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February 22, 2007

Microsoft's legal future is now

Posted by Benjamin J. Romano at 12:48 PM

Earlier this week, Microsoft General Counsel Brad Smith put the company's first appearance before the Supreme Court, a complex patent dispute with AT&T, in perspective.

"It's symbolic that the first issue before the Supreme Court for our company is an intellectual property issue because fundamentally we're an innovation-based and an intellectual property based company," Smith said in an interview on Tuesday. "While the last decade has probably focused more on antitrust than any single field, I think the next decade is likely to focus more on intellectual property and patent law than any other legal field."

Today a jury in San Diego said Microsoft should pay Lucent-Alcatel $1.52 billion in damages for infringing on the network infrastructure giant's patents related to digital music. See coverage from Bloomberg and Reuters.

The scope of the damages in that case, which is the first part of a complicated patent battle between the two companies, could be affected directly by the Supreme Court's decision in the AT&T case argued Wednesday. The high court is expected to rule on the AT&T case by July.

"Damages [in the Lucent-Alcatel case] were based on Windows sales volumes times PC sales prices worldwide since May 2003," Microsoft spokesman Jack Evans said in an email. "Roughly half the damages were based on foreign sales, which would be affected by our appeal of Microsoft vs. AT&T to the Supreme Court."

Microsoft is prepared to appeal the Lucent-Alcatel verdict. Here's a statement from Tom Burt, Microsoft corporate vice president and deputy general counsel:

We think this verdict is completely unsupported by the law or the facts. We will seek relief from the trial court, and if necessary appeal.

Like hundreds of other companies large and small, we believe that we properly licensed MP3 technology from its industry recognized licensor -- Fraunhofer. The damages award seems particularly outrageous when you consider we paid Fraunhofer only $16 million to license this technology.

Therefore today's outcome is disappointing for us and for the hundreds of other companies who have licensed MP3 technology. 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, the industry-recognized rightful licensor.

This case is only one part of a larger dispute between Microsoft and Alcatel-Lucent over intellectual property that began when Alcatel-Lucent took aggressive action against our customers and later against Microsoft. We will continue to defend our customers against unfounded claims and are pursuing a number of patent claims against Alcatel-Lucent, including the International Trade Commission case filed earlier this week.


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