$1.5 Billion MP3 Fine Against Microsoft Struck Down

Although the Supreme Court decisions had a clear impact on this District Court case, two of Microsoft’s bolder claims that it deserved a new trial on the basis of those decisions alone, were actually denied.

With regard to KSR v. Teleflex, Microsoft made a motion that a new trial was warranted to flesh out prior art from possible obvious improvements. Judge Brewster denied that motion, on the grounds that Microsoft did not make a case for disqualifying the ‘938 patent for obviousness in the original trial, so it can’t challenge any conclusions based on where Microsoft’s defense may have been lacking.

“Microsoft made a tactical choice not to pursue this defense,” wrote Brewster. “It has made no showing that the defense was discarded because of the rigid TSM test or some other factor changed by KSR. Microsoft should not get another ‘bite at the apple’ simply because it might have chosen a different strategy if KSR had already been decided. Case law is always a moving target and a party must keep that in mind when making tactical decisions.”

But Microsoft won another motion with regard to its victory in AT&T v. Microsoft, which established – among other principles – that the true market value of an enhancement to a technology must be taken into account when a patent covering that enhancement is infringed. Microsoft argued that the jury’s $1.53 billion verdict against it did not take into account the market value of Dell or Gateway computers (the specific subjects of Alcatel’s case) once Windows Media Player (the allegedly MP3-infringing product) was installed on them. In a twist of irony, Microsoft managed to argue that customers would probably have purchased those computers anyway, whether or not Windows Media Player was installed on them – so the market value was probably much lower than $1.53 billion.

But should the court have used a new test, established in the AT&T v. Microsoft decision, to determine the market value of the infringement? Not with regard to the existing trial, ruled Judge Brewster as he threw out that Microsoft motion, though a new jury will have an opportunity to assess new damages – if they indeed exist – after the remaining infringement count is remanded.

Did the jury come up with the $1.53 billion number just because...well, because it was Microsoft and they wanted to punish it? That’s what Microsoft argued, but the judge would hear none of that.

“Microsoft’s contentions are pure speculation,” wrote Brewster. “Other than isolated statements made in Lucent’s opening and closing statements, there is no evidence that would suggest that the verdict was inflated by passion or prejudice. Simply the large number of units sold, the lack of royalty evidence other than something in the 0.5-1% range, and the use of the computer as the base price provides a possible reasoning for the jury’s damages verdict. The Court cannot say that passion and prejudice necessarily played any role in reaching the amount of damages, rather than the jury’s simple acceptance of Lucent’s sums at face value.”

Of Microsoft’s 20 motions for a new trial, Judge Brewster granted eight and denied twelve. But eight, in this case, was enough. From here, the whole debate about which side in a partnership gets to claim ownership of an idea when one partner sought the other one’s help...starts all over again.