Amid the patent wars, an oasis of calm collaboration

October 6, 2015, 12:00 PM UTC
Courtesy of The Linux Foundation

Ten years ago this week, five public companies—IBM (IBM), Novell (now SUSE), Philips (PHG), Red Hat (RHT), and Sony (SNE)—banded together to launch a novel, pioneering, and seldom heralded project that was one of the first patent defense alliances and, according to some, one of the most successful.

The consortium, known as the Open Invention Network, is dedicated to protecting a mode of collaborative invention. Specifically, it tries to safeguard the Linux open-source software ecosystem—software that’s written collaboratively and distributed for free—from patent licensing demands and lawsuits from any aggressor.

OIN’s story is an outlier in the recent annals of patent law. It’s largely a story about patent peace, not patent war. It’s about patent litigations that haven’t been filed—dogs that haven’t barked, basically. It’s about otherwise ruthlessly competitive companies laying down their swords in order to cooperate within a narrowly defined space, where they recognize that it’s in everyone’s best interests to do so.

Originally, the most immediate threat to Linux and open source was Microsoft (MSFT), whose executives had, in 2001, publicly identified Linux as a “cancer,” an “intellectual property-destroyer,” and un-American. (In 2007, Microsoft revealed to Fortune that it owned 235 patents that it claimed were being infringed by Linux.)

The central mission of OIN—led also, since 2006, by NEC (TYO), and, since 2013, by Google (GOOG)—has been described by its CEO, Keith Bergelt, as the provision of a “defensive patent shield” or “no-fly zone” around key open-source software, currently including, among other things, the widely used Linux and Android operating systems for servers, smartphones, and tablets. Such software is favored by more than 90% of Fortune 500 companies for crucial portions of their operations.

OIN’s strength lies not just in the financial might and thought-leading influence of its seven sponsoring companies—known as “full members”—but in its ever expanding network of “licensee” companies that sign up to take advantage of the central bargain OIN offers, creating a community that is committed to a corporate ethic of coopetition vis-à-vis software innovation: “Where we cooperate,” Bergelt explains, “we’re not going to sue each other. Where we compete, however, we compete, and all the normal rules around patenting apply.”

“OIN has achieved something I don’t know that anybody else has,” says Dan McCurdy, “in gathering such a large community of people with the common objective of acting together responsibly to reduce risks. It’s quite remarkable.” McCurdy is a founder of the nonprofit patent-defense consortium Allied Security Trust, and now works for RPX (RPXC), a public corporation also devoted to patent defense. Both AST, with 29 member companies, and RPX, which serves 225 subscriber companies, focus on buying patents before they can be acquired by patent assertion entities—companies, pejoratively known as trolls, which exist to buy patents and sue on them.

OIN is different from RPX or AST. It exists to defend open-source software against any aggressor, including operating companies. Its core function is to buy high-quality, fundamental patents in the realm of, say, e-commerce or information technology, and to hold them in trust for the benefit of the developers, distributors and users of open-source projects. OIN offers to license this treasure trove of patents for free to any user of Linux software who agrees not to assert any of its own patents against the Linux system. Further, OIN pledges to help protect licensees in the event they are named in a patent suit stemming from their use of Linux by, for instance, transferring some of its powerful patents to the licensee for use in a counterclaim against the aggressor. (It made such a transfer to (CRM) in 2010, for instance, after the latter was sued by Microsoft. The suit was later settled.)

Though companies were slow to take OIN licenses at first—there were just 32 licensees when Bergelt became CEO in February 2008, 28 months after OIN’s launch—the pace has picked up exponentially as norms have taken hold, open-source projects have broadened their footprint, and OIN has expanded its definition of “the Linux system” to keep pace. By the end of 2012 there were more than 500 licensee companies in the OIN network, and today there are close to 1,750, according to Bergelt.

Many OIN licensees are small companies and projects that lack the resources that large companies have to defend themselves against patent aggression. Nevertheless, about 30 public companies have also joined the community as licensees, including giants like Cisco Systems, Fujitsu, HTC, LG Electronics, Nationwide Mutual Insurance Company, Twitter (TWTR), Verizon, Vodafone, and Yahoo (YHOO).

The specific, typically behind-the-scenes ways in which OIN pursues its goals have diversified over the years, and are still evolving today.

By its licensing terms, open-source software, whose paradigm is the seminal GNU/Linux operating system developed in 1991, confers certain freedoms on users that are typically denied users of proprietary software, like Microsoft Windows or Apple iOS. These freedoms include the right to see the source code and to freely alter it, copy it, and redistribute it.

Patent claims pose special threats to the open-source ecosystem because, if found to be valid, patent holders can prevent users from exercising any of those freedoms.

Though once thought to be relegated to the realm of hobbyists and hackers, open-source software soon won corporate backers because it was cheap, flexible, and—due to the large community of developers continually making fixes to it—reliable. By the late 1990s key enterprise software vendors, like Oracle (ORCL), were supporting Linux, as were key server manufacturers, like IBM, Dell and Hewlett-Packard Co. (HPQ). Red Hat—an early provider of Linux operating systems to corporations—went public in 1999, and SUSE, a German distributor of enterprise Linux software, was acquired by Novell in 2004.

In the summer of 2004, then IBM in-house lawyer Dave Kappos and several colleagues sketched out an architecture for a patent-defense alliance to protect Linux. They then fine-tuned the idea with representatives of the four other companies that would become OIN’s other charter members. (Now a partner at Cravath, Swaine & Moore, Kappos served as director of the U.S. Patent and Trademark Office from 2009 to 2013.)

Commerce One’s Crown Jewel Patents

In October 2004, when OIN was still in gestation, the groundbreaking e-commerce company Commerce One filed for bankruptcy—a victim of the dot-com crash. To pay creditors, the company announced that it would auction off its patent portfolio that December, and that Intellectual Ventures, the hedge fund run by polymath and former Microsoft CTO Nathan Myhrvold, had already bid $1 million for it. Since Commerce One’s portfolio contained exactly the sort of crown jewel patents the OIN would need for its treasure chest, it was agreed that Novell would acquire them as OIN’s stand-in, given that OIN hadn’t formally launched yet.

Novell did so—for $15.5 million on the 51st bid—and then contributed the patents to OIN at its formal launch the following October, with the purchase price being offset from its capital contribution. (Though OIN didn’t publicly launch until November 2005, the organization views the seeding of the Commerce One portfolio as its operational inception, and dates its anniversaries from then.) Each full OIN member makes a one-time capital contribution, whose size has never been made public by OIN. But Novell’s securities filings suggest that, at that time at least, the ante was $20 million. (In 2011 Novell was acquired by Attachmate, with its SUSE unit being spun off. SUSE, now owned by Britain’s Micro Focus (MCRO), has assumed Novell’s OIN seat.)

The Commerce One auction turned out to be a signal moment in the development of the secondary market for patents, and also kickstarted the creation of patent-defense alliances, as companies in every sector began to appreciate the danger of letting powerful patents fall into the wrong hands. The auctioneer of the Commerce One portfolio, for example, was John Amster, who, in 2008, went on to found RPX, whose subscribers today include Intel, Ford, Starbucks, and Wells Fargo. (Link free to Fortune subscribers only.) One of Novell’s competing bidders at the auction was a loose consortium of companies, represented by McCurdy, who, in 2007, formalized their relationship as Allied Security Trust, whose members today include Avaya, Honda, Microsoft, and Oracle. (Some companies—like Google, IBM, and Sony—participate in all three alliances: OIN, AST, and RPX.)


For OIN’s first two years its CEO was Jerry Rosenthal, the former head of licensing at IBM. But in February 2008, when it named its successor, it chose Keith Bergelt, who—as a lawyer, diplomat, and businessman—drew on a broader set of skills and experiences, befitting the more diverse role the group envisioned playing.

After earning a law degree from Southern Methodist University, Bergelt, now 57, spent 13 years with the State Department in the foreign service, including a stint in Tokyo. (He speaks French and Japanese.) He left government in 1993 to take courses in business, engineering and telecommunications management at Stanford and the University of San Francisco, before earning an M.B.A. from the technology-focused Theseus Institute in southern France. He then held a series of IP management positions with consulting firms, corporations, and private equity firms, including directing Motorola’s IP management and running Paradox Capital, a hedge fund that provides loans secured by IP assets.

Bergelt sees his eclectic training as an eerily perfect fit for his current position. “In the beginning of my career I was making the world safe for democracy,” he comments, “while now I really see every day as advancing the democratization of innovation—allowing people from all around the world to participate in projects and opening up the world to good ideas from wherever they’re sourced.”

Defensive Publication and Home Grown Patents

Shortly after Bergelt’s hiring, OIN began expanding the ways in which it sought to protect the community. In late 2008, it teamed up with the Software Freedom Law Center and The Linux Foundation to launch the Linux Defenders program, under which, among other things, open source developers are urged to submit their inventions for “defensive publication”—an inexpensive way to make sure that no one else can try to patent them.

Since then, OIN has also begun writing patent applications of its own, both to expand the utility of the patents it has purchased and also “to invent based on where the market is going, and where technology is moving,” Bergelt explains.

Today OIN owns about 650 issued patents and another 350 patent applications. Of the issued patents, he says, about 125 are “home grown,” as are about 200 of the applications.

Bergelt, on OIN’s behalf, also sometimes lobbies lawmakers on bills of concern to the community, and meets with antitrust regulators to discuss large patent deals or other events that could threaten the community’s interests.

As Linux expanded its functionality, OIN has continually expanded its definition of the Linux system to encompass more software packages. Today, Linux provides the operating systems embedded inside most cameras; TVs; remotely controlled thermostats and the like (dubbed the Internet of Things); and an increasing number of automotive navigational and infotainment systems. It has become the software of choice for supercomputing, mathematical modeling, and weather prediction, and is widely used in the burgeoning field of cloud computing. And thanks to Google’s Android and Chrome, of course, it also now drives more than 80% of smartphones and a large percentage of tablets and notebooks.

To keep up , OIN now covers 2,300 software “packages,” including core portions of both Android and OpenStack, which is a set of projects relating to cloud computing. “Other than Linux, Open Stack will probably be viewed in hindsight as the most significant open-source project in history,” says Bergelt, citing the importance of the inventions, the number of participants (more than 500 companies), and the amount of code being written.

OIN’s champions measure its success by the success of Linux and the large number of licensees who now participate in the OIN network. On the other hand, given how opaque the world of patent licensing is, it’s hard to prove or quantify OIN’s impact.

Florian Mueller, an IP analyst who founded the FOSSPatents blog, is profoundly skeptical of OIN’s value. In an email he asserts, “The OIN does not have any solid proof of concept. It’s more of a myth and a mystery.” (Mueller consults for private companies, and his past clients have included Microsoft and Oracle.)

Mueller points out, for instance, that most of the manufacturers of Android phones—including OIN licensees HTC and LG—have taken licenses to Microsoft’s patent portfolio for the right to ship Android. Microsoft’s large and diverse portfolio includes, Microsoft claims, patents that read on Linux functionality. (The Wall Street Journal reported last year that Samsung—which is not an OIN licensee—was paying Microsoft more than $1 billion in annual patent royalties for the right to sell Android smartphones. Microsoft declined to comment for any aspect of this article.)

Bergelt says that OIN’s success does not hinge on whether some OIN participants decide in the end to pay patent license royalties to patent holders. “We’re not trying to prevent people from doing what they think is prudent,” he says. “That doesn’t stop us from working behind the scenes to reduce the effect of these patents that are yielding royalties right now, in so far as they support an anti-innovation agenda.”

He adds: “Android’s Linux component has not been sued and never will be as long as OIN continues to facilitate patent non-aggression within the parameters of the Linux system.” Rather, Bergelt insists, “the suits [that have been filed] have been over applications agnostic to the operating system and Linux,” which ride higher up in the software stack.

OIN has suffered some setbacks in recent years as five sizable OIN licensees have withdrawn after joining: Oracle (which withdrew in March 2012); Geeknet (November 2012); HP (August 2013); Facebook (FB)(August 2013); and Symantec (October 2013). Asked about these incidents, Bergelt says that the only reason a company would do this is to reserve the right to bring a suit relating to functionality included in the Linux system, which casts doubt on these companies’ commitment to open source. “The litmus test for authenticity in open source . . . is becoming an OIN signatory,” he says. “Companies that either elect not to become signatories or shed the obligations of an OIN license . . . are making a clear statement regarding their authenticity.”

Oracle and Symantec declined comment both as to why they withdrew and on Bergelt’s statement. The other three companies did not respond to inquiries seeking comment.

Still, open-source projects unquestionably look to OIN for both protection and guidance. In recent years, Bergelt says, OIN has been “nurturing micro-clusters of patent non-aggression pacts,” in which specific open-source projects use OIN as a model for coopetition. Though these groups do not acquire patents, as OIN does, they do attempt to draw frontiers—at a more granular level than OIN can—about where participants will cooperate and where they will compete.

To this end, for instance, Bergelt has met with the AllSeen Alliance, which pursues open-source projects relating to the Internet of Things, and with a group within The Clearing House payments company, owned by the 24 largest global banks, which promotes the development of open-source financial software resistant to cyber attack.

“It’s a great model,” says Sean Reilly, senior vice president and associate general counsel for The Clearing House. “Everyone jumps in to collaborate together for the common plumbing,” he continues. “But then the other lane is hypercompetitive, and you can do what you like with your intellectual property rights.”

Bergelt acknowledges that OIN plays a modest role, and is only “part of a larger mosaic” in the open-source world. The real credit goes to “the people who take the risk of building a business based on open source,” like a Red Hat, or those who take “left turns,” like IBM did in the late 1990s, when it began committing hundreds of millions of dollars to supporting Linux.

“We’re there to have a light touch,” he says. “To guide, shape, protect, and guard—but not to leave an imprint.”

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