Wednesday 5 March 2008

Microsoft reduces provision for damages in Alcatel-Lucent suit

Bloomberg is reporting that Microsoft has apparently reduced its provisions for a potential damages claim in its long-running suit with Alcatel-Lucent concerning patents relating to audio file compression. The story in Bloomberg is not complete, but reading between the lines it seems that the story refers to the recent judgment issued against Microsoft by a jury in San Diego which awarded USD 1.52 Billion against Microsoft [Bloomberg says USD 2 Billion]. Had Microsoft been found guilty of "willful infringement" then these damage claims could have been increased by up to three times. In other words, Microsoft needed to make provision for a maximum claim of USD 4.5 Billion.

However, a decision by the US Court of Appeals for the Federal Circuit last summer revised the standard for establishing willful patent infringement. In re Seagate Technology the Court of Appeal decided that triple damages would only be awarded if there was clear evdience of objective recklessness in infringing the patent.

Clearly Microsoft do not think that they have been reckless in infringing the Alcatel-Lucent patent - and indeed are defending themselves in the San Diego trial. So instead of making a provision of USD 4,5 Billion in their accounts, they only need to make a provision of USD 1,5 Billion. A massive saving of USD 3 Billion (which Bloomberg states is USD 4 Billion and points out is 41c a share).

Microsoft have already issued a statement stating that they will be appealing and pointing out that they have already taken a licence to the German Fraunhofer Institute's MP3 patent portfolio.

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