Microsoft Ordered to Pay $1.52 Billion

A federal jury has ordered Microsoft to pay $1.52 billion in damages to Alcatel-Lucent for violating two patents related to digital music.

A federal jury in San Diego has ordered Microsoft to pay some $1.52 billion in damages to Alcatel-Lucent SA for violating two patents related to converting audio to the MP3 digital music format on computers.

The suit involves MP3 playback technology which has shipped with Windows since 2003. The MP3 compression technology was jointly developed by Germany’s Fraunhofer and the former Bell Laboratories, although the first MP3 encoding product came from Fraunhofer in 1994. The former AT&T spun Bell Labs off into Lucent Technologies back in 1995; Alcatel acquired Lucent in April 2006.

The computing and consume electronics industry have been operating under the assumption that executing a technology license with Fraunhofer needed to include MP3 technology in their products—and Fraunhofer has certainly been content to let them think so. However, since acquiring Lucent, Alcatel has developed a contrary opinion, and targeted Microsoft with MP3 patent violation charges as part of a larger patent dispute which covers everything from stylus input, video search technology, and the Xbox 360 gaming console.

In a statement, Microsoft deputy corporate counsel Tom Burt says Microsoft paid $16 million to Fraunhofer, the “industry recognized licensor,” before ever including MP3 playback capability in Windows, and will ask the judge to throw out the ruling; if the judge declines, Microsoft plans to appeal. Burt also notes possible implications of the judgement: “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 $1.52 billion figure is based on sales of Microsoft Windows operating systems with MP3 technology since 2003.