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Microsoft's IP software eyes start-up companies

Microsoft said Wednesday that it would begin to license its home-grown ideas to venture capital firms and entrepreneurs. The move, the company said, is an effort to open up its technology to outsiders and to exploit its storehouse of intellectual property.

The new program, called Microsoft Intellectual Property Ventures, is intended to foster more amicable relations between the big software company and start-up companies, which have often regarded Microsoft as a threat.

The program, company executives say, will also provide a path into the marketplace for technology developed by Microsoft researchers that does not necessarily make it into the company's products. The licensing deals, which could include Microsoft taking equity stakes in start-ups, will provide additional revenue and investment income, though the amounts will be modest at first.

The new initiative points to a shift in Microsoft's intellectual property strategy away from a trade-secrets mentality, in which inventions are hoarded. Microsoft is following the well-traveled course of more mature technology companies, led by IBM, which has long licensed its innovations and earns more than US$1 billion a year in royalties. Two years ago, Microsoft hired Marshall Phelps, a former IBM executive, as its deputy general counsel overseeing intellectual property licensing.

The traditional licensing policies of big companies focused mostly on cross-licensing deals with other big companies. Yet in the last year or so, several major companies have tried to sell or share their technology with smaller companies and entrepreneurs by offering more flexible terms or making some patents free, as IBM and Sun Microsystems have done.

Microsoft has been developing its program with a handful of venture capital firms for more than six months. Venture capitalists who have been told of the Microsoft effort said the technology on offer is grouped in 20 categories, including artificial intelligence, security, graphics, gaming and databases.

Lucinda Stewart, a general partner at OVP Venture Partners in Seattle, said start-up companies could benefit from using off-the-shelf technology from Microsoft as building blocks for their products.

"This program could accelerate the speed to market for some of the opportunities we're working on," Stewart said.

Besides building on the Microsoft technology, start-ups may want to strike licensing deals to ensure that their products work well with Microsoft products.

"We want to make sure the things our companies are doing fit into the Microsoft ecosystem, and in the past that has sometimes been challenging," said Sam Jadallah, a general partner at Mohr Davidow Ventures in Silicon Valley.
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