Microsoft persuades judge to scrap $1.5B ruling against it

Microsoft persuaded a judge to throw out a jury's record $1.52 billion verdict in a landmark case over Alcatel-Lucent's MP3 digital-music patents.

U.S. District Judge Rudi Brewster in San Diego said Monday the jury's damage award couldn't stand because one of the two patents wasn't infringed. The second disputed patent was co-owned by a German research institute and Microsoft had a valid license, Brewster ruled.

The jury decided in February that Microsoft must pay $1.52 billion for violating Paris-based Alcatel's rights to the inventions, the largest patent verdict in U.S. history. The two sides argued in court in July over whether the verdict should stand.

"The jury's verdict was against the clear weight of the evidence," Brewster wrote in his 43-page order.

Alcatel-Lucent, the world's largest maker of telecommunications equipment, argued the record damage award was fair and reasonable and ought to be increased because it covered sales only through November 2005.

Lucent's request for "supplemental damages, prejudgment and post judgment interest, and a permanent injunction is denied as moot since Lucent is no longer the prevailing party," Brewster wrote.

"The reversal of the judge's own pretrial and posttrial rulings is shocking and disturbing," Alcatel-Lucent spokeswoman Mary Ward said in a phone interview. "The jury unanimously agreed with us. We believe their decision should stand."

"It still ain't over, but obviously from Microsoft's point of view, I think it is heading in the right direction," said Charles di Bona, a New York-based analyst for Sanford C. Bernstein. The jury's award "may not be big relative to their cash balance, but it's still a lot of money," he said.

Microsoft fought so hard in the case because it felt the original decision set precedents that would have left it vulnerable to other intellectual-property disputes, di Bona said.

Microsoft convinced Brewster that the patent is owned by one of the co-inventors of MP3 — Germany's Fraunhofer Institute, which Microsoft paid $16 million for rights to use the technology — and Alcatel-Lucent's rights to the innovation weren't violated.

Microsoft Senior Vice President and General Counsel Brad Smith in an e-mailed statement called the decision a victory for consumers.

"For the hundreds of companies large and small that rely on MP3 technology, the court's ruling clarifies that these companies have properly licensed the technology," Smith said.