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MS taken for $1.5B in MP3 suit; Apple next?

updated 08:50 am EST, Fri February 23, 2007

MS Loses MP3 Suit

Microsoft on Thursday was ordered to pay just over $1.5 billion in damages to Alcatel-Lucent for violating two MP3 patents with its Windows operating system, opening the door for similar lawsuits and future royalty payments by other companies such as Apple, Yahoo!, Dell, Toshiba, RealNetworks, and others. A federal jury in San Diego found that Microsoft violated MP3 patents held by Lucent, although Microsoft both claimed during the trial it used unrelated technologies and that the Lucent patents were invalid. The ruling, if upheld, could be one of the largest patent awards in history.

Separate developer groups have claimed ownership of related MP3 patents, causing confusion and chaos in the licensing of MP3. The verdict today, however, could affect a number of companies who believe they have already licensed related patents for the decoding and encoding of MP3 files.

"We think this verdict is completely unsupported by the law or the facts. We will seek relief from the trial court, and if necessary appeal," Microsoft's Vice President and Deputy General Counsel said.

The jury was unable to decide whether or not the infringement was intentional, which could have tripled the damages. The $1.52 billion in damages assessed against Microsoft was based on a 0.5 percent royalty rate for all PCs sold since May 2003, about half of which are for overseas sales of Windows, according to one witness who testifying to the "reasonableness" of the $1.52 award. The calculation was said to have been based on PCs sold instead of Windows copies as the original lawsuit was brought against Dell and Gateway before Microsoft stepped in.

The award, however, could be halved if Microsoft wins an unrelated case currently before the Supreme Court that could alter how patent damages are calculated for software companies with overseas sales.

Microsoft is one of hundreds of other companies that have licensed related technologies from the Fraunhofer Institute through Thomson SA, a French provider of satellite decoders and post-production services for movies. Fraunhofer helped develop MP3 audio compression technology with Bell Labs, which was part of Lucent Technologies. Alcatel SA and Lucent merged last year.

"Like hundreds of other companies large and small, we believe that we properly licensed MP3 technology from its industry recognized licensor -- Fraunhofer," Burt continued. "The damages award seems particularly outrageous when you consider we paid Fraunhofer only $16 million to license this technology."

Software such as Microsoft's Windows Media Player and Apple's iTunes are touted on Fraunhofer's website, but evidently the jury believed Microsoft's licenses were not enough. Microsoft "just took what they wanted, they didn't care about the rules and they sold millions and millions of copies," John Desmarais, Alcatel-Lucent's lawyer, told the jury in opening statements.

Microsoft, as well as Apple, are among several companies who have also secured related MP3 licenses from Sisvel, which is hoping to invalidate some Franhaufer's patents. Earlier this year Microsoft also announced that it had acquired a patent license from Sisvel SpA and its US unit Audio MPEG, Inc. to the MP3 and MPEG2 audio compression patents owned by France Telecom, TDF, IRT, and Philips. Sisvel last year won an injunction to remove SanDisk MP3 players from a tradeshow, after it was unsuccessful in securing a license fee from SanDisk, the world's largest manufacturer of flash memory.

Although financial details were not available about Microsoft's latest MP3 licensing deal, the agreement reportedly allows Microsoft to sell products using the patented MP3 and MPEG2 audio compression technology; it covers PC software and hardware products including Microsoft's new Zune music player, the Xbox 360, and Microsoft's MP3 software on Windows-based PCs.

Microsoft and Alcatel-Lucent are also embroiled in a number of patent disputes, including a lawsuit over video-decoding technology in the Xbox 360 game console.



By Electronista Staff
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