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Microsoft MP3 Case Could Impact Digital Audio Industry

2/23/2007 01:37:00 PM Eastern

Redmond, Wash. — A court ruling yesterday against Microsoft for patent infringement of MP3 technology could result in similar lawsuits against other companies, said industry members.

A federal jury in San Diego ordered Microsoft to pay $1.52 billion in patent-infringement damages to Alcatel-Lucent in what is said to be one of the largest judgments ever. The patents in question involve converting audio into MP3 files, which, a jury ruled, infringed on patents owned by Bell Labs, part of Lucent which recently merged with Alcatel.

Alcatel-Lucent would not speculate on future litigation involving other companies nor discuss which companies it already has cross-licensing agreements with, according to a spokeswoman.

Microsoft licensed its MP3 technology from Fraunhofer, a German research company that is said to dominate the MP3 licensing arena.

Microsoft issued a statement from Tom Burt, corporate VP and deputy general counsel, stating, “We think this verdict is completely unsupported by the law or the facts. We will seek relief from the trial court, and if necessary appeal.”

Microsoft said, “Today’s outcome is disappointing for us and for the hundreds of other companies who have licensed MP3 technology. We are concerned that this decision opens the door for Alcatel-Lucent to pursue action against hundreds of other companies who purchased the rights to use MP3 technology from Fraunhofer.”

Principal analyst Rob Enderle of the Enderle Group said of the case, “It is potentially an industry changer because we all thought the technology was owned by Fraunhofer. Now it turns out that the technology is in fact owned by Alcatel-Lucent. Anyone not getting their technology from Microsoft is now exposed.”

Lucent originally sued Dell and Gateway; however Microsoft, as a provider of software that has MP3 audio to these companies, stepped into the suit. “Microsoft actually stepped in between Dell and Gateway and performed the role of insurance company. They’ve always argued if you buy something from us and something like this happens, we’ll take the blame,” said Enderle, adding this is the first time Microsoft has had to act on its guarantee on such a large scale.