Update: Microsoft ordered to pay Alcatel-Lucent $1.5B in patent case

IDG News Service - Microsoft Corp. must pay $1.5 billion in damages to Alcatel-Lucent SA for infringing on patents for MP3 encoding and decoding technology, a U.S. jury said Thursday.

Some reports are calling the decision, which could make other companies that use the same technology vulnerable to suits by Alcatel-Lucent, the largest patent decision in history. Neither Microsoft nor Alcatel-Lucent would confirm that assertion.

Alcatel-Lucent, which was then Lucent Technologies, first filed suit in 2003 against Microsoft customers Dell Inc. and Gateway Computer Corp. for infringing on 15 patented technologies it said were being used in Microsoft's Windows client OS.

Microsoft filed a declaratory action in a U.S. District Court in San Diego against Alcatel-Lucent claiming that it should be targeted with a suit, an attempt to discourage additional legal action against its customers. As a result, Alcatel-Lucent sued Microsoft.

A judge threw out the cases on two of the patents, and separated the remaining 13 patent infringement disputes into six separate groups. Thursday's decision marks the end of the first trial on those groups of patents; five jury trials remain pending, Microsoft said.

In a statement from its public relations firm, Microsoft spoke out against the court's decision, and said it plans to appeal if necessary.

"We think this verdict is completely unsupported by the law or the facts," the company said in a statement. "Like hundreds of other companies large and small, 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."

Predictably, Alcatel-Lucent is pleased with the decision. In a statement, the company said it made "strong arguments" on its own behalf and approves of the jury's findings.

The next five trials are expected to take place throughout the rest of the year, said Microsoft spokesman Guy Esnouf.

He said he expects the next trial, which deals with patents on speech pattern technology and lists Microsoft, Dell and Gateway as defendants, to begin in late March or early April. Trials on the four other groups of patents will go to trial successively after that, he said.

The trial on the third group, which is centered on user interface patents, also involves Microsoft, Dell and Gateway; the trial on the fourth group involves just Dell and Gateway as defendants, Esnouf said. The fifth group of patents involves technology in the Xbox 360, with Microsoft as the defendant in that trial. The trial on the sixth group of patents, which include video technologies, again lists all three as defendants.

Many companies license MP3 technology.

The Alcatel-Lucent suit is not the only high-profile patent case in which Microsoft is currently embroiled. Microsoft presented opening arguments before the U.S. Supreme Court Wednesday in a six-year patent dispute with AT&T Corp.