A San Diego jury on Thursday told Microsoft Corp. to pay $1.52 billion for infringing patents underpinning the world's most popular digital music standard, known as MP3.
The verdict, one of the largest patent awards on record, could open other technology companies to massive liability.
Virtually every portable digital music player uses MP3 technology to read music files, including Apple Inc.'s iPod. The format is also used in computer desktop software such as Microsoft's Windows Media Player, RealNetworks' Real Player and Apple's iTunes.
"Anybody who uses the MP3 standard would be subject to the same arguments," said John Desmarais of Kirkland & Ellis in New York.
Desmarais represented the winner in the case, Alcatel-Lucent. The French telecommunications equipment giant owns patents for compressing music files developed by Bell Labs, a unit of Lucent Technologies Inc., which Alcatel acquired last year.
Alcatel convinced the jury that Bell Labs was the first to develop the fundamental technology for compressing music files that would become the basis for the MP3 format.
Alcatel's executives "have to have stars in their eyes about how much they can extract," said Mark Radcliffe, a Silicon Valley intellectual property attorney at Gray Cary Ware & Freidenrich.
Microsoft said it would petition the judge to reduce or set aside the verdict.
"We don't think that there is any realistic chance of this verdict being sustained through ultimate review by the courts," Microsoft deputy general counsel Tom Burt said.
Microsoft had argued in the case that it protected itself by paying $16 million in royalties to Germany's Fraunhofer Institute, which is credited with developing the MP3 audio-compression technology.
More than a hundred companies have paid Fraunhofer licensing fees to protect themselves against a lawsuit. Among them are Apple, Hewlett-Packard Co., Toshiba Corp., Intel Corp., Bang & Olufsen, RealNetworks and Yahoo Inc.
Microsoft argued during the trial that just one of the licensees paid Alcatel a licensing fee of $1,450.
Jennifer Urban, director of the Intellectual Property Clinic at USC, said the case illustrated one of the largest fears for technology companies.
"Companies have long been worried that there are patents out there that they may not know about that someone could bring back and sue them over, over some kind of foundational technology that everybody uses," Urban said. "Microsoft has had that worry made real to them to the tune of $1.52 billion."
