FAQ: Behind Microsoft's MP3 patent jam

With Redmond on the line for $1.5 billion, which users of MP3 products should worry about an Alcatel-Lucent lawsuit?

Thursday's ruling that Microsoft owes $1.5 billion in damages for Windows' use of MP3-related patented technology prompts questions well beyond whether the software giant will take the money out of its checking or savings account.

Microsoft will undoubtedly try to have the verdict reduced or reversed. But if it stands, the court order also opens the door for Alcatel-Lucent to pursue damages from other companies that use MP3 music technology in their products.

Here is a list of some relevant questions and answers, as best they are known at this point.

Why was the award so large?
The verdict, which could mark the biggest patent infringement verdict in history, is based on the total number and average selling price of every Windows PC sold worldwide since May 2003. Although the percentage of royalties being sought was smaller than in many cases, the award is large because it is based on the total price of each Windows PC sold.

When a big verdict comes in, "it's called ringing the bell," said Lee Bromberg, a partner at Bromberg & Sunstein. "This is a really loud ringing of the bell."

Will Microsoft appeal?
Microsoft has said it will ask the current trial judge for relief first, and it may well appeal if it does not get the ruling changed. The judge is on vacation until next week, so Microsoft's motions won't be heard until at least then.

What are the odds that it will be overturned?
Patent cases are among the more frequently reversed types of decisions, so there is some reason for hope on Microsoft's side. At the same time, Bromberg said the judge handling the case has a lot of patent case experience and noted that courts tend to want to uphold the will of a jury.

"There is generally a reluctance to second-guess them," Bromberg said. That said, there are plenty of other items that will be heavily contested, including the way that the jury decided on the value of damages. "That is definitely an issue that is going to be fought about," Bromberg said.

Will Alcatel-Lucent go after other companies that use MP3 in their products?
"It certainly would be a concern if I were an MP3 company," Bromberg said, though an Alcatel-Lucent representative declined to comment on that question Thursday.

"There are different strategies that Alcatel-Lucent could take," said Robert Yoches, a partner at Finnegan Henderson Farabow Garrett & Dunner. If the company believes that the Microsoft verdict is likely to yield the most money it will get from an MP3 patent lawsuit, it might not want to take other companies to court and thus risk another court invalidating its patent, Yoches said.

If, on the other hand, it thinks that there is even more money to be had from lawsuits against other companies, it might settle with Microsoft for somewhat less and then go after them.

"When you get $1.5 billion, it's hard not to start looking around," Yoches said.

I have an MP3 player. Could I be liable?
Theoretically, yes. But it's very, very unlikely. It's much more likely that Alcatel-Lucent would go after the company that makes your MP3 player than to try to sue every individual device buyer.

"It's very rare for a patent owner to go after retail customers," Bromberg said. "The sales to customers are what creates value for the patent holder."

What was Alcatel-Lucent's role in developing MP3?
The MP3 technology was developed in large part by people with Germany's Fraunhofer and AT&T's Bell Labs, which became part of Lucent when it was spun off in 1996. Alcatel and Lucent merged last year, becoming Alcatel-Lucent.

Didn't Microsoft already license the technology from Fraunhofer?
Microsoft did pay $16 million to license MP3-related patents from Fraunhofer, but Alcatel-Lucent is arguing that it has patented technology that was not part of Microsoft's license, a point Microsoft disputes.

Why is the verdict so much larger than what Microsoft paid Fraunhofer?
The disparity is large, but it's not unheard of, Bromberg said. "What the patent holder would be willing to do by way of a license deal at the front end might be very different than what they are able to recover when the defendant says, 'We're not going to pay you a penny,' and they have to take it to the mat and go all the way through the litigation process," Bromberg said.

He pointed to the Research In Motion-NTP case, in which RIM ignored early offers to settle for a few million dollars and eventually agreed to a $612 million settlement.

Who else licenses the MP3 technology?
Hundreds of companies use MP3 technology. Major players include Apple, which supports it in its iPod devices and iTunes software, and Yahoo, which has an online music services. Chipmakers like Intel and Texas Instruments also license the technology. Thomson, which handles licensing of the Fraunhofer technology, has a list of MP3 licensees.

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