Legal Questions Dog Microsoft Acquisition

With the ink barely dry on Microsoft's acquisition of anti-spyware vendor Giant Company Software, questions have arisen about the ownership of the anti-spyware code Microsoft bought.

Microsoft acknowledges that Sunbelt Software of Clearwater, Florida, is part owner of Giant's AntiSpyware software. That agreement between Giant and Sunbelt does not prevent Microsoft from further developing new products based on the Giant code, according to Microsoft. However, Sunbelt President Alex Eckelberry says that his company has exclusive rights over elements of the technology, including the ability to offer SDKs (software developer's kits) for Giant AntiSpyware technology. That could make it difficult for Microsoft to integrate Giant technology with other products.

Microsoft issued a short statement regarding Sunbelt's claims Thursday saying, "We understand that Giant granted a co-ownership right to Sunbelt concerning an earlier version of Giant's anti-spyware software product. However, the granting of that right to Sunbelt does not constrain either party from innovating and developing new products that are based on that earlier version."

A Microsoft spokesperson declines to comment specifically on Sunbelt's other claims.

Existing Relationship

Sunbelt and Giant have had a close business relationship since 2002, with Sunbelt licensing and selling technology developed by Giant, according to Eckelberry.

Among other things, Sunbelt struck an agreement to sell Giant's antispam product, Spam Inspector, under its own label, IHateSpam. Until September, the company also sold a product, CounterSpy, that used Giant's AntiSpyware engine. The companies parted ways in September, with Sunbelt focusing on the corporate anti-spyware market and Giant focused on the home PC anti-spyware market, Eckelberry says.

However, Sunbelt claims co-ownership of everything related to Giant's AntiSpyware product up to September 20, including "the user interface elements, explorer tools, [and] software update services," Eckelberry says.

While the co-ownership agreement will not prevent Microsoft from changing the Giant product to suit its own needs, Sunbelt's exclusive rights to create and distribute SDKs for the Giant AntiSpyware engine could require Microsoft to seek permission from Sunbelt before allowing third-party companies access to Giant's data.

"For example, if Symantec went to Microsoft and said 'Hey, we want to get some of that [antispyware] data', they would have to go through Sunbelt," Eckelberry says.

"It's an interesting situation," says Steve Frank, a partner in the patent and intellectual property group at Boston law firm Testa, Hurwitz, and Thibeault.

Sunbelt to Benefit?

While Eckelberry says Sunbelt has no right to share in future profits from Giant sales, the company still expects to benefit from the acquisition through co-ownership of Giant AntiSpyware definitions, which can be used in Sunbelt products. Sunbelt also has the right to develop and distribute the Giant SDK, he says.

Microsoft was probably aware of Giant's obligations to Sunbelt, but "didn't care," or were impressed enough with the Giant technology to overlook the contractual complications, Eckelberry says.

Microsoft and Sunbelt have been in contact, but have discussed mostly "boring, technical stuff," such as distribution of the Giant AntiSpyware definitions. The companies have not discussed issues surrounding the SDK, Eckelberry says.

But attorney Frank doubts that Microsoft would have been so cavalier, had it known about Sunbelt's rights to the Giant code.

"These are exactly the kinds of things that come out of the woodwork when there's lots of money on the table," he says. "This will come as most unwelcome news."