(continued from previous page)

SCOTT FULTON, BetaNews: This goes back to something we talked about back during the whole NTP settlement thing: There is this legal quagmire, the existence of a cloud, which is the unresolved issue about what is patentable and what is not...Could the people who write ideas on napkins be using that cloud as leverage, saying, "You don't want to challenge me on my having the idea first, because then if we take it to court, we have to face this unresolved cloud, it's gonna take years, you're going to be bled dry, you don't want to go that way?"

CARMI LEVY, Info-Tech Research: Right, "So pay me now and we avoid this." It's a form of legal extortion in many ways, and it shifts the battleground, so to speak, from the marketplace to the courtroom...because now instead of battling it out against incumbent players who do successfully bring products based on the disputed technology to market, they simply threaten through some lawyers and hope to get a quick payout from that. Frankly, that is bad for the market because it does not incent companies to do the R&D, build out the business models, and go after a market. It essentially encourages companies with great ideas - but not a whole lot more - to take the shortcut, the easy way out, by suing those companies that did do their homework and pushed the bounds.

It's a lazy man's way to profitability and it's not sustainable, and ultimately it damages the market because it raises the overall level of uncertainty associated with bringing new products and services to market, and it forces innovative companies who do live at the leading edge of technology to constantly look over their shoulders and wonder where that next lawsuit is going to come from.

SCOTT FULTON: Suppose Microsoft is successful with the Supreme Court in overturning that [AT&T] appeal. Does this cloud then go away magically, and suddenly we have precedent saying that the idea isn't patentable but the implementation is? Suddenly, do the Napkin Writers of America retreat?

CARMI LEVY: I'm not a lawyer, so I can't really say whether the outcome of this one case will be influential enough to set that de facto precedent for all cases that come. But certainly it will color the legal thinking of the day, and it will push it in that direction such that, if there are additional rulings that go Microsoft's way - because let's face it, there are four more rulings to come just from the San Diego court alone - then it will set, if not a full-blown legal precedent, a marketing precedent that future judges and future lawyers will have no choice but to pay attention to.

SCOTT FULTON: I haven't seen any transcripts from this, but I would love to read just the closing arguments, just to see whether Alcatel's lawyer sent the jury into the deliberation room with either instructions to "Look at the facts, notice that we had the idea first, the idea was patented, the patent is valid, Fraunhofer only assisted our predecessor but we have the valid patent and Microsoft dealt with the wrong party, thus you have to find for us;" or did he pull a Johnnie Cochran? Did he say, "It's time to send a message to Microsoft that these guys are bad guys, and they've been badly behaving and it's time for you, dear jury, to spank them!"

CARMI LEVY: That's an unfortunate possibility, given Microsoft's recent and not-so-recent history: that it is the dominant player in the software space, that it has been involved in contentious litigation in the past, that it has been involved in antitrust investigations, and has been on the receiving end of unfavorable antitrust rulings on both sides of the Atlantic in the past, and that it is perceived by some as a somewhat large and overwhelming force in the market. Especially in a jury trial, it's hard to believe that you'd be able to find twelve individuals who would not have, at least at one point, been exposed to this. So certainly, a company's reputation - maybe at some point in the back of their minds - has to play into the deliberations.

Certainly there are some folks who see this as an opportunity to send that bigger message, that monopolies are bad and don't work in the consumer's best interest. There's a long history of market presence here that may or may not be playing in the minds of jury members as they sit in the back room.

SCOTT FULTON: If I am a customer of Fraunhofer Labs, or if I received my MP3 license from that MP3 licensing authority, which is made up of Fraunhofer and Thomson - which, by the way, is Alcatel-Lucent's arch rival in France - if I am Apple, Nullsoft [the AOL-owned manufacturer of Winamp], Intel - I have a Fraunhofer license. What do I do?

CARMI LEVY: You should be contacting your legal team and identifying what your potential vulnerability is, because if you are a vendor that is large enough to attract attention and has generated sufficient revenue based on the usage and implementation of these technologies, based on the outcome of the case with Microsoft, you could be next.

Next: The road ahead for Microsoft doesn't look the same