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Last Updated: Friday, 23 February 2007, 15:40 GMT
Patent row could hit MP3 industry
By Clare Matheson
Business reporter, BBC News

If it stands the ruling will not just affect Microsoft
News that Microsoft has been fined for violating MP3 patents belonging to Alcatel-Lucent could have widespread fallout for the industry.

Experts now suggest the US ruling could lead to hundreds of firms - including Apple and RealNetworks - being pursued for payments relating to the format.

"Any of the companies that have licensed and implemented that technology have to have great concern about this verdict," said Microsoft vice president Thomas W Burt.

At the heart of the case is the question whether Alcatel-Lucent should be paid for technology developed by experts at Germany's Fraunhofer Institute and Bell Laboratories - which Alcatel now owns.

Microsoft says it should not have to pay fees to Alcatel as it paid $16m to license the MP3 technology from the Fraunhofer Institute.

But Alcatel claims that as it now owns Bell, and has done since 2003, Microsoft should have been paying it for its share of the patent.

Record payout

And it seems the Federal District Court in San Diego agrees - it ordered Microsoft to pay Alcatel $1.52bn, an award both companies say is the largest patent award in history.

The technology industry is watching the case closely as it could mean that Alcatel will soon be knocking on the door of hundreds of firms demanding payment for their use of the MP3 format.

"For Alcatel-Lucent this effectively means they can go round to every company that uses this same piece of software and demand reparations from them," says Bryan Glick of Computing Magazine.

However, Microsoft is appealing against the ruling because the firm believes it has done nothing wrong.

Creative MP3 players
Alcatel could now demand payments from any firm using MP3 software

"Microsoft is saying 'we paid for a licence to use it from the company that everybody believes is the licensee'," Mr Glick says.

"But clearly there is something in that, the court in the States has found that Alcatel-Lucent has rights towards this that aren't covered by the licence."

Developed to convert audio into digital form and compressing it into a file size that makes it easier to transmit over data networks, MP3 has become somewhat of an industry standard.

It is used in Microsoft Windows to play music and audio, in Apple's iPod, on RealNetworks, Sony, and Creative to name but a few.


If Alcatel wins out, it could mean a tidy sum for the firm - and such a development would be a timely one.

The French firm recently stepped up its job cutting programme to 12,500 from 9,000 after unveiling a net loss of 618m euros for the three months to 31 December.

So far, Alcatel lawyers have remained tight-lipped on whether they will be approaching any other companies.

If Alcatel does win the case, the $1.5bn payout is unlikely to dent Microsoft's finances, Mr Glick says.

"It's clearly going to hurt, but Microsoft turns over a lot more than that every year."

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