Crisis is underrated.
Crisis is a great change agent. Until a company is fighting for its life, it may not be willing to upset an industry's status quo, and to take the really big risks.
Without a crisis driving any major players to the wall, companies like Samsung (OTC:SSNLF), HTC and others were quite willing to sign “license agreements” with Microsoft (NASDAQ:MSFT), paying $10-15 per handset in order to use Google's (NASDAQ:GOOG) Android, a version of Linux.
Microsoft was getting rich at Google's expense, and because non-disclosure was part of every agreement, neither Google nor journalists ever saw the claims it was pushing. Like a poker player who was bluffing every opponent, Microsoft was never showing its hole card.
Until, that is, Barnes & Noble (NYSE:BKS) found itself in a crisis.
BKS, once a mighty book store chain, got into the e-reader business out of something like desperation, and while its Nook doesn't look terribly strong next to products like Amazon's Kindle, it held out hope of squeezing some small profit from those who either liked in-store service or feared Amazon's use of their personal data.
That hope seemed to disappear, however, when Microsoft came calling, demanding the same deal so many others had signed, a fee on every handset. BKS felt it could not afford it. So BKS called Microsoft's bluff.
The result, writes Glyn Moody at Computerworld, is that we see how little in the way of patent garments Microsoft is wearing.
According to a letter BKS sent to the International Trade Commission, which is deciding whether the Nook can be imported over Microsoft's objections, Microsoft is asserting "trivial" and "invalid" patents against every Android OEM to the point where over half the Android devices in the market now include Microsoft payments in their cost structure.
Microsoft then detailed the patent claims. They include patents on downloading data from a Web page, on using tabs within an operating system, on the ability to highlight and select text on an electronic document, on the annotation of documents, and on browser loading icons. Trivial things, really, and many on which there exists prior art that could invalidate claims.
For five years now, since its historic agreement with Novell, Microsoft has been systematically calling on Linux suppliers of all types, and signing “cross-license” agreements with them, whose details are not revealed, but which seem to imply that it holds intellectual property over open source.
It is possible that Microsoft has more cards up its sleeve. In other words, given that it had not yet signed any deal with BKS before this suit was filed, it may have been basing its claims before BKS on only a subset of its patent claims. But now that BKS has stood up and rejected the company so publicly, its choices are limited:
Reveal any other patent claims in open court.
Walk away and hope no one else decides to either stop cooperating or refusing cooperation.
Find some way to reveal its other claims in a manner that won't come public and force BKS to sign, or perhaps lower its demands to make them reasonable, as Microsoft did with TomTom NV in 2009. (Note that we don't know to this day which event occurred.)
These are tough choices. But they are choices BKS felt forced to move on because it felt the cost of cooperating with Microsoft to be ruinous. There's now a reason to buy BKS and, perhaps, a reason to sell MSFT.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.