Jury Tells Microsoft To Pay $1.5 Billion To Alcatel-Lucent Over MP3 Patents

from the mp3-tech-to-get-more-expensive dept

Thu, Feb 22nd 2007 2:00pm — Mike Masnick

Jury trials over patent disputes quite often turn out in favor of the patent holder, so it's no surprise to see that a jury in San Diego hasn't just sided with Alcatel-Lucent in its patent dispute with Microsoft, but also has ordered that Microsoft pay $1.5 billion for supposedly violating patents having to do with MP3 technology. The details of the case are a little bit complex. Back in the late 80s, AT&T's Bell Labs teamed up with the Fraunhofer Institute to develop the MP3 standard. Fraunhofer ended up with a bunch of patents, and most companies that make use of MP3 technology pay Fraunhofer for the privilege. However, AT&T's Bell Labs claimed some patents related to the standard as well. Microsoft, however, claims the company had a patent reissued and backdated to make it look like it came before the Fraunhofer patents and that the two patents in question are invalid. Of course, since then, Bell Labs was spun off to become Lucent, which later merged with Alcatel. Somewhere along the line, Lucent's management realized how much money people were making off these patent things, and decided to make a big splash demanding that everyone using MP3 technology shouldn't just be paying Fraunhofer, but Lucent as well. Lucent went after Microsoft, but if it wins this suit (and the subsequent appeals), you can bet that just about everyone else who uses MP3 technology will be subject to similar claims as well -- perhaps making MP3 technology a lot more expensive. About the only good thing in the ruling is that the award of $1.5 billion is that it's less than the $4.6 billion Alcatel-Lucent has mentioned in the past. Microsoft will obviously appeal, and it will take some time to get this all sorted out -- but it seems like MP3 technology may be getting a bit more expensive thanks to patents. In the meantime, if all of this sounds familiar, perhaps that's because it mirrors the situation with JPEG patents, where companies suddenly showed up well after the standard was popular to claim patent rights.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

19 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

Anonymous Coward, 22 Feb 2007 @ 2:30pm

OGG format FTW
[ link to this | view in thread ]
erv, 22 Feb 2007 @ 2:36pm

years and years
this will drag on for years
[ link to this | view in thread ]
Chris, 22 Feb 2007 @ 2:48pm

Why doesn't the governmnt issue itself a patent on the internet, since the army developed it, and someone just patent the idea of computer programming, and claim rights to every format standard and piece of software on the market. This way the courts can quit squabbling over who has the rights to something that was never a problem untill some jackass found he could make stocks go up 2 points.
[ link to this | view in thread ]
Iron Chef, 22 Feb 2007 @ 2:58pm

The problem, as I see it, is not in the patents, or handling of IP, but in the way, and inability, for a company to continue to innovate. Most companies today only contribute a small fraction of their gross to R&D efforts. Additionally, the corporate structure is setup to be inherently predatory, by only focusing on creating profit for it's shareholders.

Eventually when a company stagnates, and no longer continues to innovate, the company finds ways to cut costs in it's supply chain, and also give it's assets value.

This is just another way that companies are changing these "assets that are just lying around" and turn it into cash to add to the books, and impress it's shareholders with good returns.

So as more and more companies decide to merge, apply supply chain strategies learned from monoliths like WalMart, fail to take chances to innovate, it's concievable that we'll see more and more companies take this route if the lawsuit proves successful.

Sad, when all they have to do is be more creative, take a chance to re-invent themselves.
[ link to this | view in thread ]
Plain Text, 22 Feb 2007 @ 4:01pm

How was value established?
Even if everything holds and it could be years with all the appeals, I still think the $1.5billion is totally excessive. How did they come up with that figure? I havn't been able to find any articles about that, is there a judgment transcript that goes into details that someone can link?

Microsoft and many other companies have been paying Fraunhofer for the licensing. Microsoft for example has paid $16million over the years. So in essence there is a going rate for what this technology is worth. Now a jury comes in and says it is worth over 93 times what hundreds of companies have been paying for years. How can they award that much more than the established market value?
[ link to this | view in thread ]
SFGary, 22 Feb 2007 @ 4:10pm

This will go nowhere
Apparently Lucent has a lot of technology and IP plus a lot of lawyers- usually an incendiary combination. The audio and video codec IP has been researched to death - this will claim will most likely go nowhere. Its interesting that the Vorbis guts seemed to have skated thru without anybody coming after them...I cant believe their IP is clear.
[ link to this | view in thread ]
Doug Robb, 22 Feb 2007 @ 4:32pm

Patent will be worthless soon
Well if the patent dates back to the late 80's and patents last for 20 years or so then in 2010 the patents run out do they not?

So by the time this is sorted out in court MS and others will be free to use them so I think it's a bit of a storm ina tea cup and as someone has pointed out the lawyers are just making a meal of this for themselves.

In anycase it won' t take too much tweaking of codecs to avoid infringments I would think if they haven't done that already.
[ link to this | view in thread ]
Jon Parr, 22 Feb 2007 @ 6:54pm

Re: How was value established?
>>How can they award that much more than the established market value?

That's easy, it's call punitive damages. It teaches Microsoft a lesson by hitting them hard in the pocketbook. Punitive damages are intended to punish the defendant and to discourage the conduct of the type the defendant engaged in. I think it should have been higher!
[ link to this | view in thread ]
Wile E. Coyote, 22 Feb 2007 @ 7:02pm

I actually patented "0" and "1" back in 1937... I think now is the time to file a lawsuit to anyone that has used a computer without paying me a "1" followed by ALOT OF "0's" !!
[ link to this | view in thread ]
Plain Text, 22 Feb 2007 @ 7:15pm

Re: Re: How was value established?
But Jon - they didn't hit Microsoft hard in the pocketbook. In fact, with a good year, Microsoft can write that off and still beat Street estimates. What they did is set a precedent for hundreds of other companies, many of which will need to fold because they could never cover this legal expense.

I would be interested in hearing your thoughts concerning the conduct of over 200 hundred companies that you feel needs to be discouraged. According to all accounts they acquired licensing directly from the company that held the patents. They've done this year after year for over a decade. There were no cease and desist demands, no accusations of faulty ethics, and in no way were they ever discouraged from maintaining their status quo. What grevious conduct did these companies engage in that calls for the punative damages you are delighting in?

The only real winner in this case seems to be Microsoft, for a paltry 1.5 billion dollars they may very well have caused a large number of their open-source and non open-source competition to go belly up.
[ link to this | view in thread ]
|333173|3|_||3, 22 Feb 2007 @ 8:12pm

Maybe there should be an enforcement rule, which states that if you do not make a claim to royalties which you are entitled to, you cannot sue people for not paying them.
[ link to this | view in thread ]
ipzedge, 22 Feb 2007 @ 8:57pm

VOIP patent/s
Check this one out

COBT.OB

MARSHALL, TEXAS--(MARKET WIRE)--Jun 15, 2006 -- C2 Communications Technologies Inc. ("C2"), a subsidiary of C2 Global Technologies Inc. (OTC BB:COBT.OB - News), announced today that it has filed a patent infringement lawsuit against AT&T, Inc., Verizon Communications, Inc., Qwest Communications International, Inc., Bellsouth Corporation, Sprint Nextel Corporation, Global Crossing Limited, and Level 3 Communications, Inc. The complaint was filed in the Marshall Division of the United States District Court for the Eastern District of Texas and alleges that the defendants' services and systems utilizing Voice over Internet Protocol ("VoIP") infringe C2's U.S. Patent No. 6,243,373, entitled "Method and Apparatus for Implementing a Computer Network/Internet Telephone System".

TORONTO, ONTARIO--(MARKET WIRE)--Aug 30, 2006 -- C2 Global Technologies Inc. ("C2" or the "Company", formerly Acceris Communications Inc.) (OTC BB:COBT.OB - News) today announced that it has been granted Hong Kong Patent No. HK1018372 by the Intellectual Property Department of The Hong Kong Special Administrative Region for its patent entitled "Method and Apparatus for Implementing a Computer Network/Internet Telephone System". This patent, effective through October 29, 2016, is equivalent to C2's U.S. Patent No. 6,243,373.

TORONTO, ONTARIO--(MARKET WIRE)--Oct 18, 2006 -- C2 Global Technologies Inc. ("C2" or the "Company", formerly Acceris Communications Inc.) (OTC BB:COBT.OB - News) today announced that it has been granted Canadian Patent No. 2245815 by the Canadian Intellectual Property Office for its patent entitled "Voice Internet Transmission System / Systeme pour transmissions vocals sur internet". This patent, effective through February 5, 2017, is equivalent to C2's U.S. Patent No. 6,438,124.

TORONTO, CANADA--(MARKET WIRE)--Nov 20, 2006 -- C2 Global Technologies Inc. ("C2" or the "Company", formerly Acceris Communications Inc.) (OTC BB:COBT.OB - News) today announced that it has been advised by the European Patent Office that it intends to grant C2's wholly-owned subsidiary, C2 Communications Technologies Inc., a European patent that is equivalent to C2's U.S. Patent No. 6,243,373 entitled "Method and Apparatus for Implementing a Computer Network/Internet Telephone System".

http://finance.yahoo.com/q?s=COBT.OB
[ link to this | view in thread ]
ScytheNoire, 23 Feb 2007 @ 2:41am

damn the patent system is broken, and just holding back technology. if they got rid of the patent system, technology could only benefit from a faster pace of development. you'd actually have to invent something.
[ link to this | view in thread ]
Nick Burns, 23 Feb 2007 @ 7:52am

Broken Patent System
Microsoft's most compelling argument - and I agree with all of them - is that they licensed MP3 technology from Franhofer IIS, the "industry recognized" licensor of MP3 technology. Apple, Sandisk, Motorola, Nokia, Sony, Garmin and nearly 500 other companies that make anything that plays MP3 (think iPods, DVD players, cellphones, car stereos) have licensed the technology from Fraunhofer IIS's licensing partner Thomson. Nevermind that Thomson's royalty rates are much less than what Alcatel-Lucent claimed (0.5% of each computer sold with Windows since mid-2003).
This case is setting too many very dangerous precedents - not only for Acatel-Lucent to enforce a bogus MP3 patent, but for others to try and follow in their tracks with other technologies.

Everyone, write your Senators! Change patent laws now!
[ link to this | view in thread ]
Mattb, 23 Feb 2007 @ 8:13am

Who they should sue
Why didn't they sue Fraunhofer instead of everyone else? Fraunhofer is the one that claimed to own the patents, and companies paid Fraunhofer on the good faith that they owned what they were selling. This could be applied to anything you buy. Someone somewhere could claim they own the patent to something and require you to pay them extra instead of the company that sold it to you.

Obviously they sued MS and the others because that is where the big bucks are. The patents could be perfectly legit (Bell Labs has develop a ton of critical stuff of the years) and once they found out the patents were being infringed on, they should go after the company that was using the patents to sell its technology (Fraunhofer).

The only part that might cause some thinking is this scenario- you develop something wonderful. Someone steals it and starts to sell it for pennies on the dollar. Now who do you go after? The person who stole it only made a little. The person who bought should have paid a lot more (in your eyes).
[ link to this | view in thread ]
Nick D (profile), 23 Feb 2007 @ 9:08am

Yes, it is time for Firefox-like evangelism og OggVorbis! Mozilla needs to make an OggVorbis player, and Apple should provide a firmware update to play OggVorbis. Death to software patents!!!!!
[ link to this | view in thread ]
bkp, 23 Feb 2007 @ 12:42pm

Re:
I believe the U.S. Government is consitutionally exempt from intellectual property rights. That is why anybody can make a boatload of money essentially plagiarizing government materials--the 9/11 Report is a good recent example. It's a bit depressing that the government scientists that were responsible for laying the groundwork for 21st century technology are now retired on their comfortable, but not extravagant, pensions, while Google claims it has actually done something innovative and makes billions.

I do have resepct for Microsoft because it did make its mark on its own, back before the internet became a toy.

Does anyone know if the windows media format is something that stands on its own, or is it derivative of mp3 technology. It would interesting if Microsoft incited the mobs by simply not supporting mp3.
[ link to this | view in thread ]
MPMsoft, 21 Jun 2007 @ 11:15am

MPEG-1 Audio Layer 3
As I understood it, Phillips originally created it and fraunhofer was the principle software engineer.
[ link to this | view in thread ]
MPMsoft billing software, 12 May 2008 @ 12:35pm

Exempt from intellectual property rights?
RE: "U.S. Government constitutionally exempt from intellectual property rights". If true, it sounds like an interesting software opportunity. I wonder if the there are billing software innovations to look at? Regarding software patents in general, a friend of mine that practices intellectual property law tells me that only cases like Microsoft's ever make the spotlight because most of the time the offending party has few assets to sue. The deep pockets principle. We see our software usability and design being imitated by numerous competitors. I wonder if MPMsoft would be able to patent design and usability as well.
[ link to this | view in thread ]