Judge: Microsoft doesn't owe Alcatel-Lucent $1.5B

In February 2007, a jury in U.S. District Court in San Diego determined Microsoft infringed on two patents that cover the encoding and decoding of audio into the digital MP3 format, a popular way to convert music from CDs into files on computers and vice versa.

Six months later, the judge who presided over the case, Rudi M. Brewster, vacated the ruling, saying Microsoft's Windows Media Player software does not infringe on one of the two patents in question.

Brewster, siding with Microsoft, also said the second patent is jointly owned by both Alcatel-Lucent and Fraunhofer Gesellschaft, a German company that Microsoft paid $16 million in exchange for use of the technology. Since Fraunhofer did not sue Microsoft, the Redmond, Wash.-based software maker was in the clear.

On Thursday, Judges Alan Lourie, William Bryson and Sharon Prost of the Court of Appeals for the Federal Circuit in Washington, D.C., upheld Brewster's decision.

"The Federal Circuit's ruling is a victory for consumers of digital music and a triumph for common sense in the patent system," said Tom Burt, a deputy general counsel for Microsoft, in a statement Thursday.

The MP3 patent claims were just two of 15 made by Lucent Technologies Inc. in 2003 against PC makers Gateway Inc. and Dell Inc. for technology developed by Bell Labs, Lucent's research arm.

Later that year, Microsoft added itself to the list of defendants, saying the patents were closely tied to its Windows operating system. France's Alcatel bought Lucent in 2006.

"We're disappointed with the court's decision on the matter. We'll review our options and see what steps we should take," said Alcatel-Lucent spokeswoman Mary Lou Ambrus. "It's too early to speculate really what those next steps might be."