The MP3 imbroglio

When a few weeks ago I discussed the peculiar features of patent situation of MP3 and the general sense that the MP3 inventor, the Fraunhofer Society, and its licensee Thomson Electronics, left money on the table, I did not know that an astute player was already seeking to quantify and collect a large chunk of it.

On 22 February the US Federal Court in San Diego ruled against Microsoft and awarded Alcatel-Lucent, representing the Bell Labs, $1.52 billion in damages for infringement of MP3 patents filed by Bell Labs in the 1990s.

This is the largest amount ever awarded in an information technology patent infringement case. And, if the award is upheld, it will open a real flood of follow-up lawsuits and a torrent of money. For instance, should Apple be sued, as most analysts expect, it could be found liable for an even bigger amount – given its dominance of the musical downloads.

However, it is far from certain whether the San Diego judgement will be upheld on appeal, as the underlying patent situation appears quite complex (or some may even say, downright confused). Microsoft argued that it had a valid patent licence purchased (for a one-time payment of $16 million) from the Fraunhofer, the widely recognised designer of the MP3 standard. Thomson, which was not the party to the Microsoft–Fraunhofer agreement, declared that the Bell Labs patents were totally unrelated to its MP3 patents. And to make things even simpler, one of the Fraunhofer inventors worked for a time at Bell Labs (and one of the original developers of the Bell Labs patents now works for Microsoft).

From what I was able to understand, Bell Labs patents do not deal with MP3 but with a related technology, called MPEG-2 AAC, or Motion Picture Expert Group, Level 2 Advanced Audio Coding. It appears difficult to argue that two technologies are unrelated, given that the full name of MP3 is MPEG-1 and most specialists agree that MPEG-2 is built on the foundations of MPEG-1. Most commercial offerings, whether from Apple, Microsoft or Sony, combine both standards (MP3 for actual content, AAC for its encoding and decoding).

It beggars belief that the IP implications between the two technologies have not been exhaustively explored by legal departments of the companies concerned, which do not have a reputation for IP leniency – quite to the contrary – or by companies that filed patents or by the US Patent Office. Yet that appears to be the case.

At this point, two things are certain. First, the MP3 (and now MPEG2-AAC) story is far from over. Second, using internationally recognised ISO-approved standards is no longer a guarantee of avoiding IP litigation.