mjasay writes "Microsoft's most recent annual report suggests that the company is increasingly coming to grips with open source, yet also seems determined to perpetuate myths about open source that poorly serve it and its shareholders. Microsoft CEO Steve Ballmer has suggested before that 'free software means no free soda' for Microsoft employees; but this is perhaps the first time that Microsoft has managed to enshrine its ignorance in a public document. In the annual report, Microsoft makes two primary false claims about open source: 1) Open source companies don't invest in research and development and instead largely free-ride on Microsoft's patents and copyrights; and 2) Open source projects don't innovate and instead mimic Microsoft's products. Perhaps Microsoft has forgotten its own 'innovative' past copying of markets and technologies created by Apple and others. But at least Microsoft gets one thing right: 'To the extent open source software gains increasing market acceptance, our sales, revenue and operating margins may decline.'"