February 23, 2007 / 1:07 AM / 13 years ago

Microsoft hit with $1.52 billion patent suit damages

NEW YORK (Reuters) - A U.S. federal jury found that Microsoft Corp. (MSFT.O) infringed audio patents held by Alcatel-Lucent ALU.PA ALU.N and should pay $1.52 billion in damages, the No. 1 software maker said on Thursday.

Customers wait to buy Microsoft's new "Windows Vista" operating system in Tokyo, January 30, 2007. A U.S. federal jury found that Microsof infringed audio patents held by Alcatel-Lucent and should pay 777 million pounds in damages, the No. 1 software maker said on Thursday. REUTERS/Toru Hanai

Microsoft said it plans to first ask the trial judge to knock down the ruling and will appeal if necessary. It said the verdict is unsupported by the law and that it had already licensed the technology in question from Germany’s Fraunhofer.

Alcatel-Lucent had accused the world’s biggest software maker of infringing patents related to standards used for playing MP3 digital music files.

One analyst said the decision means Alcatel-Lucent may seek payments from providers of software and hardware that support MP3 files, including Apple Inc.’s (AAPL.O) iPod and iTunes.

“Potentially it’s a significant windfall for Alcatel-Lucent,” Bernstein analyst Paul Sagawa said.

He said Alcatel-Lucent could go after include MP3 player makers Sony Corp. (6758.T), Creative Technology Ltd. (CREA.SI) and music service provider Napster Inc. NAPS.O.

For Microsoft, $1.52 billion represents about six weeks of cash flow or about 15 cents per share — a charge that most analysts would likely take in stride, according to Goldman Sachs analyst Rick Sherlund.

“While $1.52 billion is a large sum, it is less than the $4.5 billion Alcatel-Lucent originally sought according to other press reports and is not particularly material in our opinion when considered with the amount of cash on Microsoft’s balance sheet and substantial free cash flow generation of about $1 billion per month,” he wrote in a research note.

The $1.52 billion awarded was based on 0.5 percent of the price of personal computers sold since around mid-2003, Tom Burt, Microsoft’s deputy general counsel, said.

Microsoft said the award could be roughly halved because it related to overseas sales depending on the outcome of a patent case being heard by the U.S. Supreme Court, which coincidentally also involves Microsoft.

The high court is considering whether companies should be held liable for damages in U.S. patent cases for infringing software distributed overseas.

Microsoft said it has already licensed the MP3 technology in question from German research organization Fraunhofer Gesellschaft for $16 million.

“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,” Burt said. Computer, cell phone and MP3 player makers may be affected as well as software suppliers, he said.

Burt said that it could be a matter of weeks or months before the judge makes a final ruling in the case and that an appeal could take another year or so after that.

Alcatel-Lucent spokeswoman Joan Campion said the company was pleased with Thursday’s decision but would not say whether Lucent would go after other companies that support MP3s.

“We consider (intellectual property) a vital asset and as a vital asset we’ll continue to protect and defend it,” she said. The case related to two patents, one issued in 1994 and the other issued in 1997.

Microsoft and Alcatel are locked in a number of patent disputes including a suit over the video-decoding technology in Microsoft’s Xbox 360 video game console.

Microsoft said it filed a case at the International Trade Commission to seek a ban on the U.S. “importation of unlicensed Alcatel-Lucent products” until it has taken licenses.

Shares of Microsoft closed 4 cents higher at $29.39 on Nasdaq on Thursday. Alcatel-Lucent’s U.S. shares ended 7 cents higher at $13.14 on the New York Stock Exchange.

Additional reporting by Daisuke Wakabayashi in Seattle and Paul Thomasch in New York

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