Novell’s Patent Defense: Maginot Line or Sound Legal Strategy?

France built the Maginot Line in the 1930s, a supposedly impenetrable state-of-the-art defense system to protect the country from her long time enemy, Germany. It was meant to prevent a German invasion, but the Germans simply went around it, dealing the French a humiliating defeat in the spring of 1940.

The Maginot Line is considered one of the greatest blunders in military history, but historians now recognize that it was not entirely a failure. The failure was the military’s over-reliance on one part of a larger defense strategy. It was a flawed defense strategy that was never fully implemented.

Novell’s Maginot Line

Novell’s recent announcement that it would use its patent portfolio to protect itself against claims made against its open source programs could turn out to be its own version of the Maginot Line. Many in the open-source community applauded this announcement as good for open-source projects in general. Some even recommended that every major open-source company take a similar stance to defend open-source projects against claims of software patents.

It sounds logical. But as the French learned, placing too much confidence in one plan can backfire if your opponent learns how to maneuver around the blockade.

Patent Attacks

Patents are not like nuclear weapons — unlike the United States and the Soviet Union during the Cold War, one patent holder’s stockpile does not automatically deter another patent holder from asserting their own patents. If two corporations have patent portfolios that cover each others’ products, they typically will agree to cross license each other rather than engage in costly litigation. To extend the metaphor, everybody in the vicinity of a nuclear blast gets hurt, but some patent holders are immune to patent attacks. The threat of being bombed back to the Stone Age doesn’t really impress those that are already living in Stone Age conditions.

A patent is a legal right to exclude others from making, using or selling what is covered by the patent claims. Patents can attack products, but not other patents. If a company doesn’t make or sell anything, the damage from a patent attack is very limited. A patent holder could assert their patent against users of the accused software, but that would be like Kodak asserting its patents against an individual end user rather than Sun. The end user would concede that he uses Java, pay the demanded royalty with a crisp $5 bill, and get change back.

If a large company is uncertain if some of Novell’s patents cover one of their products, Novell’s approach might work as a deterrent. In that sense, Novell’s strategy could be a good defensive system capable of protecting its open source products.

Novell correctly points out that open-source programs are no different than proprietary programs when it comes to potential patent infringement. But patent royalties are typically proportional to the amount of use a program gets — per copy royalties, for example. And most open-source licenses do not have mechanisms to determine the amount of use a program gets or for charging as the program gets used more and more.

Putting up a Good Front

Money, like armies, has a way of steering around obstacles. If Novell’s “Maginot Line” defense gains traction and other open-source companies with patent portfolios copy Novell’s approach, count on seeing companies try to go around the line by creating subsidiaries to separate their patents from their product lines. Companies that want to exploit their patents but that also have products at risk, could move their patents to a subsidiary for assertion.

This technique of creating a “front” to distance the public face of the company from the arm that generates patent revenue is already practiced by companies that create subsidiaries for tax purposes or as a public relations tactic. It is a defense designed to protect against counter-attacks.

A classic example of a “front” is Bartles and James. This trendy wine cooler became popular some years ago in large part due to a humorous TV commercial that featured the two partners, Bartles and James. It turned out that Mr. Bartles and Mr. James were actually Ernest and Julio Gallo, the owners of the parent company of the subsidiary, but it took research to find the link between Bartles and James and Gallo.

At the time, Gallo was still recovering from some bad PR related to a boycott of the company by the United Farm Workers, and Gallo was not well regarded in the premium markets targeted by Bartles and James. Thus, a front was very useful for the brand.

Avoiding Counter Attacks

A good defensive strategy for a company hoping to avoid counter attacks from Novell would be to move the patents to a subsidiary that does not make or sell any significant products over which Novell could assert their patents. Novell could threaten the subsidiary with patent infringement, but that would not really be a deterrent. The subsidiary or “front” could simply walk around Novell’s Maginot Line.

Novell’s response might be a patch to the policy that says Novell will assert its patents against any part of a company it chooses if another part of the company asserts its own patents. Given the nature of conglomerates, that response is not really workable. For example, how much sense would it make to threaten Fruit of the Loom just because See’s Candies asserts a patent against an open-source project? (These are both Berkshire Hathaway companies.) Could you go after CBS News to discourage iWon from asserting a patent? After all, they have overlapping ownership. For the most part, one company’s patent woes will not stop another company from asserting its patents even if they are wholly owned subsidiaries.

Keep Them Guessing

It is possible Novell may decide it will only pursue its patent defense plans if Novell’s target and the company asserting its patents are known to be commonly owned and controlled. This can be very tricky, however, if corporations are determined to keep their ownership murky. Sometimes even the IRS and the FBI have trouble sorting it out.It is easy to see the enemy when they march up in formation wearing bright red uniforms. It is much harder when they wear camouflage and hide behind trees.

If Novell’s real purpose in building its Maginot Line is to counter threats from companies that it thinks are bluffing, this approach is ideal. Then, it doesn’t actually have to defend against a patent; it just has to defend against the concept of patents being used to generate uncertainty in the marketplace.

In most cases, a good defense is also the best offense. But remember that whether you build a solid wall or draw a line in the sand, if you are not careful your enemies might just step right around it.