On Tuesday a consortium of technology companies, including IBM (IBM), will launch a new initiative designed to help shield the open-source software community from threats posed by companies or individuals holding dubious software patents and seeking payment for alleged infringements by open-source software products.

The most novel feature of the new program, to be known as Linux Defenders, will be its call to independent open-source software developers all over the world to start submitting their new software inventions to Linux Defenders (Web site due to be operational Tuesday) so that the group’s attorneys and engineers can, for no charge, help shape, structure, and document the invention in the form of a “defensive publication.”

Linux Defenders will then also see to it that the publication, duly attributing authorship of the invention to the developer who submitted it, is filed on the IP.com Web site, a database used by the U.S. Patent and Trademark Office and other patent examiners throughout the world when they are trying to determine whether a proposed patent is truly novel, as any patentable invention is supposed to be.

In effect, the defensive-publications initiative mounts a preemptive attack upon those who would try to patent purported software inventions that are not truly novel — i.e., innovations that are already known and in use, though no one may have ever previously bothered to document them, let alone obtain a patent on them, a process usually requiring the hiring of attorneys as well as payment of significant filing fees.

“The idea is to create a defensive patent shield or no-fly zone around Linux,” says Keith Bergelt, the chief executive officer of Open Invention Network, the consortium launching the site. The core members of that group, formed in 2005, are IBM, NEC, Novell (NOVL), Philips, Red Hat (RHT) and Sony.

OIN’s Linux Defender program is being co-sponsored by two of the most prominent guardians of the free- and open-source software community, the Linux Foundation in San Francisco and the Software Freedom Law Center in New York. In addition, the site is being hosted and “co-developed” by New York Law School, which has, since June 2007, been sponsoring, in coordination with the U.S. Patent and Trademark Office, its own well-received, complementary project, known as the Peer to Patent Community Patent Review site. That site solicits assistance from the open-source community to produce evidence that an invention for which a patent is currently being sought was actually already known or in use prior to the patent applicant’s filing.

So-called free- and open-source software is software that, by its licensing terms, confers certain “freedoms” upon users that are usually forbidden by conventional proprietary software companies, like Microsoft. These freedoms include the right to see the software’s source code, alter it, copy it, and redistribute it. The best known open-source product is Linux, or GNU/Linux, a complete open-source operating system that has become quite popular among Fortune 500 corporations for use on their data-center servers. Patents threaten the whole free-and-open-source eco-system, however, in that none of the key open-source freedoms can be practiced if an outsider can establish that a given piece of software infringes a valid patent he holds.

The Linux Defenders program is largely the brainchild of Bergelt, who took over as Open Invention Network’s CEO this past February. The program also reflects a new, more proactive role Bergelt envisions for OIN than the group has played in the past.

Until now, OIN’s purpose has been one-dimensional: to acquire a defensive portfolio of strategically crucial patents, which OIN makes available, royalty free, to any company that reciprocally agrees not to assert any of its own patents against the Linux community. (About 50 companies have already entered into such formal agreements with OIN, of which the best known are probably Google (GOOG) and Oracle (ORCL).) The implicit threat is that if any outsider — a Microsoft, (MSFT) say, which declared publicly in May 2007 that open-source software then violated 235 of its patents — were to ever bring a patent suit against a player in the Linux community, that outsider would, in turn, risk countersuit by OIN or its member companies asserting infringement of their own patents by the outsider.

While this IP-acquisition program remains a central one for OIN, Bergelt says, OIN will also now seek to “think more creatively” about other ways to protect and foster Linux’s development by means of “relationship-building” and “information-sharing,” including efforts to explain the importance of open-source and open-platform approaches to the media, patent officials, and competition authorities, among others.

Befitting someone who plans to tackle this ambitious range of goals, Bergelt has a background that is more diverse than that of his intellectual-property lawyer predecessor, Jerry Rosenthal, who, prior to heading OIN, had served as IBM’s IP-licensing chief. Though Bergelt is also an IP lawyer, he is, in addition, an entrepreneur and diplomat. Immediately prior to joining OIN, Bergelt was the president and CEO of the intellectual-property focused hedge fund Paradox Capital. Before that, he was a senior advisor to private-equity fund Texas Pacific Group (now TPG); headed the strategic intellectual asset management unit at Motorola; and co-founded the strategic intellectual asset management unit within the electronics and telecommunications group at SRI Consulting in Menlo Park. Earlier still in his career, he spent 12 years as a U.S. foreign service officer, including a posting to the U.S. Embassy in Tokyo, where he negotiated IP rights agreements with certain Asian countries, including China.

The Linux Defenders program will actually have three components. The first will be a peer-to-patent component that, like New York Law School’s existing program, will reach out to the open-source community in search of evidence of “prior art” — proof of preexisting knowledge or use of certain inventions — that can be used to challenge applications for patents that have been filed but not yet granted. The goal here is to persuade patent examiners not to grant the patent being sought because the invention is not truly novel.

The second component will be a natural extension of the first, to be known as “Post-Grant Peer to Patent,” which will enlist similar community assistance in the search for prior art relevant to patents that have already actually issued. In this case, the goal would be — assuming such prior art is found — to initiate an administrative reexamination proceeding before the U.S. PTO to get the patent invalidated. (There have been some earlier post-grant, peer-to-patent efforts — sometimes referred to as peer-to-issue programs — by both nonprofits and private companies, but none with the commitment, and on the scale, that OIN envisions, Bergelt says.)

The third component is the defensive-publications initiative. The phenomenon of defensive publication is also not new, Bergelt acknowledges, although it has primarily been used in the past by private companies protecting proprietary business models. Since at least the 1970s, he says, when the filing of an important patent by one company would often spur rivals to respond by seeking inter-related patents designed to restrict the usefulness of the first company’s filing, proprietary companies began using defensive publication to beef up and buffer their core patents.

“They’d file one patent,” Bergelt explains, “and then the next day they’d file thirty defensive publications that would protect all of the extensions of it they could think of, so the core patent was fenced off by layers of barbed wire, if you will. . . . What I’ve done is turn that idea on its head a little bit.” (Defensive publications are cheaper and easier to prepare than full-fledged patent-applications.)

Although some factions of the free- and open-source community are ideologically opposed to the whole notion of software patents — most notably and passionately Richard Stallman, the founder of the Free Software Foundation (which is a client of Linux-Defenders co-sponsor Software Freedom Law Center, which, in turn,  supports the End Software Patents organization) — neither Bergelt nor OIN fall into that camp.

“We’re not anti-patent by any stretch of the imagination,” says Bergelt. “More patents is fine with me, as long as they’re high quality. Quality is the drum we beat.”

In fact, Bergelt says, if a developer wants to get an actual patent on his invention, and then put defensive publications around it, Linux Defenders will help him do so — so long as the developer will ultimately be contributing the patent to the Linux community.

Yahoo’s ad alliance with Google seems like a great deal to Messrs. Brin, Page, and Yang. Now they just have to win over the Justice Department.

Google and Yahoo had hoped to have it all up and running by now. As you may recall, the two Internet giants announced an alliance last June in which Google would supply Yahoo with search ads to supplement Yahoo’s own. Google would get a big new customer for its ad-delivery service, while Yahoo would get a new source of revenue – and best of all, they’d keep Microsoft from swallowing Yahoo.

Then Washington got in the way. Due to pushback from antitrust regulators, in early October, Google (GOOG) and Yahoo (YHOO) put off the launch to give the Justice Department more time to chew on it. In September, Justice reportedly hired veteran antitrust litigator (and former Walt Disney vice chairman) Sandy Litvack to help review the deal, and soon thereafter Canadian authorities hired an outside lawyer too. The European Union is also taking a hard look.

What’s the hang-up? Well, there are three basic concerns about just what this alliance really amounts to. First, if it had been a merger between Google, with 70% share in the paid-search market, and Yahoo, with the next 20%, it would clearly violate antitrust laws by creating a monopoly. (Paid-search ads are the ones that show up near the top of a search-result screen or off to the side, under the rubric “sponsored links.”) Second, if Google were paying Yahoo to exit the paid-search arena, that would be an illegal agreement between competitors to allocate markets. Third, if Google and Yahoo were agreeing to set a price floor for the two companies’ paid-search offerings, that would be illegal price-fixing.

Yahoo’s ad alliance with Google seems like a great deal to Messrs. Brin, Page, and Yang. Now they just have to win over the Justice Department.

Google and Yahoo had hoped to have it all up and running by now. As you may recall, the two Internet giants announced an alliance last June in which Google would supply Yahoo with search ads to supplement Yahoo’s own. Google would get a big new customer for its ad-delivery service, while Yahoo would get a new source of revenue – and best of all, they’d keep Microsoft from swallowing Yahoo.

Then Washington got in the way. Due to pushback from antitrust regulators, in early October, Google (GOOG) and Yahoo (YHOO) put off the launch to give the Justice Department more time to chew on it. In September, Justice reportedly hired veteran antitrust litigator (and former Walt Disney vice chairman) Sandy Litvack to help review the deal, and soon thereafter Canadian authorities hired an outside lawyer too. The European Union is also taking a hard look.

What’s the hang-up? Well, there are three basic concerns about just what this alliance really amounts to. First, if it had been a merger between Google, with 70% share in the paid-search market, and Yahoo, with the next 20%, it would clearly violate antitrust laws by creating a monopoly. (Paid-search ads are the ones that show up near the top of a search-result screen or off to the side, under the rubric “sponsored links.”) Second, if Google were paying Yahoo to exit the paid-search arena, that would be an illegal agreement between competitors to allocate markets. Third, if Google and Yahoo were agreeing to set a price floor for the two companies’ paid-search offerings, that would be illegal price-fixing.

CARLSBAD, Calif. – Barry Diller defines the calm, cool, collected CEO. At least on stage, when he’s on his best behavior. He called his recent (successful) litigation with partner Liberty Media a wrenching three-month distraction. Come Aug. 1, he says, IAC (IACI) will complete its split into five companies, including the “new” IAC, a pure Web company.

Diller was more interesting about other people’s businesses than his own. About Hollywood, which he knows well, he said: “It’s a community that’s so inbred it’s a wonder the children have any teeth.” His point is that other than theatrical talent there’s no creativity coming out of Southern California. He expressed dismay that Yahoo (YHOO) let Microsoft (MSFT) walk away and implied that the only way he would have turned down such an offer would be if he knew – and not simply desired – that his business plan would produce a better return.

Diller has been around, so his thoughts on management are illuminating. He said the reason for breaking up IAC is that its more than 50 brands are too much for one company to handle. There’s always trouble somewhere with that many brands, he said. And as a manager, “what you tend to do is go where the trouble is,” as opposed to making trouble, which is far more enjoyable and profitable. Asked his opinion of the digital prowess of the major media conglomerates, he praised only one, News Corp. (NWS)

How do you define Dell (DELL) these days? Listening to Michael Dell speak, I have no idea. Dell himself noted that the company’s former “monolithic” strategy – its famous direct-to-customer manufacturing technique – didn’t work so well toward the end of its run. He cited five areas where Dell missed the boat: consumers, emerging markets, notebook computers, data centers and small- and medium-sized businesses. (Dell is the leader in PC sales to large businesses.) So instead Dell now emphasizes all those things, or at least is trying to. It dabbles in retail. It targets smaller businesses. Its growth has been impressive, but is that over a weak base, what Wall Streeters call an “easy compare?” Perhaps Dell eventually will do many things as well as it used to do one thing. For now, it’s a still a computer maker that spends a tiny percentage of its revenues on R&D ($600 million out of $65 billion in sales) and therefore sells me-too products, though often more efficiently than the competition.

Attempting to ride a wave of corporate and judicial disenchantment with aspects of the current patent system, a new project was unveiled Thursday designed to, as its name bluntly indicates, End Software Patents. (Press release is here. The group’s “first yearly report” on the state of software patents is here.)

The group is intended to become a clearinghouse for information and a hub for those strategizing legal challenges, according to its executive director, Ben Klemens. Though End Software Patents will not initiate litigation of its own, it will be on the lookout for appropriate test cases to support as they arise, he says.

Though the project is being sponsored and funded by leaders of the Free and Open Source Software movement, it hopes to attract support from the wider community of businesses, financial institutions and universities that have all been blindsided in recent years by lawsuits over software patents and their close-cousins, business-method patents.

The End Software Patents Web site, here, highlights a long list of diverse businesses that have been sued for allegedly infringing software patents, including the Green Bay Packers, OfficeMax, Caterpillar, Kraft Foods , ADT Security Services, AutoNation, Wal-Mart , Walgreen , Barnes & Noble, Circuit City Stores , Ford Motor , E I du Pont de Nemours and Co. , and so on. In most cases, the companies have been sued because of certain basic, routine functions performed on their Web sites — the way images are displayed, the way data is gathered or transmitted — which are said to infringe software patents.

The group also hopes to attract support from the many financial institutions, including JP Morgan , Merrill Lynch , and NCR Corp. , that have been asked to pay patent holding company DataTreasury for permission to send check images over the Internet. (For a Washington Post story about remarkable proposed federal legislation directed specifically at the DataTreasury patent, click here.)

The point, explains Klemens, is this: “If you’re running a business of any sort, you have to care about the software and business method patents.” That’s because nearly every business today operates a Web site and employs a staff of in-house IT programmers who enable them to conduct business in the digital age. In that sense, every business is now a software business.

Klemens is a mathematician (a guest scholar at the Brookings Institution since 2003) who uses algorithms to analyze data. In a recent article, for instance, he and his co-authors use data analysis to link certain genes to bipolar disorder. “I often run into patents on statistical methods and mathematical algorithms of the type that I implement,” Klemens says. “I don’t think I violate the ones I’ve seen, but I could be wrong, and I don’t know what else is out there. . . . That’s the thing that really woke me up: by doing pure math, I face legal liability. As far as I know, that’s a first in human history.” Klemens’s personal Web site is here.

In a 2005 book, Mathematics You Can’t Use, Klemens criticizes software patents from an economic and legal perspective, and does so in unusually crystalline, easy-to-understand terms. (For chapter one, see here, and for chapter six, see here.)

The book attracted the attention of the Free Software Foundation, whose president, Richard Stallman, has been railing against software patents since at least 1991, for related, but narrower, reasons: they posed a potentially mortal threat to his brainchild, free software — i.e., software, like Linux, that programmers are able freely to examine, modify, and redistribute without fear that their work will ever be taken out of circulation, declared off-limits, or placed behind a toll-booth by private proprietors. (For a feature story on the tension between patents and free and open software, “Microsoft Takes On the Free World,” see here. Generally speaking, though, software patents present dangerous traps for any programmer. Unlike copyrights, which are difficult to infringe inadvertently, a programmer can easily write software that inadvertently infringes someone else’s patent. That happens whenever the programmer independently comes up with an innovation that, unbeknownst to him, someone else has already staked a claim to. While copyrights are relatively easy to write around — since they protect only particular sequences of words or code — patents present broader, vaguer, and more durable obstacles, since they purport to proprietize implementations of ideas.)

In Klemens, the Free Software Foundation saw a potential ally who, thanks to the breadth of his critique and clarity of his writing, could attract a broader audience than just free and open source programmers. “We came to him,” says Peter Brown, the foundation’s executive director, “and said, we really want to fund your work. And he said yes.”

At the moment, the End Software Patents project is formally an offshoot of the Free Software Foundation. It also enjoys the “sponsorship” — though not monetary support — of the Software Freedom Law Center, which is led by Eben Moglen (an outside lawyer for the FSF and its former general counsel), and of the Public Patent Foundation, an organization led by the center’s legal director Dan Ravicher. The Software Freedom Law Center is itself funded largely by such Linux-supporting corporate patrons as IBM (IBM), Hewlett-Packard (HPQ), Red Hat (RHT), Novell (NOVL), Oracle (ORCL), and Sun Microsystems (JAVA).

To be sure, the goal of abolishing software patents remains a radical position in the sense that very few corporations endorse it. (A surprising exception is pharmaceutical manufacturer Eli Lilly & Co. See here. Evidently Lilly recognizes that poor quality software patents are among the problems spurring the tech industry to seek patent reforms, and it hopes to find of way of placating the tech industry without weakening protections for the drug patents that are the lifeblood of the pharmaceutical industry.)

Though many information technology companies, like IBM, Hewlett-Packard, and Cisco, are publicly championing patent reform, they only favor improving the quality of software patents, not abolishing them. After all, there are estimated to be more than 200,000 active, issued software patents in the United States, and most major tech companies have acquired, at considerable expense, substantial portfolios of them. Companies like Philips Electronics also argue that drawing the line between hardware and software is no longer easy, and that many patents relate to processes that were once accomplished using hardware but are now accomplished using software. Why should the modernization of the medium deprive Philips of recognition for its inventions, its lawyers have argued (albeit, in a slightly different context). See here.

Still, Klemens expects his group to find much common ground with the more moderate IT industry reformers, as well as with those whose main bugaboo is business-methods patents. “Pretty much every argument we make, top to bottom, applies to business methods as well,” Klemens says. In addition, the group’s supporters hope that the major tech players are coming to conclude that the vast number of software patents they have accumulated is part of the problem. “There are so many rights in so many hands,” says Moglen, of the Software Freedom Law Center, “everybody is at risk all the time.”

In any case, even if End Software Patents’ goals are extreme, they are not far-fetched. The U.S. Supreme Court has never ruled on the patentability of software, and at one time the predominant assumption among lawyers was that it could not be, because it amounted to nothing more than mathematical algorithms, which, in turn, were considered nonpatentable “laws of nature.”

That assumption was gradually turned upside down through a series of decisions rendered in the 1990s by the U.S. Court of Appeals for the Federal Circuit, a specialized court that had been set up to handle patent appeals, among other things, in 1984. Those decisions suggested that even if pure software itself was not patentable, software when loaded onto a general-purpose computer created, in effect, a new physical device that could then be patented. Some of the same rulings that opened the door to software patents effectively opened the door to “business method” patents, too.

In the past two years, however, it has become clear to all that the U.S. Supreme Court is extremely unhappy with the patent environment that the Federal Circuit has fostered in the two decades since its creation. In eBay v. MercExchange (May 2006), the Court unanimously junked one longstanding rule of that court, and last term, in KSR International v. Teleflex (April 2007), it unceremoniously dispatched another. (In eBay, the Supreme Court ruled that judges need not always enjoin defendants from infringing, even after a patent-holder has proven its case, and in KSR it made it much easier for judges and patent examiners to invalidate patents due to obviousness.)

For Klemens, however, the most encouraging ruling for his agenda was one that, technically, wasn’t. In LabCorp v. Metabolite Laboratories (June 2006), the Supreme Court had been asked to review the Federal Circuit’s precedents on patentability – the issue that ultimately also determines whether software patents and business-method patents are permissible. After hearing oral argument, the Court punted, deciding that, for technical reasons, it never should have heard the case in the first place. But three justices dissented, writing that they would have overturned the Federal Circuit and invalidated the patent in question, because it clearly amounted to an attempt to patent a nonpatentable “natural phenomenon,” though the phenomenon had been recast in the patent application as a patentable “process.” For that opinion, see here. Klemens contends that software patents amount to much the same thing.

Though only three justices signed the dissent, it does appear that it, in combination with the Supreme Court’s back-of-the-hand treatment of other key Federal Circuit precedents, has led the patent appeals court to engage in some soul-searching. Just two weeks ago, it announced, without having been spurred to do so by the parties, that it would rehear an important patentability case, In re Bilski. (See generally here.) It even asked the parties to brief whether a key ruling it rendered in 1998, State Street Bank & Trust v. Financial Signature Group – one of the pivotal ones greenlighting software and business-method patents — was correctly decided.

“There are test cases all over the place,” observes Klemens. Plainly, his timing is propitious.

Correction:  As a commenter points out, in an earlier version I misused the legal term of art “reads on.” Then I did it again in a comment. Regret both errors.

It’s being widely reported that Yahoo (YHOO) and News Corp. (NWS) are back in talks to combine Yahoo with MySpace and other properties that make up Fox Interactive Media, News Corp.’s online arm. The companies held what I’m told were very preliminary talks along a similar vein last year. The deal would have three main components: 1) News Corp. would contribute FIM to Yahoo; 2) News Corp. would invest in Yahoo; 3) a private-equity partner would inject yet more cash into Yahoo. The goal, in theory, would be to raise Yahoo’s value with the cash investments, thus obviating the need for Yahoo to sell to Microsoft (MSFT).

Here’s the problem. Or, rather, the problems. It’s going to be tricky to value MySpace, which will be the linchpin of the value of what News Corp. is contributing. If whatever News and Yahoo were to assemble didn’t add up to Microsoft’s current offer ($31), or counter-offer, the board of directors at Yahoo would be in a pickle.

Couldn’t they just accept a lower bid with the argument that Yahoo is worth more independent than selling out? Sure. Then they’d get sued. They’ve got to be able to best Microsoft’s offer in a reasonable timeframe, or they’re not doing their fiduciary duty.

There’s more. In a note to clients Wednesday, UBS analyst Ben Schachter (who had a buy rating on Yahoo at $19, when many of his competitors had lost faith, because he figured Yahoo’s falling price would provoke a sale, or at least a bid) reasons that the only way for a YahooSpace to achieve necessary profits would be do a search outsourcing deal with Google (GOOG). That’d bring the companies back to the same regulatory conundrum they’ve already been grappling with: Google’s search share is too big. There’s also the question of whether Yahoo needs MySpace. After all, “Yahoo’s problem has not been a lack of inventory, ” writes Schacter, meaning that it already has a huge audience. It’s problem, he writes is “its poor execution on optimizing monetization.” That means Yahoo isn’t so good at making money from its 500-million-plus audience. Schacter has a $34 price target on Yahoo because he thinks Microsoft will raise its bid.

So is Yahoo wasting its time talking to News Corp.? Of course not. Its stock traded over $30 Wednesday, closing at $29.88. To the point of my earlier post, that’s a sign investors expect a higher bid from Microsoft, not that it’s overly impressed with a News Corp.-Yahoo tie-up.

My friend, the Newsweek columnist Daniel Gross, posted an entertaining and informative column this week on Slate about what he sees happening next in the Microsoft-Yahoo merger. Like everything Dan writes, this column is worth reading, partly because it’s delightful and also because he does a great job of explaining how these catfights typically work. I agree with everything he wrote — except his conclusion.

To boil down his wonderful words, Dan believes that because Yahoo’s (YHOO) stock price hovers around $29.50, where it’s been more or less since Microsoft (MSFT) offered on Feb. 1 to buy the company for $31 a share, Wall Street is signaling its belief the deal will collapse. He reasons that if investors believed a higher bid was coming, the stock would trade higher. The fact that no private-equity or sovereign-wealth firm has materialized to bid for Yahoo is further proof that no one wants it and that Microsoft won’t fight.

I beg to differ, and not just because I wrote in the current issue of Fortune that a Microsoft acquisition of Yahoo is inevitable. First, Yahoo’s stock price is held back in part because Microsoft’s stock price is down, and half its offer is in stock. Second, if the market really believed that Yahoo will succeed in telling Microsoft to buzz off, the stock wouldn’t be at $29 and change. It would have plunged back toward $19, the sorry level to which it had fallen just before Microsoft dropped its bomb.

Yes, Yahoo traded for $31 not so very long ago. But that was before investors realized how little was going on inside the company, that CEO Jerry Yang was taking his sweet time to clean house, that Yahoo continued to poorly articulate its growth strategy and, perhaps most importantly, that the company faces “headwinds” in its core business, online display ads. Those realities haven’t changed since Microsoft offered to buy the company.

As for another bidder materializing, the fact that nobody — not a phone company, not another media company and certainly not a private-equity shop — has stepped forward tells you something about how the world outside Redmond, Wash., and Sunnyvale, Calif., views Yahoo’s valuation. A financial buyer simply can’t make the numbers work; Only Microsoft can.

But can’t Yahoo simply say no? Sure it can. But if Wall Street really believes no means no, you’ll see a stock drop and lawsuits fly. “We do not believe that Yahoo’s board will be able to turn down a mid-$30s bid without another offer in hand,” RBC Capital Markets analyst Jordan Rohan wrote to clients this week. “Yahoo management has already exhausted the patience of its largest, longest-suffering shareholders and Microsoft’s offer allows them to save some face.” Rohan then reports something I haven’t seen elsewhere: “Microsoft held several meetings last week with some of Yahoo’s largest shareholders. Ultimately, since there is only one class of stock, if those shareholders band together behind the likely-future-revised Microsoft bid, the deal will eventually get done.”Already, that’s beginning to happen. T. Rowe Price and Legg Mason, two large Yahoo shareholders, have gone public with their support for the Microsoft offer.

What this means is that it’s likely wrong to interpret Microsoft’s lack of a higher bid so far as an unwillingness to raise its offer. Instead, think of Microsoft’s behavior as a pause, an opportunity to make Yahoo sweat — or at least get an earful from its own shareholders. Of course Microsoft will raise. But only after Yahoo has the time to consider the meaning of Microsoft not raising.

A few more things to consider, at least for readers not caught up in the mind-messing media games that get played by all sides in this circus. The Wall Street Journalis reporting in Wednesday’s editions that Google (GOOG) is no longer overly interested in pursuing a revenue-sharing deal with Yahoo for search ads. It sources are “people familiar with the matter.” I haven’t checked, but I’m guessing that the Journal, citing “people familiar with the matter,” first broke the news that Google was interested in pursuing a revenue-sharing deal with Yahoo for search ads. Gold star for anyone who can guess where that information started and ended.

Similarly, the conventional wisdom for why Microsoft won’t actually mount a hostile takeover bid, a term of art that is different from the public “bear hug” it currently is pursuing, is that it would scare away Yahoo’s best people. What’s odd about that is that the conventional wisdom up until earlier this month was that most folks you’d want to retain at Yahoo already had left. Conventional wisdom’s a funny thing.

A final thought, and not a happy one for Microsoft, but even less so for Yahoo. Yahoo undoubtedly will draw this process out for a bit. Who knows, they may even force Microsoft to mount a proxy fight, though I doubt it. But let’s say it’s three months before Yahoo acquiesces and another nine months before U.S. and European regulators approve a Yahoo acquisition. Google likely will complete its long delayed DoubleClick purchase this spring. Under this scenario, it would then have a year’s headstart against MSN-Yahoo, which will be the mother of all integration challenges. Neither Yahoo nor Microsoft and the ad businesses it acquired when it bought aQuantive last year will stand still, of course. But talk about distractions.

Netscape, we hardly knew ye. This Friday AOL, which, like Fortune Magazine, is part of the Time Warner (TWX) empire, will become a zombie browser. AOL announced late last year that it will no longer support Netscape, meaning that it won’t update features or provide security upgrades. That means the few people who continue to use the browser should stop. Already, AOL is recommending that Netscape users switch to Firefox.

It’s a peculiar quality of the technology industry that such important companies and products can simply vanish in so short a time. Netscape went public just a dozen years ago and sold to AOL in 1999 for $10 billion. Its battle with Microsoft (MSFT) spawned an epic antitrust fight with the Justice Department, a topic covered in an interesting Financial Times column today.

Most interestingly, though, is the story of how Netscape itself gave birth to Firefox, today’s browser of choice for non-Apple (AAPL) users who prefer not to use Microsoft’s Internet Explorer. I use Firefox and cover Silicon Valley, but I didn’t quite know the whole story of how Firefox came to be. It was told quite well today in an article in the San Francisco Chronicle.

Fittingly for the day of the Iowa caucuses – a day when presidential wannabes pay obeisance for the last time of the year to the ethanol gods – a high-profile renewable energy company announced a setback.

Imperium Renewables, a Seattle company founded by a former executive at Microsoft (MSFT), the noted energy company, withdrew its plans for an IPO, citing poor “market conditions.” The company didn’t elaborate on just what market conditions it referred to. But clearly it’s not the market for IPOs. NetSuite (N), despite early criticism from ill-informed pundits, proved that the market always is receptive to the right kind of IPOs. No, the market conditions Imperium must mean are the markets for alternative fuels, like ethanol and biodiesel, Imperium’s particular blend of non-petroleum elixir.

Imperium had hoped to raise $345 million, which would add to the gusher of money flowing into ethanol and other alt-fuel projects. (Reuters has lots of good details in its dispatch on the withdrawal.)

It’s been clear for some time now that the renewable fuels investment craze is a classic bubble. That’s not to say ethanol and biodiesel make no sense. They do make sense at some scale and over some time period. But it means that not every project makes sense and that a whole lot of investors will lose plenty of money.

For Imperium’s part, it had intended to use $240 million for three additional biodiesel plants. One wonders if the market conditions will be right for those either.

Mighty Microsoft (MSFT) held its annual shareholders meeting today in Redmond, Wash. I know this because the company sent me a press release about it.

I quickly skimmed the blah, blah, blah about “positive customer momentum” and “strategy of investing in innovation,” and, for some reason, took a careful look at Mr. Softee’s board of directors, which the company printed in the release. Here’s the roster, with emphasis added to make the point I’m about to discuss:

Microsoft’s board of directors consists of William H. Gates, Microsoft chairman; Steven A. Ballmer, Microsoft chief executive officer; James I. Cash Jr., Ph.D., former James E. Robison professor of business administration at Harvard Business School; Dina Dublon, former chief financial officer of JPMorgan Chase; Raymond V. Gilmartin, former chairman, president and chief executive officer of Merck & Co. Inc.; Reed Hastings, founder, chairman and chief executive officer of Netflix Inc.; David F. Marquardt, general partner at August Capital; Charles H. Noski, former vice chairman of AT&T Corp.; Dr. Helmut Panke, former chairman of the board of management at BMW Bayerische Motoren Werke AG; and Jon A. Shirley, former president and chief operating officer of Microsoft.

I think you can see where I’m going. That’s six out of ten “formers” on the board, seven if you count Bill Gates, former CEO. Not counting CEO Steve Ballmer, there is precisely one current operating executive on the board, Reed Hastings, CEO of Netflix (NFLX), an innovative company that is nonetheless a pipsqueak in a narrow market niche.

Buzz words aside, Microsoft still hasn’t been able to shake itself from the torpor of having its butt kicked by Google (GOOG) in the online advertising world. By comparison, Google’s board includes the presidents of Princeton and Stanford, and the CEOs of Genentech (DNA) and Intel (INTC). Apple’s (AAPL) board includes the CEOs of Google, Genentech and J. Crew (JCG).

Could it be that Microsoft’s board of “formers” isn’t helping matters?