Microsoft Battles AlcaLu, AT&T

Microsoft Corp. (Nasdaq: MSFT) is embroiled in major patent infringement battles with two of its key IPTV partners, Alcatel-Lucent (NYSE: ALU) and AT&T Inc. (NYSE: T), and has just been told it must pay the telecom equipment vendor nearly $1.54 billion in damages for infringing two audio compression patents. (See Microsoft Loses Verdict.)

Microsoft is Alcatel-Lucent's main IPTV service platform partner, and the two firms are working closely in many Tier 1 carrier telco TV engagements around the world, most notably at AT&T (formerly SBC). (See Alcatel-Lucent Unveils IPTV Strategy, Alcatel, Microsoft Confirm IPTV Deal, and SBC Awards Microsoft $400M IPTV Deal .)

But legal relations between Microsoft and its two buddies are strained, to say the least.

On Thursday the District Court in San Diego, found in favor of Alcatel-Lucent in a patent infringement battle over the use of two MP3 audio compression patents, with the judge ordering Microsoft to pay the telecom vendor damages of $769 million (actually $769,028,351) for each of the two patents, bringing the total to $1.538 billion.

That legal battle dates back to 2003, when Microsoft and Lucent sued each other. But that's not the end of the acrimony. As Alcatel and Lucent prepared to merge in November, the French giant filed two separate patent lawsuits against Microsoft. (See Is Alcatel Suing over Xbox?.)

Microsoft describes Thursday's ruling as "completely unsupported by the law or the facts." (See Microsoft Comments on Case.)

In a prepared statement on the ruling, the software firm's Deputy General Counsel Tom Burt notes: "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."

With MP3 technology now so widely deployed, many other companies will be watching the final outcome. As Microsoft notes: "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."

As that battle rages, Microsoft's legal team is involved in a major dispute with AT&T over whether the software firm illegally used some AT&T patents in Windows products sold outside the U.S. (See Microsoft Comments on Case.)

The case has now gone to the U.S. Supreme Court following a ruling in favor of AT&T in two lower courts.

In a prepared statement, Microsoft General Counsel Brad Smith notes: "The fundamental question before the Court is whether the United States should be able to apply its patent laws unilaterally beyond its borders. If it does, U.S. high-tech companies such as Microsoft will be disadvantaged compared with overseas competitors… No other nation applies its patent laws beyond its borders in the way the lower court did in this case."

— Ray Le Maistre, International News Editor, Light Reading