Court sets Microsoft violation damages at US$1.5 billion

Microsoft Corp must pay US$1.5 billion in damages to telecommunications equipment maker Alcatel-Lucent SA for violating two digital music patents, a federal jury ruled on Thursday.

The software company said the patents in question govern the conversion of audio into the digital MP3 file format on personal computers.

In 2003, Lucent Technologies Inc, which last year was acquired by Alcatel, filed 15 patent claims against Gateway Inc and Dell Inc. In April 2003, Microsoft added itself to the list of defendants, saying the patents were closely tied to its Windows operating system. The PC makers are still defendants.

Microsoft a judge threw out two of the 2003 patent claims, and scheduled six separate trials to consider remaining disputes. The case that was just decided went to trial in San Diego on Jan. 29.

"We think this verdict is completely unsupported by the law or the facts," said Tom Burt, a Microsoft deputy general counsel.

Microsoft that Paris-based Alcatel-Lucent's patents govern its MP3 encoding and decoding tools, and said it licenses the MP3 software used by its Windows Media Player from Fraunhofer-Gesellschaft, a German company.

"We believe that we properly licensed MP3 technology from its industry recognized licenser -- Fraunhofer. The damages award seems particularly outrageous when you consider we paid Fraunhofer only US$16 million to license this technology," Burt said.

Microsoft the damages were calculated by multiplying Windows sales volumes and PC sales prices worldwide since May 2003.

"We've made strong arguments supporting our view, and we are pleased with the court's decision," Alcatel-Lucent spokeswoman Mary Lou Ambrus said.

The court will consider the next of the patent suits, which relates to speech coding, in March or April, Microsoft said. Other areas in dispute include video coding on Microsoft's Xbox game console and Windows' user interface.