How Microsoft's Big MP3 Patent Loss Could Screw Everyone Else

[joepic]

When Microsoft lost the biggest patent case ever last week and Alcatel-Lucent scored a cool $1.5 billion (with further cases pending) for technically now owning the MP3 patents so important to so much of the world, some might have cheered. Not Microsoft's competitors and partners, though, who alike are now facing huge bills themselves.

You see, originally Microsoft licensed the MP3 technology from Fraunhofer in 1989, but Alcatel-Lucent has (successfully) argued that their patent backdates to 1988, so that deal is invalid. Now the rub: Everyone else in the world who deals in MP3, and there are quite a few of them (Apple, being the ironic one here), had assumed that the license from Fraunhofer was all they needed, too. Thus the ruling against Microsoft is a ruling against the entire MP3-profiteering world.

Microsoft is appealing the ruling, but if it is upheld then Alcatel-Lucent could be calling in a lot of now technically owed debts

[DVWannaB]

Interesting bit of news. One wonders if M$ and others did this because of an honest mistake or what the sinical side of me suspects that M$ "thought" they owned it and could do whatever they wanted with it. The thing is, if they "thought" they owned it and could do whatever, maybe they thought they had crossed al the Ts and dotted all the Is. The business is so predatory that anything is possible here including a willingness to do whatever because you think you can get away with it.

[oldandinthe way]

There is a strong incentive for Alcatel-Lucent to settle with Microsoft rather than wait the results of the appeal.

This big settlement is only 15 cents a share for Microsoft and a reduced amount would be of minimal affect to Microsoft. But for Alcatel-Lucent an MS settlement would pretty well cement their ability to collect from the rest of the world.

The fans of Apple and other players might hope that Microsoft gets stubborn because they are the ones who have significant potential losses.

[tekkieman]

However, this could also be a good thing. There are alternatives such as ogg vorbis. This might be an opportunity in disguise. Remember when GIF started flexing its muscle? Where are they now?

[TwistedLincoln]

However, this could also be a good thing. There are alternatives such as ogg vorbis. This might be an opportunity in disguise. Remember when GIF started flexing its muscle? Where are they now?

I agree completely. A few months ago I started re-converting all of my music to OGG Vorbis instead of MP3. It really is a better quality codec.

As for the patent case, shouldn't there be some kinds of limitations regarding these suits? As much as I dislike Microsoft's business practices, it seems insane that a company could wait almost 20 years before claiming back-owed licensing fees from every customer of a totally seperate entity. If Alcatel-Lucent is successful in such a matter, where does it end? Can end users of MP3's be sued because they encoded their CD's using an unlicensed encoder?

Fraunhofer has always been fairly liberal (as proprietary file formats go, anyway) regarding their licenses. If Alcatel-Lucent decides to demand super-high royalties, is there anything to stop them?

[oldandinthe way]

Alcatel-Lucent includes the old Bell Labs. Thousands of patents. Given the French American combination is a disaster, litigation will probably be their principal product in the future.

American Technology (albeit obsolete) and the French charm, how can you resist.

[mats.hogberg]

Well, I got my lame exe carefully backed up...

/Mats

[adam]

One wonders if M$ and others did this because of an honest mistake or what the sinical side of me suspects that M$ "thought" they owned it and could do whatever they wanted with it. The thing is, if they "thought" they owned it and could do whatever, maybe they thought they had crossed al the Ts and dotted all the Is. The business is so predatory that anything is possible here including a willingness to do whatever because you think you can get away with it.

One of the issues presented to the jury was whether MS willfully infringed the patents, and the jury found that they did not. If they had acted willfully than the damages would have been multipled x3. Ouch. Licensing mp3 technology from Fraunhofer has always been the industry standard. Its what every company has always done because it was believed to be the only license agreement needed. This ruling has caught pretty much everyone off guard.

Basically what happened is that Bell Laboratories and Fraunhofer "co-developed" mp3 technologies and a good number of patents arose out of this. The industry consensus has always been that Bell and Fraunhofer developed all of this patented technology "in conjunction" with each other, giving Fraunhofer the right to license the technology. This ruling held that in regards to two specific patents, of the many involved, the covered technology was not done "in conjunction" with Fraunhofer but rather was exclusively done by Bell. This means that the technology covered by these two patents could only have been licensed from Bell, which no one in the industry has ever done and Bell (actually they became Lucent and then were bought by Alcatel and are now Alcatel-Lucent) has not said anything about it until the filing of this suit. Microsoft's argument was of course that the technology was co-created so it was proper to license it from Fraunhofer, and further that one of the subject patents wasn't even a part of mp3 that they needed to have a license for. The jury disagreed. The thing with patents is that it doesn't matter if you meant to violate the patent. If Bell really did hold the exclusive right to license these two individual aspects of the mp3 format than the bottom line is that Microsoft would have been paying them royalties all these years, whether MS reasonably should have realized it or not. So now that's what they have to do, only the measure used to calculate these royalties was about as broad as could possibly have been used. That alone is a major issue of contention.

I think the only reason that Bell/Lucent waited sooooo long to raise this issue was because the suit was brought to light by the buyout from Alcatel. I guess when that happened last year someone from Alcatel looked at this and saw an opportunity. I bet that person just got a big raise.

The appeal is going to take a long time. Many in the patent/legal field feel that the ruling will surely be overturned or at least that the damages will be substantially reduced. But if the judgment stands than everyone else that licensed mp3 technology is a potential defendant.

[dnix71]

Toast is toast if this is upheld. They have always been kind of anal about paying Franhoefer. You can't do anything with an mp3 in Toast on a Mac unless you buy the "Jam" license.

Quicktime should be okay. They never supported mp3 audio.

Dvd movies are only mp1 and mp2 audio, so there's no money to be made suing someone there.

I don't see where LAME should be in trouble. The open source stuff is a reverse engineer backward compatable hack. That's perfectly legal.

It would make hardware makers think twice though. My dvr is mp4 video with mp3 audio. Maybe mp4 audio will become the next default standard just to avoid trouble.

[Tom Saurus]

Could this ruling affect Divx Author and Tmpgenc DVD Author 3? I notice when I put my mpeg2 files into Divx Author it re-encodes the audio to the mp3 format.

[Jeremiah58]

I wouldn't know about a software patent, but normal technical patent's rights last for 20 years, so shouldn't it be expired in 2008?

[SCDVD]

Does Franhoefer have any liability to Microsoft and others? If they executed a license that they didn't have the right to execute, doesn't Microsoft et al have recourse against them? Maybe it isn't a good parallel but you can't steal a car and sell it with impunity. The stiffed buyer as well as the rightful owner have recourse against you.

[Cornucopia]

...Quicktime should be okay. They never supported mp3 audio...

Quicktime has always supported playback of mp3, just not encoding (without a 3rd party component plugin). Who's to say these patents are specifically for encoding and not decoding (or the reverse)?

BTW, I don't remember ever having any difficulty with Toast and mp3s...

Scott

[InXess]

My thoughts SCDVD! If Fraunhofer has licenced and collected on the patents they claimed to have owned then they are as much , or more, at fault as Microsoft. If they misrepresented to MS, during licensing talks, ownership issues and failed to disclose cooperative nature of the development then this at least should be considered negligent if not outright fraudulent. What I don't understand is that Fraunhofer has collected undue fees that should have been transferred to or shared with Alcatel. It looks like MS acted in good faith, unless proven otherwise, by licensing the technology and PAYING for it. This is a major screw-up and I just don't see how this decision could hold based on what's presented.

[oldandinthe way]

Most of the Alcatel's claims were denied. Fraunhofer licensed the patents they held.

You can build a product that does one thing and infringes hundreds of patents.

This decision can stand.

[adam]

I wouldn't know about a software patent, but normal technical patent's rights last for 20 years, so shouldn't it be expired in 2008?

Alcatel-Lucent is suing for past royalties that allegedly should have been paid over the years. They can do this even after the patents expire.

Does Franhoefer have any liability to Microsoft and others? If they executed a license that they didn't have the right to execute, doesn't Microsoft et al have recourse against them?

Here is the jist of what happened. Bell and Franhoefer collaborated on a series of experiments. When the collaboration was done they each walked away with a large number of patents. For the most part, Franhoefer had all of the "mp3" patents (by that I mean the core technologies that were incorporated into the mp3 format) and Bell had other general audio patents.

Bell's case rested on two patents. One of those patents they clearly own, as it was filed for when the collaboration with Franhoefer ended. But up until this case no one thought this patent covered technology used in mp3. MS's argument is that it is just completely unrelated to the format, and that's why no one ever bothered to license it for use with mp3. The jury felt that MS's use of mp3 did in fact infringe on this patent. The other patent that Bell was suing under was actually filed for and owned by Franhoefer all of these years. Bell presented evidence that this technology was actually something that they came up with prior to the collaboration with Franhoefer. They effectively backdated the technology covered in the Franhoefer patent and showed that it should have been filed by Bell alone instead. That is the thing with patents, it is awarded to the first person to invent not the first person to file. There are various ways you can be barred from coming in after the fact and essentially stealing a patent, as Bell did, but it is possible. If you can prove you developed the technology first you can invalidate another person's patent and take it as your own instead. That is what happened here. So Franhoefer didn't deceive anyone and they really had no way of knowing this would happen. They thought they owned all of the patents relevant to mp3, and so did the rest of the industry.

Franhoefer can be held liable for some of these damages, and that is actually something that was pointed out at trial to show how ridiculous the damage award was. It was noted that Franhoefer could actually end up being liable to Bell/Alcatel-Lucent for more than they ever received in TOTAL licensing fees from Microsoft. Franhoefer holds many many patents on techology which they license to companies wanting to use mp3. Yet they are going pay out more than what they earned on all of these patents, just to pay royalties on a single patent that should have been granted to Bell instead. It really doesn't make sense and the only reason it happened like that is because MS is so huge and the jury held them accountable for damages on each and every computer they ever made, yet Franhoefer clearly did not license their technology this way. They were paid a one time sum of 16 Million by MS. Franhoefer basically pioneered the mp3 format and made it a commercially viable and even lucrative technology...and now they very well may up losing money on it.

[InXess]

It really doesn't make sense and the only reason it happened like that is because MS is so huge and the jury held them accountable for damages on each and every computer they ever made, yet Franhoefer clearly did not license their technology this way. They were paid a one time sum of 16 Million by MS. Franhoefer basically pioneered the mp3 format and made it a commercially viable and even lucrative technology...and now they very well may up losing money on it.

No it doesn't.

Moreover:

Alcatel-Lucent argued that it held the rights to the technology because it was developed at Bell Laboratories, which later became part of Lucent. Alcatel bought Lucent last year. The company successfully argued that Microsoft infringed on the patents by including the digital music technology in its Windows operating system starting in 1998. The same technology later was used in Microsoft's Windows Media Player and is included in the Windows Vista operating system, which was released to the public last month.

Microsoft countered that it had properly licensed the technology from Germany's Fraunhofer Institute, which was involved with Bell Labs in developing aspects of the MP3 format. Only after Microsoft and other companies made licensing agreements with Fraunhofer did Alcatel-Lucent raise its claim, Microsoft argued.

"As a result of the verdict today, the jury determined the patents were developed by Bell Labs and not in conjunction" with Fraunhofer, said Joan Campion, a spokeswoman for Alcatel-Lucent. "We've made strong arguments supporting our view and we are pleased by the court's decision."

Alcatel-Lucent said it would ask for a larger judgment against Microsoft. The $1.52 billion in damages was determined by calculating 0.5 percent of all sales of computers equipped with Windows and lacking the proper licensing from mid-2003 through 2005. John Desmarais, Alcatel-Lucent's lead trial lawyer, said the company would ask that 2006 sales be included.

Burt said Microsoft not only would appeal the jury's findings of patent infringement but also would challenge the amount of the damages. He said it was improper to calculate damages based on the value of computer sales rather than the lesser value of sales of the Windows operating system. He also said that the jury improperly included overseas sales of computers in the calculations.

http://www.washingtonpost.com/wp-dyn/content/article/2007/02/22/AR2007022201144.html
http://www.iht.com/articles/2007/02/23/business/web-0223microsoft.php

Simply MS got unjustly hit due to the indemnification deal they had with Dell and Gateway. They deliver OS to Dell for $100 as a finished and standalone product but are forced to pay royalties on the whole PC which they have never manufactured

Most of the Alcatel's claims were denied.

Not true. All (but one claim) were upheld.

I think that there is a huge disparity between 16 mil original deal and 1.5 billion for infringement that wasn't MS fault. This has to go to appeal. This is yet another decision that was conceived by sick minds or US jurors. As Adam said this was only motivated by MS wealth.

Jurors instead of awarding Alcatel some or all (and a fine) of the money Frauhofer has collected decided to allow Alcatel to name its price retroactively. What a joke.
Now whose fault was that: MS that paid its dues or Bell Labs, Lucent and Alcatel for negligently not filing patent correction with US Patent Office or US courts in a timely fashion?

[thecoalman]

Remember when GIF started flexing its muscle? Where are they now?

:P Gif is far from dead and is still used quite extensively in web pages, there's no replacement. PNG comes the closest and now that IE7 supports alpha channels for PNG you'll probably see a shift to using them instead of GIF.

[lordsmurf]

This is a perfect example of how patents stifle technology and waste time and resources of society.

[thecoalman]

This is a perfect example of how patents stifle technology and waste time and resources of society.

I can agree with that somewhat such as the infamous "one-click" Amazon patent where obvious things are patented but on the other hand if you develop a piece of machinery or other tangible product you should expect to be protected. Otherwise what would be the point in building it in the first place.

[MOVIEGEEK]

I have to side with MS on this case because they got a license from Franhoefer in good faith,if Alcatel-Lucent wants compensation then they should go after Franhoefer.
But that's the way it is with trial lawyers...they always go after the one with the most money not always the one at fault.

[tekkieman]

Remember when GIF started flexing its muscle? Where are they now?

:P Gif is far from dead and is still used quite extensively in web pages, there's no replacement. PNG comes the closest and now that IE7 supports alpha channels for PNG you'll probably see a shift to using them instead of GIF.

I didn't say they were dead, but they are a has-been. And there is a replacement. PNG is a perfectly viable alternative regardless of whether or not MS supported it or not. The sooner we weed out the MS IE drag-n-drop, one-click wonder web developers the better.

Alternatives to GIF.
Alternatives to IE.
Alternatives to MP3.

Flash should be next.

[jagabo]

I love flash. It's so easy to block all SWF files. I haven't seen an animated ad in ages!

[lordsmurf]

The alternative to flash is to not annoy your site visitors by doing ABSOLUTELY NOTHING LIKE FLASH.

[thecoalman]

PNG is a perfectly viable alternative regardless of whether or not MS supported it or not.

When 80-90% of your audience is viewing your web page through a browser that doesn't support that type of transparent image I'd have to say it's not an alternative. I'm certainly not defending MS as lack of support for PNG using alpha channels has been one of the biggest complaints by webmasters for a long time. It's absolutely superior to GIF, it opens up a whole world of possibilties especially where you are using a fluid design but if your viewer isn't going to see anything but a ugly grey area where the transparency is supposed to be what's the point.

Gif isn't going anywhere for the forseeable future, a quick look at my server logs shows 50% of the people viewing my pages are still using IE6. I'd imagine the same is true for most sites where the visitors are your average joe. Until that drops to around 10% I'll be sticking with gif. 3 or 4 years from now it will be a different story or if IE6 drops off the face of the earth but I wouldn't hold your breath waiting for that.

[thecoalman]

The alternative to flash is to not annoy your site visitors by doing ABSOLUTELY NOTHING LIKE FLASH.

Flash has it's place but unfortuntely it's been hijacked by ads.... I use it for some parts of a site. EX: I used it for a quiz as the answers, wrong answer and you get a warning buzzer and some text, right answer.... ding ding ding.... The quiz was supposed to be in fun to begin with so it fits in well.

[tekkieman]

The alternative to flash is to not annoy your site visitors by doing ABSOLUTELY NOTHING LIKE FLASH.

It's so easy to block all SWF files.

And it is easy to block malware/spyware/viruses/popups, but the fact that you need to add software to remove something that you don't want suggests that the something you don't want shouldn't be there in the first place.

[SCDVD]

This is a discussion thread on Microsoft's MP3 patent loss, not a flash critique. Please feel free to open a flash critique thread and flail away but don't hijack this thread.

[tekkieman]

This is a discussion thread on Microsoft's MP3 patent loss, not a flash critique. Please feel free to open a flash critique thread and flail away but don't hijack this thread.

If that's the case, why not lock the thread after the first post? How much more can you say? They lost. They'll appeal. Come back later. The topic begs discussion on software patents and use of "standards" in general.

There are alternatives to MP3 if licensing MP3 becomes such a big (ambiguous) issue. There are also alternatives to other "standards".

The conversation may have wandered a bit, but has not been "hijacked".

[oldandinthe way]

We the Alcatel vs Microsoft battle continues.

Judge in same court has thrown out Alcatel's suit on speech recognition patents.

More action to come - video encoding, user interface. There are a total of 6 different actions.

We'll be serving freedom fries again.