Judge Upholds $1.53 Billion Patent Verdict Against Microsoft

Microsoft's hopes that Monday's historic pair of US Supreme Court rulings - including a Microsoft victory over AT&T - would lead to a revisiting of a $1.53 billion ruling against it in favor of Alcatel-Lucent, were dashed yesterday afternoon. US District Court Judge Rudi Brewster upheld the jury verdict from last February, as a penalty to Microsoft for having acquired its license to use MP3 technology in its Windows Media Player from the wrong supplier.

Microsoft was one of multiple companies, including Apple, that were sued by Alcatel (Alcatel-Lucent's predecessor) for using what it claims to be its technology without a license. Lucent's own predecessor, AT&T Bell Laboratories, was the co-creator of MP3 along with Fraunhofer Labs, which may have contributed technologies to the 1992 collaboration that dated back to 1987.

While other countries recognize Fraunhofer as the originator of these technologies, Bell Labs filed certain patents in the US for their collaborative work first.

Although AT&T apparently didn't have designs to capitalize on those patents, enabling Fraunhofer and Thomson to operate a joint licensing facility, Lucent started having other ideas in 2003, during an extended period of waning revenues. It filed suit against Gateway and Dell for using Windows Media Player in their computers, claiming its MP3 support had not been licensed by the proper party. Microsoft gallantly stepped in, legally assuming the role of defendant on behalf of two of its biggest Windows customers.

At the outset, Lucent sought "willful infringement" damages, claiming the licensees exploited MP3 technology to spite Bell Labs. Had Judge Brewster agreed with that claim, Microsoft might have owed $4.6 billion.

Monday's Supreme Court rulings might have given Microsoft some ammunition with which to fight the damages, though their connections may have been a little slippery. The AT&T v. Microsoft ruling ostensibly decreed that the exporting of software can only be considered infringing on patent rights if the thing that was exported matched the description of the thing that was patented. In this case, Microsoft only shipped installation tools for foreign manufacturers to install Windows software that uses drivers that happen to fall under AT&T's patent rights. Microsoft was therefore found to be not liable under US patent law, overturning a lower court ruling.

In that ruling, however, the Court upheld Microsoft's argument that source code was an abstract concept, more an expression of speech rather than a working mechanism. A future Microsoft appeal of the Alcatel-Lucent award might touch on what it was that Bell Labs and Fraunhofer contributed to MP3's creation, arguing that the latter party supplied the basis of the technology while Bell supplied abstract concepts. Evidence would have to be provided to support this argument, of course.

The other Supreme Court ruling -- of equal significance, although on the surface it dealt with automotive gas pedals -- came in KSR v. Teleflex. That ruling stated that an improvement to a patented design, if it could be made by an individual of ordinary (non-specialized) talent, cannot be considered an infringement upon the original design's patent. Therefore if somebody improves a gas pedal, and that improvement seems an obvious enough way to do so, somebody with a patent on gas pedals can't cry foul.

That argument could possibly be exploited in a Microsoft appeal as well: During the MP3 collaboration, just who had the original idea, and who supplied the improvement? And was that improvement obvious? If you ask European courts, they would uphold Fraunhofer's claims.

But that argument could backfire. European patent courts also recognize the first-to-file as the official inventor of a design, even when documents turn up to show someone else may have come up with the design first.

The US is one of a few countries to recognize a different system, enabling individuals with earlier designs to file complaints. But patent reform law currently before Congress could change that, moving the country to a first-to-file system to become more compatible with international patent and copyright protection.

If that happens, Bell Labs could be upheld as having been "first-to-file" in the US, even though Fraunhofer's claims are verified elsewhere. Microsoft's argument that Bell Labs' successors may have even gone so far as to change the dates on legal documents to make it appear they filed earlier then they did, might no longer be useful. In that case, the Alcatel-Lucent award could conceivably be upheld.

The MP3 patents were just one of three groups under contention between Alcatel-Lucent and Microsoft. A separate suit on the first group involving text-to-speech conversion technologies, was thrown out by Judge Brewster last March. A trial on the third group, which is said to involve user interface technologies, is slated to begin May 21.