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Microsoft Lowers Patent Lawsuit Boom on Salesforce.com

By Erika Morphy
May 19, 2010 1:25 PM PT

Microsoft has filed a federal lawsuit in the U.S. District Court in Seattle against Salesforce.com, alleging that the company infringed nine of its patents.

Microsoft Lowers Patent Lawsuit Boom on Salesforce.com

Microsoft is seeking an injunction as well as damages. The patents touch upon a range of functions having to do with cloud-based CRM. Several focus on ease-of-use features, such as toolbars and navigational elements; others are more technical, such as displaying a Web page with an embedded menu.

The suit likely came as little surprise to Salesforce, considering a regulatory filing it made last year.

The on-demand vendor had been contacted by a "large technology company" and was in discussions with it, Salesforce reported in its filing.

The resolution of the patent infringement allegations was not expected to "have a material adverse effect on our financial condition," Salesforce said. However, it could be material to the net income or cash flows -- or both -- of a particular quarter.

Rare but Typical

The unfolding of this case is typical for Microsoft, said Raymond Van Dyke, a technology lawyer in the Washington, D.C. area -- save for the fact that Microsoft rarely files patent litigation. Microsoft has initiated just three patent suits -- against TomTom, Primax Electronics and Belkin.

What usually happens if Microsoft believes a firm has infringed its patents is that it approaches the company to negotiate licenses. That's what most likely did take place, based on Salesforce.com's regulatory filling.

Apparently, the two parties could not come to an agreement, Van Dyke told CRM Buyer.

"It is likely that Microsoft and Salesforce will settle the patent dispute soon, as befits Microsoft's prior patterns," Van Dyke speculated -- but that, of course, is not a certainty.

Salesforce.com did not respond to CRM Buyer's request for comment in time for publication. Microsoft issued a public statement but declined to comment further.

Growing Competition

The competition between Microsoft and Salesforce.com has been intensifying in recent years, noted Nucleus Research Vice President Rebecca Wettemann.

Microsoft has become much more aggressive in competing against Salesforce.com with its on-demand product, Dynamics CRM Online, over the last 18 to 24 months, Wettemann told CRM Buyer.

It is targeting both net new customers -- that is, companies completely new to CRM -- as well as the Salesforce.com customer base, she said.

"In the on-demand world, every time a contract is getting ready to be renewed, Microsoft is wrapped up somewhere in the business so it can monitor those deals very closely," explained Wettemann.

Other products that Microsoft is offering via the Software as a Service model -- a delivery method popularized by Salesforce.com more than a decade ago -- include Exchange, SharePoint and, most recently, its Office Web Apps.

How -- or whether -- this suit will impact their head-to-head competition is unclear so soon after the filing.

Customers Wait

The legal process initiated by Microsoft could take years to play out, with many possible end scenarios.

The two companies could continue to negotiate until a satisfactory agreement is reached -- something more likely to transpire now that Microsoft has ratcheted up the pressure by filing a suit, suggested Van Dyke.

Conversely, the suit could proceed to trial. A work-around might eventually be required. The worst-case scenario for Salesforce.com customers, Van Dyke said, would be Microsoft winning an injunction against the contested features in the Salesforce.com products -- something that could potentially compromise the company.


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