RealTime IT News

Microsoft's Long And Winding MP3 Case

Though a San Diego jury stunned Microsoft with a staggering, record-breaking $1.52 billion judgment Thursday for infringing Alcatel-Lucent's MP3 patents, Redmond won't be writing a check anytime soon. If ever.

The software giant plans to fight the judgment, and it will begin by asking the presiding judge to strike down the verdict or, at least, reduce the award. Microsoft will appeal even a diminished judgment. The whole process could take years.

In the interim, Microsoft's counter lawsuits against Alcatel-Lucent will be waged in both the U.S. courts and the International Trade Commission.

"There are a lot of cross patents in play here," Daniel Harris, a patent attorney for Washington, D.C.'s Clifford Chance, told internetnews.com. "There's a long way to go before it's over, and it's not uncommon for these things to get reversed."

Moreover, Harris noted, the Microsoft-AT&T case before the Supreme Court is likely to have an impact on any final settlement. In that case, AT&T is seeking royalties on foreign copies of Windows that employ patented AT&T speech technology. Microsoft claims U.S. patent law shouldn't extend overseas.

The San Diego jury factored in foreign sales of Windows using MP3 technology in conjuring up the $1.52 billion judgment. If the Supreme Court rules in Microsoft's favor, almost half of the judgment would go away.

"The [Alcatel case] is getting a lot of attention because of the numbers," Harris said. "That's the downside of having a monopoly product."

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 jury also decided that Microsoft did not willfully infringe since it had licensed the MP3 technology.

Unfortunately for Microsoft, as the jury saw it, the company paid $16 million in licensing fees to the wrong party.

"Like hundreds of other companies large and small, we believe that we properly licensed MP3 technology from its industry recognized licensor -- Fraunhofer," Tom Burt, Microsoft's deputy general counsel, said in a statement.

The Fraunhofer Institute for Integrated Circuits IIS is a German research institute that helped develop the MP3 audio compression technology along with Bell Labs, once a part of Lucent Technologies, which, in turn, later merged with the French networking behemoth Alcatel.

Microsoft was not alone in licensing the MP3 technology from Fraunhofer. Among the many companies with MP3 licensing deals with Fraunhofer are Adobe , Autodesk , Apple , Cisco , HP and Sun . If Alcatel-Lucent ultimately prevails, it would be liable for damages.

"Microsoft licensed the intellectual property from one party, as many in the industry have. It's not necessarily a one-stop shop, though," Harris said. "A jury looks at the patents at issue and decides if they are valid."

In this case, Harris said, the jury saw novel parts of the Alcatel-Lucent patents in Windows that weren't part of the Fraunhofer MP3-licensed 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," Microsoft's Burt said.

But just as Microsoft is not cutting any checks to Alcatel-Lucent right now, none of the other companies with Fraunhofer deals are likely to rush out and make royalty deals with Alcatel-Lucent, according to Harris. They'll likely play a wait-and-see game with Alcatel-Lucent.

Harris said that "typically" a company in Alcatel-Lucent's position would not go after licensing deals until a final decision is reached. "There will be [Microsoft's] post-trial motions, and then the case will go up to the appeals court. [Alcatel-Lucent] will see what happens before taking any action," Harris predicted.

An Alcatel-Lucent spokesman declined to speculate what the company's next steps will be. Microsoft did not return a request for comment.

In any event, there are a lot of blues in the MP3 world today with the very notable exception of Alcatel-Lucent.