A new position paper questions the touted benefits of Microsoft’s ‘Intellectual Property Indemnity’ policy, which could potentially affect over 100 million customers. Other software makers have made similar commitments to the ‘indemnity arms race’. But if ever needed, many policies could cost end users more than they return in protection. Even so, is the software industry writing potential indemnity checks it might find difficult to cash?

These and other issues are examined in the position paper ‘Indemnification and Disclosure of Risk: An Analysis of Intellectual Property Indemnity including Microsoft’s Legal Commitment Policy’, by IT journalist and software inventor Eric Wilson.

“With everyone indemnified, it could become viable for patent or copyright holders to sue even small customers for an injunction,” Eric Wilson says. “Universal intellectual property indemnity could have exactly the opposite effect to what is intended.”

Mr. Wilson says indemnities offered without a sharp increase in software prices should be examined very carefully.

“Many indemnity models look economically shaky,” Eric Wilson says. “Generally speaking, software makers might be particularly vulnerable to indemnity shock should their entire user base infringe. To avoid the potential for widespread customer disruption with serial market-snatching injunctions - now underwritten by a software makers’ indemnity - settlement costs could skyrocket.”

The paper suggests intellectual property warranties with adequate disclosure of risk would likely give users more rights and cost less by making the industry better behaved in the long run. It also shows how Linux has surprisingly little to do with what started and what might underlie the indemnity fad. And not even Microsoft’s latest offer appears to indemnify its own free-of-cost software by default.

“It’s often in a customer’s best interest to settle quickly rather than being sucked into a vortex of vendor-sponsored litigation,” Eric Wilson says. “Unfortunately, in some cases, doing so could void their indemnity. Conditions of acceptance and consequential damage risks not covered by most can render many indemnities practically useless in a real business context anyway.”

The paper argues since many indemnities may in practice be too difficult to rely upon, end users should favor dealing with software makers with clean intellectual property practices.

“Generally speaking, the quality of a software maker’s intellectual property ownership warranties and disclosures should always take precedence over the size of their bank account,” Eric Wilson says. “When customers insist on only using software which can stand up to scrutiny, most of these risk management issues simply disappear. “

Although the author has an interest in keeping the market open to smaller players, and a beef with Office 2003, the paper attempts to be more objective by comparing Microsoft’s latest indemnity policy with the benchmarks the company provides on its own Website. The views of other industry commentators and professionals are also taken into account.