Last week Microsoft general counsel Brad Smith penned an article for CNET defending software patents. Microsoft was recently ordered to pay $1.5 billion to the holder of a patent related to the MP3 format, and Smith vows to appeal that ruling. But despite the setback, Smith reserves his heaviest criticism for those who would use the judgment as an argument against software patents in general:

Protection for software patents and other intellectual property is essential to maintaining the incentives that encourage and underwrite technological breakthroughs. In every industry, patents provide the legal foundation for innovation. The ensuing legal disputes may be messy, but protection is no less necessary, even so.

Is he right? A good way to evaluate Smith's argument is to consider Microsoft's own history with software patents. A patent search reveals that Microsoft received its first patent in 1986. And that patent was not even related to software: it covered a "Holder for storing and supporting articles." Microsoft's first software patent was granted in 1988, and the company held only three software patents by its 15th anniversary in 1990. Microsoft seems to have had little trouble innovating during those years. Windows and Office, the products that have been Microsoft's bread and butter ever since, were developed in the late 1980s.

However, beginning in the mid-1990s, Microsoft steadily ramped up its patent filings. Microsoft received its hundredth patent in 1995 and its thousandth patent in 1999. Today, Microsoft has a war chest of over 6,000 patents and is on track to have ten thousand by the end of the decade. Something in the early 1990s clearly changed Microsoft's attitude toward patents. That something was a 1991 memo from Bill Gates to his senior executives, in which he warned that the patent system was a major threat to the company:

If people had understood how patents would be granted when most of today's ideas were invented, and had taken out patents, the industry would be at a complete standstill today. I feel certain that some large company will patent some obvious thing related to interface, object orientation, algorithm, application extension or other crucial technique. If we assume this company has no need of any of our patents then they have a 17-year right to take as much of our profits as they want. The solution to this is patent exchanges with large companies and patenting as much as we can.

Gates directed readers to "a recent paper from the League for Programming Freedom" (presumably this one) for more details on the problems with software patents. That article's assessment of software patents is even harsher: "software patents threaten to devastate America's computer industry."

Gates' memo suggests that in 1991, Microsoft still considered itself a relatively small company challenging entrenched incumbents. It was locked in a legal battle with Apple over the legal rights to the graphical user interface. It was in the midst of the OS/2 wars with IBM. And it was fighting to break Novell's dominance of the networking market. In short, Microsoft feared the incumbents they were trying to displace would use the patent system to fortify their dominant positions in their respective markets. They thought their chances in the marketplace were better than their chances in the courtroom.

Now, of course, the shoe is on the other foot. Microsoft is the incumbent, and their dominance is being challenged by smaller, more nimble companies. Probably the most threatening are companies like Red Hat and Novell that build their products atop free software. There is a real danger (from Microsoft's perspective) that free software products will mature to the point where Microsoft's customers will see little added value in Microsoft's proprietary offerings.

Smith quotes free software guru Richard Stallman, who at a Tokyo conference discussed the claim that Linux violates 283 software patents. Smith chastises Stallman for "flaunting" Linux's patent infringement. What he doesn't mention is that there are now so many software patents on the books that every non-trivial software product infringes numerous patents. Smith's position, if taken literally, would mean that any company that wanted to develop software would need to sign licensing agreements with Microsoft and other large companies with patent war chests.

Of course, that might be the point. Smith cites Microsoft's deal with Novell (which lost its dominant position in the 1990s and has since reinvented itself as a Linux distributor) as a model for other software companies to follow. In that deal, Novell paid Microsoft in exchange for a promise by Microsoft not to sue Novell's customers for patent infringement. It is almost as if "some large company" has patented "some obvious thing" (or perhaps 283 of them), and then claimed the right to help themselves to a share of free software companies' profits.