Microsoft Hit With $1.52 Billion Patent Infringement Damages

Microsoft found itself on the wrong end of a patent dispute with another industry heavyweight, Alcatel-Lucent.  This one involves two patents held by Alcatel-Lucent relating to MP3s.  A jury found that Microsoft infringed on these patents and awarded $1.52 billion in damages.  Cue spit take by Brad Smith, Microsoft General Counsel.  The damages are based on the number of Windows systems sold on a world-wide basis since May of 2003 times PC selling price.  Microsoft says the damages are out of line considering they paid only $16 million for the MP3 license from Fraunhofer, the German research entity that helped develop the format.  Fraunhofer probably thinks they sold the rights too low based on this verdict.  Microsoft vows to appeal the award, first at the trial court and then the appellate courts.

Microsoft just argued another case before the U.S. Supreme Court that could have significant outcome on the Alcatel-Lucent case.  The second case involves AT&T, the subject matter being the calculation of damages for patent infringement on a world-wide basis.  AT&T is claiming damages for components included in Windows from foreign distribution of the operating system.  Federal law prohibits the distribution of parts to foreign jurisdictions that would infringe domestically.  Blueprints are OK, however.  Microsoft is claiming that all they did was distribute master discs of Windows, and that the fabricators there made the duplication.  AT&T is arguing that the mechanics of the software business make it impractical for Microsoft to distribute hundreds of thousands of copies of the OS and that the master disc is designed to be the essential component.  Microsoft says no, it's a blueprint.

In any event, the case was argued by heavyweights, Ted Olson for Microsoft and Seth Waxman for AT&T.  Both are former Solicitor Generals for the United States and know their way around a Supreme Court argument or two.

The U.S. Supreme Court argument transcript is here, and stories on the Alcatel-Lucent case are in the Financial Times via MSNBC (ironically) and the Seattle Times.