Microsoft and Novell announced a collaborative effort. Whoa, this is big news! Windows and SuSE Linux, proprietary and open source, Microsoft and Novell — working together? Well, yes, according to a recent announcement. And for this collaborative effort to have even been formalized, a required element was some intellectual property rights housecleaning.

Microsoft’s press release says this:

First, Microsoft will work with Novell and actively contribute to several open source software projects, including projects focused on Office file formats and Web services management. Second, Microsoft will not assert its patents against individual noncommercial open source developers. And third, Microsoft is promising not to assert its patents against individual contributors to OpenSUSE.org whose code is included in the SuSE Linux Enterprise platform, including SuSE Linux Enterprise Server and SuSE Linux Enterprise Desktop.

From an intellectual property perspective, numbers 2 and 3 standout – Microsoft’s legally binding promise not to assert its IP rights against SuSE Linux.

What is Microsoft doing here? It’s trying to put SuSE developers at ease that they won’t be sued. So there’s no need to obtain a license from Microsoft. Furthermore, there’s no need for sublicensing – which is particularly important for the decentralized nature of open source development.

Non-assertion covenants (also called a "promise not to assert" or "covenant not to sue") are binding agreements. It’s a "promise" but it’s still legally enforceable under the doctrine of promissory estoppel — if Microsoft were to withdraw its promise, anyone who justifiably relied on the promise and suffered harm from the withdrawal can sue. They are ways for one party with intellectual property rights to create zones of enforcement and increase certainty for other parties. Its an example of market participants contracting around (or within) the patent and copyright legal system to reduce transaction costs of negotiating, monitoring and enforcing licenses.

Non-assertion promises are better than RAND (Reasonable and Non-Discriminatory) licenses. What is "reasonable" and "non-discriminatory" depends on the particular circumstance and is open to legal interpretation and business negotiation hassles. Furthermore, RAND does not mean royalty-free. For more on Non-assertion covenants see Andy Updegrove’s informative blog post on the subject.

I believe we’ll see more and more of these non-assertion agreements from IP rights holders. We’ve already seen Microsoft’s open specification promise and Sun has on a few occasions promised not to assert its IP rights regarding UBL, SAML, and ODF.

And I also think we’ll see this in the area of standards. Standards development organizations bring together many companies that often have a large portfolio of intellectual property. Creating a standard requires that firms "play nice" but for that to happen there needs to be disclosure and no threat of being sued when adopting the standard. Non-assertion covenants help prevent what some refer to as a tragedy of the anti-commons — when people under-use scarce resources because several actors hold a right to a certain object but where nobody has the right to use it without the consent of all other right holders. As such, a unilateral promise that applies to everybody can be an effective mechanism for coordinating IP rights holders in technical standardization processes.

And although coordination is necessary, it must be done in light of antitrust concerns when a number of companies get together and collaborate. One standards body organization, VMEbus International Trade Association (VITA), recently won Department of Justice approval to improve its standard setting abilities. VITA’s standard-setting process would force companies that participate in its standards process to

a) disclose patents that are essential to implement a new standard, and
b) declare the most restrictive licensing terms that will be required to license any such patents.

DOJ’s business review letter (a declaration from DOJ of its enforcement intentions regarding a proposed business arrangement) that VITA’s policy is a sensible effort "to address a problem that is created by the standard-setting process itself. Implementation of the proposed policy should preserve, not restrict, competition among patent holders."

Unilateral and group-wide agreements will further help solve coordination problems as IP companies collaborate and participate in standard setting.