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Jury: Microsoft Owes Alcatel-Lucent $1.52B

UPDATED: A federal jury in San Diego today ruled that Microsoft should pay Alcatel-Lucent $1.52 billion for copyright infringement related to the use of MP3-encoding technology. This will be the largest patent infringement ruling in history if it's upheld.

The jury decided that Microsoft infringed two Alcatel-Lucent patents in the Windows Media Player, including the version in the new Vista operating system. The decision allows Alcatel-Lucent to seek an order barring Microsoft from using the patented technology. It may also clear the way for Alactel-Lucent to pursue legal actions against hundreds of companies that rely on MP3.

It could have been a whole lot worse. The jury was unable to decide whether the infringement was willful, so that count was dismissed. Had the jury ruled in Alcatel-Lucent's favor, that would have meant a tripling of the penalty.

Not surprisingly, Microsoft  said it would challenge the verdict. "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," said Tom Burt, Microsoft corporate vice president and deputy general counsel, in an e-mail statement.

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

Of course Alcatel-Lucent sees things differently. "We have made strong arguments supporting our view and we are pleased with the court's decision," said Mary Lou Ambrus, a spokeswoman for Alcatel-Lucent. She declined to comment on what the company may do in response to the decision.

Fraunhofer Institute for Integrated Circuits IIS is a German research institute that helped develop the MP3 audio compression technology along with Bell Labs, once part of Lucent Technologies, which merged with Alcatel last year.

The issue began in 2002 when Lucent sued computer makers Gateway and Dell over their use of MP3 technologies, including the ones in Windows Media Player. Microsoft joined the case because it may be obligated to reimburse Dell and Gateway for any damages they have to pay. By the time it went to trial, the case was between Microsoft and Alcatel-Lucent.