February 22, 2007 1:16 PM PST

Microsoft hit with $1.5 billion patent verdict

A federal jury in San Diego has ordered Microsoft to pay $1.5 billion 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," spokeswoman Mary Lou Ambrus said.

In a statement, Microsoft Deputy General Counsel Tom Burt said the software titan believes that the verdict "is completely unsupported by the law or the facts."

"We will seek relief from the trial court, and if necessary, appeal," Burt said.

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 U.S. patent law.

Microsoft said it believes that it properly licensed MP3 technology from Fraunhofer, paying that company $16 million. 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.

"Therefore, today's outcome is disappointing for us and for the hundreds of other companies who have licensed MP3 technology," Burt said. "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-recognized rightful licensor."

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

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

"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 said. 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 Thursday 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.

"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," Burt said. "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 fight. "I don't think this is the end of this fight by far."

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Alcatel, Lucent Technologies Inc., verdict, intellectual property, patent


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CNET: what is basis for patent infringement
Who developed/invented the MP3 format? I assume from the judgment it is Lucent but that is never explained in the article ! Please inform us CNET!
Posted by eeemang (217 comments )
Reply Link Flag
exactly .. please C|NET tell us ..
what firm patented the MP3 format? From the article, it would appear the German firm (and then their predecessor) named was the party that patented the MP3 format, and that Microsoft paid them $16 billion to license the format.

From the article, it's not clear where Alcatel/Lucent even came into this picture and why the court wound find in their favor.
Posted by i_made_this (302 comments )
Link Flag
Did you read the article?
Quote :

"Microsoft said it believes that it properly licensed MP3
technology from Fraunhofer, paying that company $16 million.
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."

Seems clear to me.
Posted by Roberto Felgueiras (2 comments )
Link Flag
Patent suck
Microsoft get what they deserve......as patent troll themselve. What business Lucent-Alcatel business is in? This is an example company use patent to sue other company just to make money. The patent office should be shutdown long time ago.
Posted by Pauldsu (83 comments )
Link Flag
Reader: doesn't matter
It doesn't matter when the company hurt with it is old evil Microsoft.
Posted by Fil0403 (1303 comments )
Link Flag
Karma's a b*tch
ain't it now, Mr. 3000 *new* patents a year?
Posted by asdf (241 comments )
Reply Link Flag
Seems Insane
I am never opposed to someone trumping MS, but in this case I think this is a bit ridiculous. If anyone should be sued it would be the company that claimed rights to the technology (assuming, they do not in fact own those rights). MS and others did what they thought was correct and even if they'd done their research, surely would have found no reason not to believe Fraunhofer was the legitimate owner of the patent.
Posted by rbeier (10 comments )
Reply Link Flag
Just a single verdict
When Lucent sees a penny of Microsoft's money then you can gloat. Until then it's still in the courts.
Posted by Fireweaver (105 comments )
Reply Link Flag
Broken patent system...
To me it seems the whole patent system is broken. So many patent cases lately, and some of them potentially affecting both free and commercial software.

One thing the story doesn't indicate is what concept is Lucent claiming. Perhaps this just relates to something specific Microsoft does with MP3 processing, but if not, the implications could be that all people making MP3 playback software/hardware could be at risk now.
Posted by JDinKC (303 comments )
Reply Link Flag
This is a nasty Patent case
All the big guys already license the MP3 patents from the rightful owners Fraunhofer.

Now although it was a colaboration between Fraunhofer ATT and Thompson. The righful patent owner is Fraunhofer.

Its a bit of twisting of patent laws, that Lucent Suddenly issued a patent then had it back dated to before the Fraunhofer patent.

But heck, when you company is in trouble heck I quess it never hurts to play like this.

So now I assume all people who license MP3 from Fraunhofer will now also have to pay an additional fee to Lucent?
Posted by wolivere (780 comments )
Reply Link Flag
What about my MP3 Player?
Does this mean that if the company that I bought my MP3 player from will have to make it so my player won't play MP3's if they don't buckle under and pay up? Or will I have to pay to keep using it?
Posted by skooterfd (8 comments )
Reply Link Flag
Yes, they're coming for you!
Absolutely! The mp3 cops will knock on your door and demand
that you turn over your illegal mp3 player. This is the way it works
these days.
Posted by lkrupp (1608 comments )
Link Flag
Its the overseas sales i think
As i understand it its for the overseas sales of Windows, MS has
the license for the US and payed other company's for the non US
use of the technology.

The law states that every box or product that gets shipped out
also has to be payed for except when its a blueprint to other
manufacturers. For MS the master DVD is a blueprint but Lucent
thinks otherwise. In effect all US based company's would have to
pay a US license for US and overseas sales added to the licenses
it already pays to company's for other country's.

Its sick but i love it, a lot of company's will escape the US for this
law alone. USofA is one sick country, come to mainland Europe
and live the genuine freedom we have instead of make believe.
Posted by Peter Bonte (316 comments )
Reply Link Flag
Close but no cigar.
How is a master disk just a blueprint?
Hint: Its not. It contains the final product for reproduction.

No company is going to leave the US of A over this.
Its all PR lobbying.

And living in Europe vs the US? LOL... all you're doing is trading one set of problems for another.
Posted by dargon19888 (412 comments )
Link Flag
Wow, Europe free?
Could have fooled me. I've been working in Europe for over 18 months, and nowhere on Earth is as restrictive to personal freedom as Europe. The little FM transmitter for my mp3 player, yeah, it's illegal in the UK. Don't even think of owning a firearm to defend yourself in Europe. The government says you don't need one because they will take care of you....riiiiiggghhhtttt, ask the Jews how that went in Germany or the Albanians how that went in Kosovo at the hands of the Serbs, and now, vice versa?

Oh, and on the sick note, how many radical terrorists does one country (France or UK) have to let into their own borders before they realize they have a problem? Nowhere in the west is there more hate and filth being spewed than by so-called "religious" leaders in Europe. In Kosovo, ostensibly still part of Serbia (though the UN is working to change that...not for the better....), there is a rapidly growing cult of the Wahhabi radical Islamic sect...and it is a cult.

Anyone who advocates violence in the name of religion is a nut that belongs to a cult and is not smart enough to pull his or her head out their a**...whether that cult is Christian (David Koresh / Timothy McVeigh / the IRA) or Islamic (too many to even start naming). So, tell me why again, would I move from a rather free society, that is also much more free of these nut job radical "religous" freaks, to a place where my personal freedom, cost of living, and other forms of enjoyment are curtailed. By other forms of enjoyment, I mean sports and computers (never seen such slow Internet in the "civilized" world). By sports, I mean that watching soccer, or football...not the real kind, is so retarded and boring that despite having played it for 16 years, much of it at a high level, I cannot even watch the Euro-sissies play anymore....who wants to watch diving and acting. I can watch ballet or the basketball...another sissy sport...and see that. For real sports, I want hockey and REAL football, not some bunch of pansies who hit the ground screaming like a baby if someone sneezes towards them.

So, go back to your sniveling little socialist hole and quit disparaging the greatest country on Earth. Sure, we're not perfect in the USA, but we're far better than the snobs in Europe.
Posted by ctg44 (27 comments )
Link Flag
You can't have your cake and eat it, can you?
This should be a message to Microsoft - the right to sue for IP works both ways and this shouldn't surprise them in the least.

I have always thought that rectal medicine is good for a bully.
Posted by `WarpKat (275 comments )
Reply Link Flag
Take your MS hate and check it out the door
This is about a patent dispute between a company that thinks it owns certain patents and it went for one of the biggest companies that it could find, a company that states it was doing everything legally to license the technology. If the very final verdict is sustained, it will affect not just Microsoft but every other company that licenses mp3 technologies.
Posted by spacydog (380 comments )
Link Flag
I guess MS should sue to get it money back from Fraunhofer. With Thompson, they have deep pockets, but MS probably has more lawyers.
Posted by gggg sssss (2285 comments )
Reply Link Flag
I guess MS should sue to get it money back from Fraunhofer. With Thompson, they have deep pockets, but MS probably has more lawyers.
Posted by gggg sssss (2285 comments )
Reply Link Flag
You could buy a nuclear-powered sub with that...
...and have enough change left over to stock it with personnel and provisions for at least a decade or more.

I'm hoping Ballmer is smart enough to see that, today's case in the USSC, and actually think that maybe the whole software patent thing isn't such a good idea after all?

If this keeps up, all those vague and empty threats Ballmer has been mouthing in Linux' direction won't mean much.

(Yes, MSFT has a metric ton of cash on hand, but a billion and a half equals (roughly) 6% of their total cash on hand, 12% of their total operating cash flow, and 15% of their current year-on-year Net Income (Q1/06 to Q1/07) at this time. Now imagine where that money is going to actually come from... obviously not Petty Cash).

Posted by Penguinisto (5042 comments )
Reply Link Flag
Microsoft, Apple, Creative Labs, everyone
If this lawsuit is successful, then the company is free to sue any and all other manufacturers that have any sort of device or product that plays MP3's, and that includes Apple's iPod, Creative Labs' Zen, all the MP3 phones, Red Hat Linux, Apple, etc.

This is similar to the attempt Compuserve made nearly 20 years ago to sue anyone for the use of the GIF file format without paying a licensing fee first. I don't see it happening.

How many iPods have been sold to date? That's a heck of a lot of fines. While a $1 billion dollar fine is small to Microsoft, it could kill other companies such as Apple who would have to pay on every iPod and Macintosh OSX product ever sold.

This is a very dangerous precedent and all the companies need to band together to stop this.
Posted by Vegaman_Dan (6683 comments )
Link Flag
I'm no M$ lover but this stinks.
and I'm no lawyer either but this IP thing seems so outdated in this digital age and open source. There are thousands of products using MP3 compression for crying out loud.
Posted by sundance_tree (16 comments )
Reply Link Flag
It Seems there is too much greed happening
Well we all know MS can be greedy with its products, so why shouldnt some other big company get on the band wagon. All this money changing hands why dont they concentrate more on helping others less fortunate. Nooooo they all want it in their own pockets and screw the rest. Seriously though if there was an agreement in place why wasnt that taken into consideration. Its like when you take over a company, you get it with its assets AND its liabilities. Same goes here, IF there was a lisence agreement prior to the technology changing hands then that agreement is a liability as well as an asset, so to speak. Just because you get the technology doesnt meany you can change the rules that are in place. Sure alter them for future deals and arrangements, but you cant change the existing ones
Posted by Keith_C_A (42 comments )
Reply Link Flag
So you think because they worked hard, had good ideas, and came up with a business plan to make money, that now they should just help you because you didn't do any of those things? Think again, both companies earned their position through hard work.
Posted by JmboCov (11 comments )
Link Flag
You state that MS is too greedy and needs to share the wealth,
... but you forget (or don't want to mention) that Bill and Melinda Gates his wife at the time started a charity organization (The Bil and Melinda Foundation) with the largest endowment in history. In 1999 Bill gates contributed 16 Billion, with a capital B) to the foundation that HE started.
By the way how much have you contributed to charity in the last year? Why don't you think of all the good things that not only Bill Gates but also others like him, like the Kroc's, who started Mcdonalds, have done.
"ALL this money changing hands why don't they concentrate more on helping others less fortunate. Nooooo they want it all in their own pockets and screw the rest." Bullsh*t
Do some research before you tear into someone who has given plenty back to society already (hes still giving). One more thing he is romured to be stepping down from his fulltime work at MS to work fulltime in the foundation too. He'll probably still stay on as a consultant but still what have you or for that matter most of us dont to compare?
Posted by sinsforce (4 comments )
Link Flag
hate to say this
Even though MS certainly deserves this sort of karma. This issue is bigger then any company or format. This is a bad ruling, regardless of the delicious irony.

mp3 is a mathematical algorithm. Nothing more.

Mathematical algorithms can not be patented. All software are nothing more then a collection of algorithms. Software patents should not be allowed.

Copyright is all that is needed to protect specific implementations of a collection of algorithms. Patents stifle innovation and competition.

Knowledge belongs to all, because all knowledge builds on other previous knowledge. Restricting knowledge in the form of the very oxymoron-ic title of IP is the very opposite of what got mankind as far as we have gone.

Hiding it from others, just to be greedy will slow down the march of progress, for the worse. This sort of thing along with the unethical actions of giants like MS are the reason computing has not advanced much further.
Posted by qwerty75 (1164 comments )
Reply Link Flag
Not a valid defense
>"mp3 is a mathematical algorithm. Nothing more."
>"All software are nothing more then a collection of algorithms."

The works of Shakespeare are nothing more than the same 26 letters repeated and reordered.

A painting is nothing more than some paint spilled on a canvas in a specific manner.

Humans are just slight variations in a DNA sequence.

Software is just a bunch of 1's and 0's, but placed in a specific order.

If I shoot and kill you I am only using a ball of lead to displace some carbon and water.
Posted by Dachi (797 comments )
Link Flag
If the appeal fails... Ogg Vorbis!
Although I think the verdict is unjust and that the whole case is a display of classic predatory capitalism and of the flaws of the US patent system, just think...

if everybody can be sued for using mp3s... we have wma and ogg left. It just takes an anti-DRM FUD campaign for ogg to be left standing alone.
Posted by quirK (53 comments )
Reply Link Flag
The odds for ogg ...
Their Vorbis codec is better than MP3, both in terms of sound quality for a given bitrate and for multi rate streaming. they have a version using integers only for embedded products (Tremor). Stability is outstanding.

Oh, and it's free software ...

It's about time to make the switch.

<a class="jive-link-external" href="http://www.xiph.org/" target="_newWindow">http://www.xiph.org/</a>

Let's hope there ain't an obscure patent lurking in the shadows ...
Posted by My-Self (242 comments )
Link Flag
Microsoft first, Apple's Next.
Microsoft was targeted by Lucent simply because they are the
top dog. They are dominant in the world of computers. But will
Microsoft survive? Sadly, they will. They've got a war chest of
funds for atleast 20 of these lawsuits. (put together even)

But does Microsoft care about losing 1.5 billion? No. I believe it
actually works out in their favour. I really don't believe they care
much for the MP3 format. They'd just as soon toss it and replace
it with WMA, if they had it their way.

But Apple on the other hand can very well be crippled by this
type of lawsuit. Dating back five years to the first release of
Itunes. Not to mention every iPod sold since its inception. Not to
mention Quicktime's use of MP3s in Mac OS X and OS 9.

Hopefully this lawsuit won't snowball past Microsoft.
Posted by ServedUp (413 comments )
Reply Link Flag
its not just about MP3's
this would affect all future and past software licensing deals ever
made in the US. To compensate that MS would have to
aggressively pursue all there patents to make a profit out of it.
Posted by Peter Bonte (316 comments )
Link Flag
Depends who Apple licensed MP3 from
If they bought the license(s) from Alcatel-Lucent then no worries from lawsuits, but I think most companies did it through Thomson/Fraunhofer which'll lead to way more lawsuits..
Posted by M A (51 comments )
Link Flag
gee what a con-job
Microsoft properly licensed MP3 technology from Fraunhofer gave it out, Lucent's should be suing them not Microsoft at all...MS as in the right and by the law got the ok to use it.

wait there bigger money suing all these companys then suing one small company for given the paid license to other for the use of MP3
Posted by Chief.ADFP (3 comments )
Reply Link Flag
I can see it now...
... A big hole lobbed out of my shiny new Vista. Just like they did in removing other software from earlier versions of windows because they did not steal it right. Can't microsoft do anything right. Yup all those "smily faced updates stripping away all the functionality of my new and expensive Vista. Wow XP is now over 95 updates on a newly installed XP. Way to go Microsoft I really feel secure now!!!!
Posted by Ted Miller (305 comments )
Reply Link Flag
Re: I can see it now...
There was not on statement in that post that made any sense!
Posted by NPGMBR (281 comments )
Link Flag
Why is Microsoft mad?
"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 U.S. patent law."

First, regardless of what you think about the current patent system, you can't have your cake and eat it too. Microsoft is just as guilty as any of the other large companies that have abused software patents so they don't have any room to squirm.

But what Microsoft doesn't like is the fact that they are on the hook for international sales. That is what they are going to for an appeal.

From an outsider's perspective, the judge was right to include the overseas sales as part of the damages. When the laws were drafted, the world was less of a global marketplace.
Posted by dargon19888 (412 comments )
Reply Link Flag
Something's missing...
For years, Fraunhofer has been the licensor of
record for the patents (which don't cover the
MP3 format, or decoding, but rather the specific
psychoacoustic model and algorithm for the audio
compression). Microsoft and others have
dutifully identified the licensor and licensed
the technology in good faith.

So, how is this willful infringement? It would
seem to me that Lucent's real beef ought to be
that its partner hasn't been sharing the
profits, or has been licensing the technology
without proper agreements between them and

I'm pretty sure that this won't hold up, but if
it does it will set a fundamentally bad

Incidentally, the patents cover a very specific
aspect of the compression method, so it affects
encoders, not decoders/players. Also, not all
MP3 encoders use the model described in the
patent (LAME is a good example), so it is still
possible to encode MP3s without violating the
specific patents.
Posted by FellowConspirator (397 comments )
Reply Link Flag
I Don't normally,...
Side with Microsoft any much of anything, but in this instance I
may have to.

I doubt that the entire industry and the courts are going to let
Alcetel sue them over this especially when companies have been
paying licensing fees in good faith. It would have the potential to
bring the entire computer sound industry to it's knees in one fell

That being the case the verdict against Microsoft will likely be
set aside if not reduced drastically, but having got the verdict in
the first place, gee ain't karma a *****!
Posted by corelogik (680 comments )
Reply Link Flag
Where does Thomson/Fraunhofer figure into this?
Does this mean that all those companies that licensed MP3 from Thomson (or Fraunhofer) are now in the wrong? Somehow I imagine this verdict is going to throw Thomson &#38; Alcatel-Lucent into court if it's unclear who owns the MP3 rights in the U.S...

(I'd vote for using Ogg Vorbis, personally!)
Posted by M A (51 comments )
Reply Link Flag
MP3 - the new GIF?
We all remember what a boon the court's licensing decision was to the .GIF format back in the Web0.9 days.
I'm sure MP3's fate will be just as glorious.
(what's the emoticon for dripping sarcasm?)
Posted by punterjoe (163 comments )
Reply Link Flag
You steal, you pay
Using someone elses technology and ideas as your own is stealing. If Microsoft was as original as the people it steals and copies from it would be a completely different company, and they might have to change their name, to Apple.
Posted by Xenu7-214951314497503184010868 (153 comments )
Reply Link Flag
You realize Apple may be affected by this ruling as well? Or, are you implying that Apple invented the MP3 codec, being that they're so "original"?
Posted by M A (51 comments )
Link Flag
Re: You steal, you pay
Ummm... did you read the article? They did license it, and never presented it as their own. As did Apple, whom you tout. So I guess Apple isn't innovative or original either. Neither is anyone who based their work on the people who came before... yeah, right.
Posted by wraith808 (16 comments )
Link Flag
You're Sick
If you read the article, you know that Microsoft has paid the patent to other company. So it's their right to use the technology, and Microsoft never claims that MP3 is their technology, different case from WMA format. Apple is nothing to do with innovate the MP3 format either, they just use it. And, I believe that Apple paid the same pattent fee as Microsoft. You're clearly Mac Blinded Fan Boy.
Posted by Gunady (191 comments )
Link Flag

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