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Week in review: Microsoft's kick in the patents

While Microsoft finds itself in a dogfight over patents, battles over the iPhone trademark and satellite radio settle down.

Patents are lucrative in the tech community, and this week, Microsoft found itself in a patent dogfight.

A federal jury ordered Microsoft to pay $1.5 billion to Alcatel-Lucent in a patent dispute over MP3 audio technology used in Windows. In its verdict, the jury assessed damages based on each Windows PC sold since May 2003. The case could have broader implications, should Alcatel-Lucent pursue claims against other companies that use the widespread MP3 technology.

Microsoft said the verdict was "completely unsupported by the law or the facts" and noted that roughly half of the damages are for overseas sales of Windows. Such damages could be affected by a separate patent case that involves Microsoft and AT&T. That case, currently before the U.S. Supreme Court, deals with whether overseas sales of software products should be subject to U.S. patent law.

Wading into the complex spat between Microsoft and AT&T, Supreme Court justices voiced skepticism with a prior reading of patent law that American software companies argue could place them at a global disadvantage.

The conflict centers on part of a U.S. statute that restricts American companies from shipping "components" made in the United States to foreign manufacturers, which could combine them to make a machine that infringes on U.S. patents. The statute does not stop them from sharing design plans that would spawn an identical product.

The U.S. software industry fears that a ruling against Microsoft could expand its vulnerability in patent infringement suits compared with global rivals and could make it more attractive to locate research operations abroad. AT&T, on the other hand, says software companies need only worry if they're committing infringement in the first place.

CNET News.com readers responded with scorn for the patent system.

"I'm no lawyer, either, but this (intellectual property) thing seems so outdated in this Digital Age and (with) open source," one reader wrote to the TalkBack forum. "There are thousands of products using MP3 compression, for crying out loud."

Indeed, it's not every day that both the U.S. government and advocates of free and open-source software align themselves in court with Microsoft. But the high-stakes patent case has attracted a slew of briefs supporting the Windows maker's stance.

The question boils down to whether American software makers are required to pay up for infringing on U.S. patents based not only on the number of software copies they supply on their home turf but also on copies that foreign manufacturers make abroad. There's widespread fear that a loss for Microsoft could deal a multibillion-dollar blow to the American software industry.

Critics of lower-court rulings favoring AT&T say they defy Congress' intentions, forcing American companies to pay damages based both on infringing activity in the United States and abroad, whereas a foreign company found to have infringed on a U.S. patent would have to pay damages based only on its U.S. sales.

In and out of focus
Don't expect Microsoft to stand pat in a video-sharing sector dominated by Google's YouTube. A week after a test version of Microsoft's video site, Soapbox, went live, the company sized up at least one potential acquisition target, sources say.

Last month, executives from MSN toured the Los Angeles headquarters of video-sharing site Revver, according to multiple sources. In addition to Microsoft, sources said, compression-technology maker DivX, which operates a video-sharing site called Stage6, has also taken a look at Revver.

The talks between Microsoft and Revver reveal two things: Microsoft is busy trying to get a handle on video sharing, while beleaguered Revver is busy getting a handle on its future.

Meanwhile, entertainment conglomerate Viacom has announced a deal to license its programming content to Joost, the online-video start-up created by the founders of Skype and Kazaa. The deal is designed to bring television and theatrical content from Viacom's brands--which include MTV Networks' Comedy Central, as well as Black Entertainment Television and Paramount Pictures--to Joost upon its full launch.

The deal is limited, at least at first: many of Viacom's most popular programs, such as Comedy Central's The Colbert Report and South Park, will not be available initially. It will offer, however, MTV's My Super Sweet 16 and Comedy Central's Freak Show, as well as feature films from Paramount and its related brands.

While Joost users might have looked forward to some Viacom-produced laughs, many users of Yahoo's Flickr weren't laughing when they found that photos on their pages had been replaced by random images from other users' pages, and some of them were not very PG. The company blamed the snafu on a server error and said it was able to resolve the matter after taking the site down for a few hours.

The issue has some consumers and watchdog groups calling for more than just an apology.

Flickr's problem is a reminder that privacy concerns are still an issue for Web 2.0 companies and that people want to be able to control the dissemination of their content, even if they are the ones posting it to the Web, one Internet privacy expert said.

Can't we all get along?
Executives at Sirius Satellite Radio and XM Satellite Radio announced that they agreed to an all-stock "merger of equals," with shareholders of each company owning 50 percent of the combined company. XM shareholders would receive 4.6 shares of Sirius for each of their XM shares, setting the value of XM at about $5 billion.

But getting federal regulators to sign off on the merger won't be easy, and perhaps in an effort to make walking away from the deal easier, the companies have not said what the name of the combined entity would be or where it would be located.

The companies expect the transaction to be completed by the end of this year. There are plenty of questions about how this will play out in the coming months.

Meanwhile, Cisco Systems and Apple settled the trademark infringement lawsuit over the use of the iPhone name for Apple's new multimedia phone. The agreement allows Apple and Cisco to each use the iPhone brand on their own products. The companies also said they will explore opportunities for interoperability in the areas of security and of consumer and business communications.

Cisco sued Apple for trademark infringement in January after Apple unveiled its long-awaited iPhone, a name similar to that of Apple's iPod but claimed by the network equipment maker. The two companies had been in extended negotiations to settle the lawsuit, and a second extension of the talks had been set to expire Wednesday.

But for some, there is no compromise. Steve Ballmer reissued Microsoft's patent threat against Linux this week, warning open-source vendors that they must respect his company's intellectual property. In a no-nonsense presentation to New York financial analysts, Microsoft's chief executive said the company's partnership with Novell, which it signed in November 2006, "demonstrated clearly the value of intellectual property, even in the open-source world."

The cross-selling partnership means that Microsoft will recommend Suse Linux for customers that want an environment mix of Microsoft and open-source software. It also involves a "patent cooperation agreement," under which Microsoft and Novell agreed not to sue each other for patent infringement. In a clear threat to open-source users, Ballmer repeated his earlier assertions that open source "is not free," referring to the possibility that Microsoft may sue Linux sellers.

Also of note
Google has repackaged and enhanced its business-oriented software offerings into a paid-subscription suite known as Google Apps Premier Edition...PC shoppers who want to buy a Windows-based machine but aren't ready to take the Vista plunge may find XP offerings a bit limited...NASA has inked a two-year agreement with space tourism company Virgin Galactic to collaborate on future technologies for commercial spaceflight.