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Patent protection in the cloud - Microsoft allows access to the 1/6 part of its patent portfolio for Azure users

At the end of last week Microsoft has presented the innovate solution for minimizing risks of patent infringement for its customers. Azure IP Advantage makes 10,000 Microsoft patents available to the Azure users.  Presenting the new program[1], Brad Smith, Microsoft president, underlines the growing legal risks in the sphere of cloud businesses and the necessity of changing this situation.

 

The US software company explains in its blog:  “We want software developers to be able to focus on coding, and businesses and enterprises to be able to respond to the changing needs of their customers with agility without worrying about lawsuits.”[2]

 

According to the conversation between Erich Anderson, Microsoft IP head, and AIM, well-known patent blog, creating a defense barrier for customers from the potential litigations was not the only reason for developing the Azure IP Advantage program. The other essential function was to build a competitive advantage over the other cloud businesses like Amazon or Google. [3]

 

We were curious on how many patents are there in the cloud related fields and took a close look at their values: At first appearance the patent portfolios of analyzed companies look quite similar in terms of their value distribution. According the IPC diversification pie charts below, all three companies have the majority of their patents in following IPC classes: “Digital computing or date processing equipment” (G06F17) , “Digital computers in general“ (G06F15),  “Arrangement for programme control” (G06F9),  “Input arrangement for transferring data” G06F3 and “Methods or arrangement for processing data” (G06F7).

At the same time, when we look at the patent portfolio value, Microsoft outperforms clearly the competition with its portfolio including more than 61.000 patents. As you can see on the graph, the patent portfolio´s value of Microsoft has been permanent increasing during the last five years and reaches 17bn Euro level in September 2016. To compare: Amazon achieves just about 1, 2bn with about 7.000 patents, the patent portfolio value of Google is raising during the last year and reaches the point of 4, 5bn Euro (with approx.22.500 patents).

 

The average patent family value of Microsoft (approx. 500.000) is much higher than by Amazon (approx. 360.000) and Google (approx. 290.000).

 

 

 

This overview graph above explains why Microsoft can use Azure IP Advantage as a competitive advantage: Google and Amazon even don´t have the same number of patents in their portfolios. From this point of view the new program can stay a unique option for those customers, which are looking for a lawsuit protected solution in field of cloud services.

 

The previous line diagram has illustrated clearly – Microsoft’s patent portfolio is way ahead of Amazon and Google in general and in the G06F class section.

 

In order to investigate more precisely how many patents and assets might be involved in cloud computing technologies we ran an analysis over all most likely relevant IPC classes and compared their total amount and their total values. We identified 20 most relevant cloud computing related IPC classes[4] by doing a research over all patents worldwide regarding cloud computing patents. Then we filtered the patent portfolios of the three companies Microsoft, Google and Amazon by this set of classes.

 

The bar charts below illustrate the difference between Microsoft, Google and Amazon by number of patents and their value within the 20 IPC classes listed before. While Amazon (1306 patent families) and Google (3515 patent families) have a comparable moderate portfolio, Microsoft keeps with more than 11k patent families more than double the size of both competitors together.

 

 

 

The difference by this detailed analysis is even more impressive taking the values of these patents into account: Microsoft’s cloud computing patents have a total value of approximately 6,5bn Euro. Compared to Google (1,4bn Euro) and Amazon (451m Euro) that is even three times higher. This also means that the average value of Microsoft’s cloud computing patents is way higher compared to their competitors. 

 

 

According to these data, it´s understandable now why Microsoft can be that generous with the Azure IP Advantage program – according to the news it is free for Microsoft customers. Microsoft has built a wide patent wall and can be self-confident that if an Azure partner is sued by a patent conflict that there will i.e. enough IP protection others will infringe in order to quickly come to an informal cross-licensing agreement. Most probably Microsoft is aware of many infringement cases against its own portfolio. Microsoft has offered a benefit, which cannot be imitated by its competitors so quickly – the “patent-box” they are having in use is covering obviously most possible scenarios in cloud computing and cornering the market. So it is imaginable that Azure IP Advantage can become a long term advantage for Microsoft users and bind new customers strongly and long term to Microsoft and their cloud solutions.

 

The Azure program is a good example on how the power of IP can be used nowadays not only to lock out competitors for a certain technology but also to leverage this instrument in terms of giving yourself a powerful role in the market. Using this instrument Microsoft corners the market not (only) by offering a better product quality but by giving customers IP security as an added value. This is a new dimension of the arms race using patents.

 

 

 

 

[1] https://azure.microsoft.com/en-us/overview/azure-ip-advantage/

 

[2] https://blogs.microsoft.com/blog/2017/02/08/protecting-innovation-cloud/#sm.0000x9hsx7dg4cztps22mre3gd76g

 

[3] http://www.iam-media.com/Blog/Detail.aspx?g=8fd8a5a8-fd16-4e25-a61e-48fd0e8b8cac

 

[4] G06F 03/06, G06F 09/44, G06F 09/455, G06F 09/50, G06F 15/16, G06F 15/173, G06F 17/30, G06F 19/00, G06F 21/00, G06F 21/60, G06F 21/62, G06Q 10/00, G06Q 10/06, H04L 09/00, H04L 09/32, H04L 12/24, H04L 12/911, H04L 29/06, H04L 29/08.

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