MoneyWatch Tech

Microsoft Sues Salesforce.com, and Its Flop Sweat Is Showing

By Erik Sherman

Updated on: May 19, 2010 / 3:23 PM EDT / MoneyWatch

Small companies commonly sue Microsoft (MSFT) for patent infringement, but it's rare for Microsoft to turn the tables and bring another company to court. But that's what it is doing with Salesforce.com (CRM), according to a company statement. The action suggests that Microsoft is far more concerned about the threat cloud computing poses to its future than its management would like to admit.

Here is yesterday's statement attributed to Microsoft corporate vice president and deputy general counsel of Intellectual Property and Licensing Horacio Gutierrez:

Microsoft has filed an action today, in the U.S. District Court for the Western District of Washington, against Salesforce.com for infringement of nine Microsoft patents by their CRM product. Microsoft has been a leader and innovator in the software industry for decades and continues to invest billions of dollars each year in bringing great software products and services to market. We have a responsibility to our customers, partners, and shareholders to safeguard that investment, and therefore cannot stand idly by when others infringe our IP rights.

Given the number of times Microsoft recently has been the target of multi-hundred million dollar patent infringement suits, with some plaintiffs prevailing, the statement carries an aroma of irony. However, there is another smell as well. Could it be fear?

Microsoft's traditional competitive strategy rests on its dominance of fundamental markets -- desktops and office applications -- that give it many tools to deal with competitive threats, including:

relationships with distributors and retailers
brand recognition
market acceptance
large sales force
larger marketing budget
product pricing advantage because of its economies of scale.

Nevertheless, Microsoft's past advantages don't necessarily translate into cloud computing. There is no distributor network or store presence necessary. Costs of incremental users are low. Most importantly, Microsoft is very late to the cloud game. Hence its reliance on patent arm twisting, as you can see by the filed complaint:

MSFT v. Sales Force - Complaint (WD Washington) Microsoft is scared. Web- and cloud-based apps are a serious challenge. Microsoft's Azure cloud offering went live in February, but Salesforce has an enormous lead. The head start is particularly obvious when you consider that Salesforce targets the small and medium businesses that are most likely to make an early move to cloud computing, as opposed to more cautious large corporations.

Why go after Salesforce? Because, according to U.S. Patent and Trademark Office online records, the company has only eight patents to its name, versus Microsoft's 14957. However, the patents Microsoft has mustered aren't about cloud computing:

Method and system for mapping between logical data and physical data
System and method for providing and displaying a web page having an embedded menu
Method and system for stacking toolbars in a computer display
Automated web site creation using template driven generation of active server page applications
Aggregation of system settings into objects
Timing and velocity control for displaying graphical information (two with this name)
Method and system for identifying and obtaining computer software from a remote computer
System and method for controlling access to data entities in a computer network

Taking offensive action is one of the reasons companies get IP in the first place, and Salesforce competes with Microsoft in the CRM (customer relationship management) space. It will be interesting to see what steps Microsoft can take against such competitors as HP (HPQ), Amazon (AMZN), and IBM (IBM), which have more robust collections of patents and could mount a credible counter challenge.

Storm cloud image: RGBStock.com user hisks, site standard license.