Microsoft Faces Largest Penalty Ever in Patent Infringement Case

In what could be a landmark decision, and a potential shot across the bow of other technology companies, Microsoft was ordered to pay more than $1.5 billion to Alcatel-Lucent, in a patent dispute case over the MP3 multimedia format. Alcatel-Lucent had brought suit, claiming that although Microsoft and other companies have licensed the MP# format from the Fraunhofer Institute, not all patents were covered, specifically ones Alcatel-Lucent claims it had before working with Fraunhofer.

The jury in the case sided with Alcatel-Lucent in all its claims that Microsoft had infringed two of its patents. Tom Burt, Microsoft's deputy general counsel, said the verdict was "completely unsupported by the law or the facts," and other Microsoft spokesmen implied that the software giant would petition the judge in the case in hopes of getting the amount of damages reduced.

If the judge refuses, it is likely that Microsoft would take the case to federal appeals court in Washington, which also hears patent cases.

"We think this is just plain wrong," Mr. Burt said, in regard to the high damages. "They told the jury to measure damages, not on the value to Microsoft or one of the 10,000 features in Windows, but on the value of the entire computer."

The case was a rocky one for Microsoft, which had all its arguments denied, except for one. The jury deadlocked on the question of whether or not Microsoft willingly infringed on Alcatel-Lucent's patents. If the jury had found that the infringement was intentional, then the damages would have been tripled.

Should the judgment stand, it would be the largest award ever for a patent infringement case. The previous record was in a 1990 case involving Kodak and Polaroid. In that instance, Kodak was ordered to pay over $900 million to the camera company for violating patents related to instant cameras.

Should the judgment be upheld, it would have broad implications for other companies. Dell and Gateway, in addition to Apple, could come under fire, both for their use of the MP3 software in computers they sell, and for their portable music devices, such as the Apple iPod.