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Alcatel-Lucent Promises Fair Licenses For Its MP3 Patents

Alcatel-Lucent promises to license out its two MP3-related patents at “reasonable and nondiscriminatory terms” now that a federal jury found that Microsoft’s Windows Media Player infringed on the two patents and awarded Alcatel-Lucent $1.52 billion in compensatory damages.

If the company adheres to its pledge, the licensing fees are unlikely to add significantly to the cost of producing MP3 players and encoding software, given that Alcatel-Lucent owns only two patents while Thomson and German’s Fraunhofer Institute jointly hold more than 400 patents and began licensing them out in 1995. In addition, Philips and France Telecom began in 2000 to license out between 50 to 100 MP3-related patents through a company called Sisvel and its U.S, subsidiary, Audio MPEG, Fraunhofer said.

Microsoft and Fraunhofer, however, question whether the licensing fees will be “reasonable,” contending the size of the award for only two patents and Alcatel-Lucent’s initial request for $4.5 billion. In contrast, Microsoft paid only $16 million in licensing fees to Fraunhofer, Microsoft deputy general counsel Tom Burt said in a statement.

The Alcatel-Lucent award was based on 0.5 percent of the price of PCs sold worldwide since around mid-2003, Burt noted.

“We think this verdict is completely unsupported by the law or the facts,” Burt’s statement said. “We will seek relief from the trial court, and if necessary appeal.” He added, “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.”

Said Stefan Geyersberger, who runs Fraunhofer’s licensing program, “If [licensing] is done with reasonable licensing fees, I don’t see a big issue for MP3 in general,” but he questioned whether it’s reasonable to get $1.52 billion for two of the hundreds of patents involved in creating MP3. Fraunhofer, he added, “is the single most important contributor to MP3.”

Fraunhofer also claims that the MP3 standard adopted by the Moving Pictures Experts Group (MPEG) “was mainly based on ASPEC,” a coding technology first proposed to the group in 1988, Fraunhofer’s web site said. ASPEC, in turn, was based on Fraunhofer’s OCF algorithm, which “Fraunhofer improved” in part by “incorporating contributions by Hannover University, AT&T, and Thomson,” Fraunhofer’s site continued.

In 1992, the MPEG body adopted the final MP3 standard, and Fraunhofer-Thomson started licensing their patents in 1995, Fraunhofer said.

Alcatel-Lucent claimed that “we have been enforcing our IP on the two patents since the late 1990s” and had negotiated with Gateway and Dell “without resolution” before filing suit in June 2002 against Gateway in June 2002 and Dell in February 2003. Microsoft then entered the case on behalf of its two customers.

The Thomson-Fraunhofer patents bear “no relationship to the Lucent patents whatsoever,” Thomson added in a statement. Both patents, an Alcatel-Lucent spokeswoman said, deal with “encoding in the most efficient way possible using as little memory as possible.”

Alcatel-Lucent’s suit against Microsoft isn’t the company’s first patent tussle with a high-profile electronics company over audio encoding technology. In May 2001, Dolby Labs filed suit against Lucent, before its merged with Alcatel, seeking to declare invalid two Lucent patents that “generally involve a process and means for encoding and decoding audio signals,” Dolby said at the time. Lucent countersued in a suit charging that Dolby’s AC-3 surround-sound technology violated its two patents, but a U.S. District Court ruled in spring 2005 that Dolby’s AC-3 didn’t infringe on the two patents.