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Since 1st March, 1999
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Microsoft fined $1bn for MP3 breach

New York, Feb. 23 (Reuters): A US federal jury found that Microsoft Corp. infringed audio patents held by Alcatel-Lucent and should pay $1.52 billion in damages, the number one software maker said yesterday.

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 iPod and iTunes.

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

He said other companies that Alcatel-Lucent could go after include MP3 player makers Sony Corp., Creative Technology Ltd. and music service provider Napster Inc..

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 said.

“Patent cases also tend to drag through the appeals process so this may not be the final judgment. We observe Microsoft has 10 counterclaims pending, perhaps implying some eventual negotiated settlement,”

“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,” Tom Burt, Microsoft’s deputy general counsel, said.

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