Alcatel-Lucent Victory in MP3 Dispute Signals Trouble for Digital Audio

In the first of a series of patent disputes regarding its claims to rights to technologies used in MP3 audio codecs, French telecommunications firm Alcatel-Lucent -- which now owns the IP first conceived by Bell Laboratories -- was awarded $1.5 billion in a jury verdict against Microsoft in a federal district court in Seattle this afternoon.

The verdict is an indication that the jury did not side with Microsoft's contention that Lucent, prior to its acquisition by Alcatel, posted a retroactive date on a patent re-application for so-called layer-3 audio technologies, thus to give the appearance that AT&T Bell Labs -- Lucent's predecessor -- worked on MP3 prior to its involvement with Fraunhofer Labs, one of Germany's leading technology research institutions. Microsoft's license to use MP3 in its Windows Media Player and other software and devices was issued by Fraunhofer, which continues to claim co-ownership of MP3.

Lucent's original 2003 suit was against Gateway and Dell, for having included software that utilized what Lucent claimed were its own patented codecs in their computers. Microsoft later voluntarily assumed the role of defendant, since it provided its customers with Windows Media Player.

"We think this verdict is completely unsupported by the law or the facts," stated Microsoft corporate vice president and deputy general counsel Tom Burt this afternoon. "We will seek relief from the trial court, and if necessary appeal.

"Like hundreds of other companies large and small," Burt continued, "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...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."

Yesterday, Microsoft cobbled together its own patent lawsuit against Alcatel-Lucent, alleging the company's communications equipment infringes upon two of its patents: one for a methodology that employs a database in call screening, and another which provides central management services for hybrid communications technologies. Meanwhile, three more Alcatel-Lucent jury trials continue on different sets of patents.

Microsoft may be attempting to even the remaining stakes with Alcatel-Lucent, perhaps in order to offer that company a sort of "covenant," to re-coin a phrase, in which both companies look the other way with regard to the use of each others' technologies.

Experts had earlier feared that an Alcatel-Lucent victory could pave the way for the company to pursue similar patent suits against Fraunhofer licensees, including perhaps the biggest one of all: Apple. Another French technology firm, Thomson, co-manages the world's leading MP3 licensing firm with Fraunhofer, which sells the rights for software manufacturers and content providers to distribute and stream audio encoded using MP3.

Thomson's rights to manage MP3 licensing have apparently never been directly challenged by Lucent, though some fear an indirect war between the two French firms may have erupted, with Alcatel-Lucent preparing to attack Thomson's and Fraunhofer's customers, and with digital music users playing the collective role of victim.