin, a patent attorney with the firm of Townsend & Townsend & Crew in Denver, Colorado, said Microsoft will need to play a numbers game in order to roll up a significant portfolio of patents, since fewer than 20 percent of technology patents applications are granted in the end.

"They will probably try to file a tremendous amount of patents and then go about trying to license it to others and reap the royalties," Franklin said. Patent reviewers have "a lot of discretion. If they feel it shouldn't be allowed, for whatever reason, it's not granted."

Franklin notes that enterprise customers are now becoming more savvy about their technology purchases, realizing that buying even popular software can get them in legal hot water. Many customers of Linux have found themselves in the crosshairs of the SCO lawsuits, for instance.

Microsoft, the Startup

The meeting with analysts was the first since Microsoft announced its plans to return up to $75 billion in cash to its shareholders over the next several years in the form of bigger dividends and a stock buyback program. That raised questions about whether Microsoft had moved from being a growth company to an income stock -- one that produces dividends but experiences little stock growth.

Its most recent earnings report showed growth remaining strong, however, with the company boasting that it grew the equivalent of a company like Yahoo (Nasdaq: YHOO) during the past year.

For his part, CEO Steve Ballmer focused on Microsoft's desire and need to find new growth areas as its PC-software business matures. He continued to use other companies as a measuring stick, saying that it hopes to grow the equivalent of a Siemens (NYSE: SI) or Nokia going forward.

Ballmer said growing in new areas -- he and Gates pointed to home entertainment and emerging communications tools, such as instant messaging and search -- is important to the company's bottom line and to keeping its employees fired up.

"People don't want to come here to work for some stodgy old company,'' Ballmer said. "They want to work for a dynamic company striving to change the world. They want to know that we're thinking big, dreaming big."