Microsoft's Million Patent Deficit

Microsoft rarely comes out on the short end with its tech peers. But it does in one measure: It paid about $1 billion last year to license intellectual property, while collecting just $100 million in royalties on its patented technologies.

Now it's redoubling efforts to control those costs. Last week, the company for the first time licensed its patented hardware technology, striking deals with Fellowes, Targus Group International, and others for three inventions that add features to computer mice.

It's one small step in Microsoft's effort to extract more revenue from its IP portfolio. During the past two years, Microsoft has been increasing the number of patents it applies for, receiving its 5,000th U.S. patent last month. It's also using its patents to barter cross-licensing deals with Cisco, Siemens, and Toshiba to access technologies those vendors own and close its IP spending deficit. "Microsoft didn't have enough chips on the table," says David Kaefer, director of business development in Microsoft's IP licensing group.

The company's inventions always have been more about improving its products than driving license revenue, says Tim Bajarin, president of the consulting firm Creative Strategies. But the mouse shows where it's headed, licensing patents for a tilting mouse wheel for left-to-right scrolling, an adapter for PS2 and USB connections, and a magnification button. Such features might bring a $10 or $15 premium, and Microsoft gets a royalty on each unit. Not bad, though Microsoft doesn't expect to match IBM or other tech companies that rake in profits on their IP portfolios. Says Kaefer, "If we could break even, we would probably be ecstatic."