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Windows Buyers Pay Patent Tax of $21.50 ?
An anonymous reader writes "Ars Technica has a story up about an estimate done by the Software Freedom Law Center of how much purchasers of Microsoft Windows are paying in 'patent taxes'. 'SFLA took the total of $4.3 billion dollars in legal costs for Microsoft from 2001 to 2004 and divided it by estimated sales of Windows XP over the same period — approximately 200 million copies — to come up with the $21.50 estimate. The organization added that North American and European customers, who pay more for Windows licenses than customers in other parts of the world, actually ended up paying more of this patent tax, and that people who pirate Windows pass their share of the tax on to paying customers.' The article goes on to point out several flaws in the study's logic. For example, the actual cost of a Windows OEM hasn't increased in the last few years; Microsoft isn't passing this cost directly on to the consumer."
What about the people who work for Microsoft. What kind of patent tax do they pay? :-)
Wow, what a news flash, the cost of developing software is covered by the consumers. I never would have guessed.
"I use a Mac because I'm just better than you are."
1. How much of the $21.50 goes to the companies and/or individuals who hold the patents?
2. How many innovators (engineers, etc.) are employed as a result of the $21.50?
3. How much of the $21.50 is eaten up with legal fees?
I've got no problem paying a license fee as long as I am getting a significant amount of innovation for my money.
Toronto-area transit rider? Rate your ride.
MS makes most of its money from its money from server versions and Office. It could give away its desktop software and still make billions.
These billions of dollars in legal fees seems to me all the more reason for Microsoft to release a commercial Linux distro.
*ducks and runs full speed from the pitchforks and torches*
Read my Very Short "Stories"
For example, the actual cost of a Windows OEM hasn't increased in the last few years; Microsoft isn't passing this cost directly on to the consumer."
Yea, OK then who is paying for it?
Got Code?
I was thinking people who worked for them had to pay the old ducking from flying chairs tax.
I'll admit, I only skimmed the article, but if M$ spent that much money, total, on patent legal fees, that money needs to be divided evenly against the revenue of all offered products.
How much of our income tax should actually be labelled "Bullshit Lawsuit Tax," to cover the government's legal fees for BS lawsuits?
Is Windows XP the only thing Microsoft sold from 2001 to 2004?
What about 2003 Server? Windows 2000 Server? SQL Server? SMS Server? Exchange? Office? Windows PocketPC? XBox? Xbox games? Xbox controllers? VisualStudio? Mice? Keyboards?
How the hell do they figure that *all* of Microsoft's legal fees are directly accounted for by Windows XP?
Microsoft's pricing isn't driven by their costs, it's driven by revenue maximization. A change in their cost structure has no effect on the prices they charge; raising prices would reduce their gross revenues, which would be quite counterproductive.
Lacking <sarcasm> tags,
It's a good thing Microsoft doesn't sell any products other than Windows XP. And it's also a good thing none of this technology that was patented will go into any future products. The real price when distributed over the myriad of products Microsoft sells drastically reduces this figure. If you include just Office this figure will drop in half. Now you have to wonder how many of these patents apply or are financed by much higher end products, ie. Windows Server. Basically, $21.50 is the MOST a customer could be paying for patents on Windows XP. The real thing to consider, is whether the average customer will derive more than $21.50 in value from those features. I think they will.
Well, I guess its a good thing that I've never paid for a MS OS, or for an MS Office product.
This post written on a PC running Windows and Office XP. How did those get there? Hold on while I go look for my, erm, install disks... and just ignore that folder named "ISO-WAREZ". *flees*
There is no mod option "-1: Disagree" for a reason. "Overrated" is not an acceptable substitute. Post something instead.
Maybe I should send a twenty to that devilsown guy? Anyone got the address?
...and years i kept asking for a stupidity-tax.
:)
now...there it obviously is!
One counterpart to this kind of study is this argument: If you think $21.50 is a lot, just imagine how much it would cost each individual customer to negotiate and license all of the patents in question? By centralizing the negotiation and licensing, Microsoft greatly reduces the total transaction costs.
That said, I'm sure a lot of these patents are absurd software patents that Microsoft decided it was cheaper or easier to license than defeat in court.
They aren't passing anything along. You can only pass your portion of the tax if the price would adjust in the market.
In other words, they are only passing the tax along to customers if MSoft would have charged a different price with them being paying customers.
I have never let my schooling interfere with my education.
Woah, you mean Microsoft charges the price that will bring in the most revenue, rather than basing the price on their fixed costs? Amazing. Next you'll tell us that their finance guys have a better grasp on economics than the average Slashdotter...
This one always confuses people.
A business, by virtue of being a business, always charges whatever will (they think) be most profitable.
There is nothing that you can do to a business that'll make them want money they didn't want before. They already want it all.
So in a very real sense no cost is passed on to consumers; the market decides the optimal price for the product. If that's high enough to make a profit, the business grows; if it isn't, the business dies. No company can pass on costs that the market is not willing to pay for; and no company will undercharge when the market is willing to pay more.
20 posts and nobody's said that the whole retail price of all M$ software is a patent tax? Did I log onto digg by mistake?
Only three things are certain; death, taxes, and apocryphal quotations - Ben Franklin.
If Microsoft increase their prices, sales will fall. So they're going to choose a price that maximises their profits.
Whether they have to pay for development, litigation, or gold plated toilet brushes in the executive washroom, the price remains the same.
I mean, seriously, does anyone think, for a second, that if Microsoft didn't have to pay this, the price of Widnnows would fall by $12.50 a copy? Of course not. The extra $21.50 would be pumped back into Microsoft.
Then hit the right target, for Heaven's sake. If they're not passing along the cost increases, then it's the Stockholders paying for this.
"It's the height of ridiculousness to say for those 9 lines you get hundreds of millions."
Even if all of it goes to them, it cost them that much in legal fees to enforce their patent. No, there are not that many IP lawyers who work on contingency. That's right, you want to enforce your patent, copyright, or trademark, it comes out of your pocket. How else do you think the big corps steal individuals and small companies ideas so easily. Although, there is a growing trend among IP attorneys to charge a contingency fee because of the rip-offs.
2. How many innovators (engineers, etc.) are employed as a result of the $21.50?
In this say and age? It all goes the lawyers.
3. How much of the $21.50 is eaten up with legal fees?
All of it and then some. This is America. Where one day, there will be a lawyer for every person.
Or is this like if we considered Windows XP was the only revenue source of Microsoft during those years? And there I thought Microsoft had quite a few products (even if you don't count the "at a loss" ones).
WTF? Why did this get modded troll? Geeze, some people have NO sense of humor. Someone mod this funny, I got a giggle out of it!
Which ranges from $200-$400 for a real, new license of Windows! That's between 10% and 5% depending on the version of Windows.
That you're paying a "patent tax" is nothing new. You're paying a "tax" on everything. If you've ever bought a pack of smokes you're paying into their legal fees, for instance. It's really just a cost of doing business not related to development nor profits.
.GIF files. Windows comes with a media player that can play .MP3 files. Windows natively supports TrueType fonts. How much per copy is going to make sure they're on the up-and-up with those IPs?
What I'd find more interesting is how much of the cost of Windows goes into licensning patented software. MSPAINT can read and write
More Twoson than Cupertino
Glad I didn't post that for a redundant mod.
It's exactly what I thought when reading the TFS/TFA
34486853790
Connection too slow for X forwarding? Try "ssh -CX user@host"
I couldn't believe this, there really is (well, was) a window tax. According to http://www.neatorama.com/2007/04/19/what-wont-they -tax/ ... Now, can we get some boards on the monitor please?
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WINDOW TAX
Pitt the Younger also tried a chimney tax, but found that windows were easier to count. People paid the tax based on the number of windows in their home. Result: a lot of boarded-up windows.
Support NYCountryLawyer RIAA vs People
Anyone find it ironic that Microsoft's legal costs have reached the size of a long int?
Saying that the legal costs are $x per unit implies that that the Microsoft would have charged less for XP if there were no patent costs. That is patently false. MS chanrged as much as they could for XP without scaring away the customers.
Engineering is the art of compromise.
It seems to me like there are two invalid assumptions here.
1. 100% of Microsoft's legal fees revolve around Windows and have nothing to do with any of their other numerous products.
2. 100% of Microsoft's legal fees are spent for patent-related reasons.
It seems to me like that it would be better to figure out the amount of money spent on patent-related subjects and then divide by the total sales numbers. Then there would be a bit of work to do dividing that up proportionally among the products depending on what % of the total sales numbers each product contributes.
Only then could we come up with a proper "Patent Tax" number for Windows.
There can't ever be a lawyer for every person. Because the lawyers are technically people too, so they'd have lawyers, and that series doesn't converge.
Can you be Even More Awesome?!
Well, one thing to point out is that by OEM being cheaper, it shows they just might be penalizing that pesky do-it-your-selfer!
This is also a reason MS spends so much effort on spinning Vista sales etc. MS revenues are not hugely affected by Vista because pretty much every Vista sale would have been an XP sale if Vista had not come about (discounting for a moment XP to Vista upgrades, which are close to non-exixtant). Therefore, for the next few years anyway, Vista is a pure cost with no revenue upside. That's $5bn of Vista development costs straight out of shareholders pockets. That's perhaps 50c per share or so, approx 2% of the share value. This is mildly bad news, but it also coincides with the Zune turd. Two new product releases that are stacking up as failures. Clearly MS needs o do a good job of selling themselves to the stock market.
Engineering is the art of compromise.
That's whtat's good about linux - no one to SUE !! You can't sue no one, especially no one that has no money !!
Pricing software is not trivial. There is certainly an upper limit as to the value provided by the software. Charging more than that will result in very few, if any sales. So there is an upper bound. But this upper bound is pretty high, way higher than you would normally see anything priced at.
What it cost to produce is a very difficult number to arrive at in a large company. Not much simpler in a small company either. And how do you amortize that? Generally, this is a fruitless exercise that might give you a lower bound on price but more often is going to just frustrate the heck out of everyone. Yes, I have worked places with timesheets where they tried to track time spent by developers and analysts.
The range in the middle is pretty wide open. You can look at competition, but that is often misleading because once again, nobody has the right answer. Lots of people undervalue their worth and the worth of their creations. Alternatively, you don't want to be 10x what could be considered to be competition.
So you end up with a guess and are usually stuck with that guess for a long time. But I would say today that in no way is software priced relative to the cost of production. The real cost is very hard to arrive at and isn't useful. Software needs to be priced around its value to the customer that really buys it. The people that think it is priced too high aren't your customers. The people that pirate it because they think it costs too much (usually anything over zero) aren't your customers. Trying to include either group into pricing is a mistake.
So what where these people smoking with a "Patent Tax"?
It says right here http://slashdot.org/article.pl?sid=07/04/19/155321 9 if Windows cost any more Microsoft would be engaged in dumping and abuse of monopoly power!!
I don't think the title is correct. A lot Microsoft's legal fees were anti-trust suits which come back to the consumer. This isn't a "patent tax" but a "we don't like people ripping people off tax". I got a $83 check!
Casino logic won't work here, the money comes from you and me.
Secondly, this is BS. It ignores the fact that MS sold more products in that period that just WinXP than just an OS, things like Office.
First, don't call me a "consumer". At best, I'm your customer. The term "consumer" is insulting and inaccurate. The dollars I pay, unfortunately, don't make Windoze go away.
Second, the 4.3 billion dollars M$ spent on patents don't magically disappear because you can't figure out which M$ customers actually paid the price up front. Everyone who buys anything has paid their share of the M$ tax because everyone who buys M$ passes the costs on to their customers. When I buy something from a company that does not use M$, my cost may be lower because they saved themselves the primary inefficiency of Windoze use. That company still has to buy suppliers and so on and so forth, until you get the entire M$ annual revenue. Because M$ is a convicted coercive monopolist, it's hard to avoid paying their tax because they make it difficult for anyone to by anything else. Even the lower cost of avoiding M$ are a part of the M$ burden.
Friends don't help friends install M$ junk.
Interestingly, MS did pretty much the same thing by paying license fees to SCO. Doing so legitimised SCO's claims and helped cause confusion amongst potential Linux users.
Engineering is the art of compromise.
Where's the computer?
Is Windows XP the only thing Microsoft sold from 2001 to 2004?
It's the most popular thing they sold and a fair normalizing factor. You can try to smear it out to "products" of secondary importance but that only shifts a small fraction of the costs onto business users who pass them back to you and me anyway. XP and Office were the big money makers, so that's where they money actually came from. You can't run Office without XP (or Wine but that can be neglected here), so you might as well divide it that way as an average. If you put the costs onto the small fraction of people who bought office, you will dramatically increase their share but it won't do much for the rest of us. It's a crime, but All of us pay the M$ tax.
Friends don't help friends install M$ junk.
I think that accounting for Microsoft's software patent expenses must take more into account than the cost of court judgements against Microsoft. The accounting should include the cost of obtaining software patents, the money paid out to other companies in software patent agreements, the income of money received from other companies in software patent agreements, the income received by winning software patent lawsuits, the money lost when losing software patent lawsuits, the legal expenses of fighting lawsuits, and the expenses of negotiating software patent agreements with other companies. Taking all of these things into account I have no idea whether Microsoft is a net winner or a net loser in the software patent game.
Taking the software industry as a whole I think that software patents are a net drag on the industry. The amount of money that a company receives in patent royalties is offset by the costs to the companies paying the royalties. The amounts won by a company in a court judgement is offset by the cost to the losing company. All of the companies participating in this game have legal expenses for negotiating software patent agreements and fighting court battles. There is also the expense of obtaining the patents in the first place. The net result for the software industry as a whole is a less than zero sum game.
There may be a few companies that beat the odds enough to actually make a profit in the software patent game but overall the industry shows a net loss on software patents. The best strategy for most companies in the software patent game would be to lobby to abolish software patents.
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Steve Stites
Vista is a pure cost with no revenue upside. That's $5bn of Vista development costs straight out of shareholders pockets. That's perhaps 50c per share or so, approx 2% of the share value.
Isn't it even mildly disturbing to you that patent costs are equivalent to what they paid to make something of value? A share is only worth future earnings, we shall see what Vista, Zune, and other second rate offerings take out of that share price. Bu-Bye, M$. When they are gone and unable to push bad "IP" legislation, these kinds of costs will be lower for everyone.
Friends don't help friends install M$ junk.
>> The article goes on to point out several flaws in the study's logic. For example, the actual cost of a
>> Windows OEM hasn't increased in the last few years; Microsoft isn't passing this cost directly on to
>>the consumer."T
Sure they are, by forcing people to repeatedly purchase new versions of products by ceasing support for the existing ones.
Let's skip past the ars write up, whose factually inaccurate and dismissive assertions have been unquestioningly repeated all over this thread, and look at the actual document that the SFLC released. http://www.softwarefreedom.org/resources/2007/pate nt-tax.html
First some corrections:
- SFLC does not assume that Windows and Office are the only products that Microsoft sold during the time period in question, they specifically state that the 4 billion dollars in settlements were only the settlements "to plaintiffs claiming that Microsoft's Windows and Office products infringed their patents."
- Similarly, SFLC does not claim that all of Microsoft's legal fees are directly related to patent defense, in fact how much Microsoft pays in legal fees overall is never mentioned. The fees they talk about are those specifically related to patent defense, and they get their figures directly from a published 2005 interview with Brad Smith, Microsoft's General Counsel.
Ok, now to the actual main points of the study.
Software patents are not about innovation. The software industry was doing very well before the legal system did an about face and decided that software could be patented. The software industries in the rest of the world do perfectly well without patents. And, just in case you thought that the whole system was just harmless, the biggest player in the industry has to pay billions of dollars in legal and settlement fees just to get their products out of the door. Imagine then the what trouble these patents must cause for people without the ability to pay billions of dollars in settlement costs in order to distribute software that they independently wrote.
Playing with software patents gets everyone burned.
By centralizing the negotiation and licensing, Microsoft greatly reduces the total transaction costs. That said, I'm sure a lot of these patents are absurd software patents that Microsoft decided it was cheaper or easier to license than defeat in court.
Ah, the magic of cross-licensing raises it's ugly head again. It's funny how those costs would go to zero if it were not for the insane software patents that M$ bullied and bribed into law. It's not like they have any respect for those laws either. M$ is famous for using what they want, fighting tooth and nail in court and being slapped with huge fines when they inevitably lose. The ferocious attitude is required to intimidate all but the largest players, so effectively they are above the laws they have forced on the rest of us.
All of us pay the M$ tax. Patents are a small but critical part of those costs. Without them, and other unjustified government protection, we might all escape the coercive and abusive M$ monopoly.
Friends don't help friends install M$ junk.
I agree that the study is deeply flawed. Really, the bottom line for pricing is, "Is this product worth this much $$ in this market?". MS seems to think their product is worth $200. To be fair, it is a big deal, a whole OS, and might be worth that much in certain markets. If it's not worth that much, they should alter the pricing. Trying to price something based on how much development and resources (and legal costs) went in to it is pointless. I would say most people are not interested, for example, in GM's labor union woes when trying to figure out if that American car is really worth all that much money in comparison to that Japanese car. Maybe it cost more to make, but that's not the consumer's problem.
Ali Baba?
a) Get some of our money back by encouraging MS to aggressively pursue any patent violations in Linux, collect licensing fees, and pass the money to us?
b) Discourage other companies from suing MS for patent violations to lower the cost of MS software?
OK, I admit that I love to draw contrary conclusions from poorly-reasoned arguments.
Let me be the devil's advocate by saying you aren't paying 21.50 in patents fees. Actually, Microsoft is losing 21.50$ on each licenses it sells. See, the price of XP has been going down over the years, not up. So the consumer is paying less and less for XP, while Microsoft is paying more and more legal fees.
"Microsoft isn't passing this cost directly on to the consumer"? Of course they are. It's being passed on in the form of less money spent productively on the OS itself.
How much better would Vista have been with 5%-10% more programmer-hours (and tester-hours!) spent on it? I don't know, but if MS isn't raising the cost thanks to patents, they're doing less work on it.
Money's gotta come from somewhere.
Breaking Into the Industry - A development log about starting a game studio.
Hey SFLC - can you compute the equivalent figure for Apple-based products?
This is a concept that no one seems to understand. Companies never pay taxes, they just pass them along to the consumer.
They haven't released a new product in the last few years either, till now. They couldn't very well raise the price of XP years after its release, with most people asking where the mythical new Longhorn was, and keep a straight face.
Obviously the adjustment is made in new products - Vista.
The article is not about the economics of software distribution, or the relation of legal costs to other costs in software development. It is about how software patents specifically add to the cost of distributing software today. Now, if you really think Amazon should have a 20 year monopoly on clicking on a link as a way of ordering something online, then maybe everything we're talking about is really a novel and non-obvious invention valuable enough to society to warrant government granted monopolistic rights. In that case, I guess it's all equally "software development". I tend to think it's basically all garbage and only actually used to shake down companies and funnel lots of money to pay patent lawyers. Since this one component cost goes towards a worthless system, I care how much of any of my purchases goes towards supporting it.
Conveniently, Linux has avoided these costs. If it matters to you that people end up paying more because of these software patent costs in the first place, then this might be important to you.
You could say that you get a similar situation with the Mob. Most people don't pay much attention because the costs they add to consumer goods are spread throughout society. Now if you pointed out to someone that, through various additional money spend in shipping things through the ports, and assembling them in various towns, 15% of the cost of a new car went to the mob, [I have no numbers for that, just tossing one out] they might actually start paying attention. If you could then point to a different type of car and tell them that this type of car was produced without a dime going to the mob, that might suddenly be a reason to use it. It is a question of showing people how the things they might abstractly agree are bad happen to directly impact their lives and how their actions can, in turn, help shift resources away from those bad ends.
...like you can't sue [no one] for the improper use of English...
Every time I start to have faith in humanity, I ruin it by driving to work between 7 and 8 am.
Much better stated.
Lacking <sarcasm> tags,
Where's the computer?
Actually hey did exactly what you suggest. The numbers they use are only those of patent settlements and legal fees directed specifically against windows and office and the only sales numbers they used are estimates of windows computers sold over the same period.
Just sloppy reporting on the initial post
Tax is something levied by legitimate government on its electorate, for the greater good of the collective. A legitimate business expense, such as legal fees, is something incurred by an organisation as it goes about its normal (legal, moral) business in the pursuit of benefit for its stakeholders, (customers, employees, shareholders). Most other things left could be classified as theft - a crime. Kleoptocratic regimes, fake expenses... But somewhere in between the two is what the economists call 'monopoly rent' - the extra income that a dominant organisation can demand over and above the market rate, simply because they are dominant. (See http://en.wikipedia.org/wiki/Monopoly_profit) If we dismiss Apple & Sun, (OS most often bundled with hardware), we could be provocative & say that such a 'rent' is not 20 bucks, it's the total price (not cost) of either MS Windows or MS Office. As everyone here knows, Linux, OO etc. is a viable 'free' alternative. So where's the 'truth'? My guess - more like $100 than $20... And before you flame or troll me - I have no problem with paying the 'rent' when the occasion demands it - there's still (unfortunately) many instances where MS is what I recommend / install / support. I just wish it was not so damn expensive...
From http://www.softwarefreedom.org/resources/2007/pate nt-tax.html
"Why Do You Call It A Patent "Tax"?
Patents are granted and enforced by the federal government, who before 1989 did not allow patents on software. In that year, the federal courts declared software algorithms to be patentable, despite the fact that the software industry had been booming without government intervention in the form of patents. Today, software developers continue to pay patent holders for permission to distribute their own programs, and the government continues to enforce this scheme."
Microsoft's game plan was always to come in with a very cheap starter product and hit customers with an expensive upgrade. Perhaps Windows XP Pro is subsidizing the 'Patent Tax', but Windows XP Home is underwater.
What about SUSE? Novell is paying a "patent tax" to MS.
Microsoft likes to copy Product A and change "/" to "\" and call it Microsoft Product B. Frequently they get sued over this and they pay people off and it perpetuates the fiction that Microsoft invents things. It is part of the Microsoft Story that Bill Gates and Paul Allen brought computing to the masses by inventing the personal computer.
When the QuickTime file format was standardized as MPEG-4, with H.264 video and AAC audio for consumer devices, this effectively was open source QuickTime, leveling the playing field in multimedia. But rather than license MPEG-4 like Apple, Sony, Panasonic, Nintendo, rest of the world, Microsoft copied MPEG-2 as Windows Media. However they have now had to pay legal compensation to the MPEG-2 creators that they ripped off for Windows Media. Courts looked at the technology behind WMA and MP3 and ordered Microsoft to pay Fraunhofer, the creators of MP3, as if they had just licensed MP3 in the first place, which is what they should have done. You only have two honest choices: invent your own, license somebody else's. Microsoft spends a huge amount of time and energy and resources avoiding either of those honest choices.
So getting sued is part of their business model. They have money in the bank to pay future legal fees as compensation for crimes they are currently committing and that only they may even know they are guilty of right now. They have money in the bank for crimes they have not even committed yet. Everybody is like "why is their cash hoard so much larger than any other company?" Because the people doing the hoarding at Microsoft know where the bodies are buried.
Back in 2004 a close friend of mine told me that when he visited Foxconn (the largest manufacturer of motherboards in the world) in Guangdong China he personally saw an invoice from Microsoft for OEM volumes of Windows XP Home which were bundled together with systems being assembled for Dell. At the time my company was trying to sell Taiwan and China OEM manufacturers on the concept of bundling Linux with their OEM systems. We faced a lot of resistance because they were already getting Windows XP Home for so little, they had no motivation to bundle Linux and try to 'sell' Linux to their OEM customers. In their eyes the value add of Linux was zero.
Microsoft's Windows XP strategy was to provide an inexpensive starter product and hit customers with an expensive upgrade to Windows XP Pro. Now there are even more upgrade options with Windows Vista. Perhaps Windows XP Pro is subsidizing the 'Patent Tax', but Windows XP Home is underwater.