Microsoft loses MP3 patent suit, hit with $1.5bn in damages

Microsoft on Thursday has been slapped with a $US1.52 billion fine by a federal court jury in San Diego after the US software giant was found guilty of infringing audio patents held by the telecommunications equipment maker Alcatel-Lucent SA.

Distressed with the law judgment, Microsoft said it planned to first ask the trial judge to knock down the verdict and would appeal if necessary. "We think this verdict is completely unsupported by the law or the facts," said Tom Burt, a Microsoft deputy general counsel.

If upheld on appeal, this will be the largest patent infringement ruling in history.

With the yesterday’s ruling, Microsoft has lost the first of six patent lawsuits brought up by Lucent Technologies Inc., which last year was acquired by Alcatel for $13.5 billion in stock. The company, now Alcatel-Lucent, filed 15 patent claims against customers of Microsoft including Dell Inc. and Gateway Inc. in 2003.

Later, in April 2003, Microsoft stepped in and added itself to the list of defendants, saying the patents were closely related to its Windows operating system.

Headquartered in Paris, France, Alcatel-Lucent had accused the Redmond, Washington-based Microsoft of infringing patents related to MP3-encoding technology.

However, the world's biggest software maker had argued that it was authorized to use the MP3 audio technology in question based on an agreement with a German company called Fraunhofer Institute.

"The damages award seems particularly outrageous when you consider we paid Fraunhofer only US$16 million to license this technology," Microsoft's deputy general counsel, Tom Burt said in a written statement.

On contrary, Alcatel-Lucent spokeswoman Joan Campion says that the Fraunhofer Institute originally developed the MP3 technology almost two decades ago together with Bell Labs that ultimately became Lucent Technologies.

"We made strong arguments supporting our view and we are pleased with the court's decision," said Campion.

Microsoft had further contended that hundreds of other companies have purchased the license to use the MP3 technology in dispute from Fraunhofer, and the judgment against the company in the case could pull all of them in legal trouble.

Microsoft and Alcatel are bounded in a number of patent disputes including a suit over the speech coding, video-decoding technology in Microsoft's Xbox 360 video game console and Windows user interface. The court will consider speech coding suit in March or April, Microsoft reported.

The ongoing legal battle between Microsoft and Alcatel-Lucent is going two ways, making both the companies plaintiffs as well as the defendants. Microsoft, which is accused by Alcatel-Lucent for patent infringement, last week, sued the same company for violating four of its patents related to computer and phone systems.

Microsoft has also filed another patent claim with the International Trade Commission, seeking to prohibit Alcatel-Lucent from importing unified messaging technology into the U.S.

Shares of Microsoft slipped 3 cents to close at $29.32 on the NASDAQ Stock Market, while Alcatel-Lucent's US shares added 10 cents to end the day at $13.17 on the New York Stock Exchange.