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Microsoft Hit With $1.5 Billion in Damages

Microsoft on Thursday lost the first of six patent lawsuits brought by Paris-based telecom equipment maker Alcatel-Lucent , and a federal district court jury set damages at $1.5 billion.

The Redmond, Wash.-based software maker said the patents in question govern the conversion of audio into the digital MP3 file format on personal computers.

Alcatel-Lucent filed 15 patent claims against PC makers Gateway and Dell in 2003. Microsoft later agreed to replace those defendants, saying it got involved because the patents were closely tied to its Windows operating system.

The company said a judge threw out two of the patent claims, and scheduled six separate trials to consider the remaining disputes. The case that was just decided went to court in San Diego on Jan. 29.

"We think this verdict is completely unsupported by the law or the facts," said Tom Burt, a Microsoft deputy general counsel. "We believe that we properly licensed MP3 technology from its industry recognized licenser - Fraunhofer. The damages award seems particularly outrageous when you consider we paid Fraunhofer only $16 million to license this technology."

In response to the verdict, Alcatel-Lucent spokeswoman Mary Lou Ambrus said, "We've made strong arguments supporting our view, and we are pleased with the court's decision."

Shares of Microsoft slipped 3 cents to close at $29.32 on the Nasdaq Stock Market. Alcatel-Lucent's stock added 10 cents to end the day at $13.17 on the New York Stock Exchange.

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