Shock: Microsoft hit with $1.5bn patent ruling

A federal jury in San Diego has ordered Microsoft to pay $1.5bn to Alcatel-Lucent in a patent dispute over MP3 audio technology used in Windows.

In its verdict, the jury assessed damages based on each Windows PC sold since May 2003. The case could have broader implications, should Alcatel-Lucent pursue claims against other companies that use the widespread MP3 technology.

An Alcatel-Lucent representative praised the ruling. "We made strong arguments supporting our view, and we're pleased with the court's decision," said a spokeswoman.

In a statement, Microsoft deputy general counsel Tom Burt said the software titan believes the verdict "is completely unsupported by the law or the facts".

He added: "We will seek relief from the trial court, and if necessary, appeal."

The company also noted that roughly half of the damages are for overseas sales of Windows, which could be affected by a separate patent case. That case, currently before the Supreme Court, deals with whether overseas sales of software products should be subject to US patent law.

Microsoft said it believes it properly licensed MP3 technology from Fraunhofer, paying that company $16m. Fraunhofer, which helped develop the MP3 compression technology along with Lucent's Bell Labs, has licensed its intellectual property to companies that want to use the audio format in their products. Fraunhofer has since handed the MP3-licensing duties over to Thomson.

Scores of technology companies, including Apple, Intel and Texas Instruments, license the MP3 technology, according to Thomson's MP3licensing.com. An Apple representative declined to comment on the verdict.

Microsoft's Burt said: "Therefore, today's outcome is disappointing for us and for the hundreds of other companies who have licensed MP3 technology. We are concerned that this decision opens the door for Alcatel-Lucent to pursue action against hundreds of other companies who purchased the rights to use MP3 technology from Fraunhofer, the industry-recognised rightful licensor."

Alcatel-Lucent's spokewoman declined to say whether the company might pursue other companies that use MP3 technology in their products.

The ruling could spur it to seek royalties from other companies, said Andrew Leibnitz, an intellectual property lawyer for Farella Braun and Martel in San Francisco.

He said: "Given this verdict, it wouldn't surprise me if Lucent is even more aggressive in the marketplace about licensing its patents but it has always been aggressive." Leibnitz earlier represented Dolby Labs in a patent dispute over whether one of Dolby's audio codecs infringed on Lucent patents.

While the ruling was large, Leibnitz said some of that is simply by virtue of Microsoft's size: "Anytime Microsoft gets sued, it can be a serious amount of damages at stake, especially when it relates to Windows."

The case dates back to 2003, when Lucent sued PC makers Dell and Gateway over their use of the audio technology. Microsoft stepped into the legal fray and has been embroiled in a widening legal battle with Lucent (now Alcatel-Lucent) ever since.

The jury verdict relates only to a portion of Alcatel-Lucent's patent claims. Microsoft has also countersued in the case, and there have been additional actions in other legal venues, including an International Trade Commission case filed this week.

Burt said: "This case is only one part of a larger dispute between Microsoft and Alcatel-Lucent over intellectual property that began when Alcatel-Lucent took aggressive action against our customers and later against Microsoft. We will continue to defend our customers against unfounded claims and are pursuing a number of patent claims against Alcatel-Lucent, including the International Trade Commission case filed earlier this week."

Leibnitz said he expected a protracted battle: "I don't think this is the end of this fight by far."

Ina Fried writes for CNET News.com