Patent Insanity in the USA Continues as Jury Awards Record MP3 Verdict

Only one word accurately defines the current state of US patent law and its judicial consequences – and that word is “comedy”. Take a look at the newest record jury award of a preposterous $1.5 billion for some insignificant alleged Microsoft violation of some obscure alleged MP3 precursor patent of Lucent-Alcatel, a patent which is allegedly traced back to the initial witchly stirrings of a codec whose ingredients were initially cooked with the mice and the rats in the dungeon pots of Bell Laboratories.

As reported by Saul Hansell in the New York Times in his article MP3 Patents in Upheaval After Verdict, what is particularly hilarious is the standard for the measure of damages in this case:

“They told the jury to measure damages, not on the value to Microsoft of one of the 10,000 features in Windows, but on the value of the entire computer.”

Alcatel argued that the damages should be based on a royalty of 0.5 percent of the total value of Windows computers sold.

Ha. Ha. Madness. That is Alice in Wonderland run wild in law. It is jurisprudence by imbeciles.

0.5 percent of the value of the entire computer as the standard of damages? What legal and judicial glue-sniffing permitted that bizarre interpretation to surface and prevail in the courts?

Verily, we say unto you, that patent law and its judicial application in the United States in the modern digital era seems to have become the domain of many educated simpletons lost in a sea of jurisprudence which they do not fathom.

The irony of the jury verdict is that Microsoft has for years been dutifully paying royalties for use of the MP3 codec, as Hansell writes:

Microsoft and others have licensed MP3 — not from Alcatel-Lucent, but from a consortium led by the Fraunhofer Institute, a large German research organization that was involved, along with the French electronics company Thomson and Bell Labs, in the format’s development.

The current case turns on two patents that Alcatel claims were developed by Bell Labs before it joined with Fraunhofer to develop MP3.

As written at Wired News by Eliot Van Buskirk:

It’s not immediately clear what the implications of Thursday’s judgment are for other MP3 licensees, which include hundreds of companies who already pay royalties to Fraunhofer/Thomson — previously accepted as the only licensor of MP3 technology.

Microsoft has 1.52 billion reasons to paint this as a disaster, not only for itself but for the entire industry. So says Tom Burt, Microsoft’s corporate vice president and deputy general counsel.

“If this verdict is allowed to stand, companies will have to make hard choices about whether to continue to offer MP3 technology,” he said in a statement sent to Wired News late Thursday. Licensees would have to “pay twice for the same technology — one standard charge to the industry-recognized licensee of MP3 (Fraunhofer/Thomson), and again, an unprecedented amount to Alcatel-Lucent.”

Van Buskirk writes further as follows:

Although Thomson is widely accepted as the licensor of Fraunhofer’s MP3 codec, Alcatel-Lucent holds two MP3-related patents upheld by a jury yesterday: 5341457 and RE39080. (Neither patent is included in Fraunhofer/Thomson’s suite.)

This confusing state of affairs started in the 1980s, when AT&T’s Bell Labs and Fraunhofer started developing the codec under an agreement that both companies would be able to license aspects of MP3 developed during the collaboration. AT&T, which later became Alcatel-Lucent, spun Fraunhofer off in 1996, which then began licensing MP3 technology through Thomson.

A source close to the matter said when Lucent hit a rough patch financially after the dot-com bubble exploded, the company started looking to its patents as a means of pulling itself back into the black. Microsoft actually commenced the lawsuit that led to Thursday’s verdict when it asked a judge to block Lucent’s patent claims in order to protect its partners Dell and Gateway. After Alcatel bought Lucent last year, some onlookers thought the matter might end there. But Alcatel, sensing that there might be gold in those patents, decided to keep pursuing the suits. Audio is just the beginning; Alcatel-Lucent’s patents for video, speech and user interface are still being contested.

In an e-mail to Wired News, IDC analyst Susan Kevorkian said she believes Alcatel-Lucent may have a legitimate claim to some of the MP3 royalties, but the proper target should be Frauenhofer and not its licensees.

“It looks like there’s a flaw in the way that MP3 technology is being licensed, and that Alcatel-Lucent should have been cut into the licensing revenue from the beginning,” she said. “If this is the case, then the dispute is between Alcatel-Lucent and Fraunhofer (and other contributors to the MP3 patent), and not between Alcatel-Lucent and MP3 licensees, including Microsoft.”

It’s hard to say which companies will be affected by Thursday’s award. Those wishing to use MP3 have traditionally been subject to two sets of rules for using the codec: one for encoding, and another for playback. If the two patents upheld by the jury today apply only to products that encode audio into MP3s, the ruling would affect only companies such as Apple, Microsoft, Yahoo and others offering software that lets consumers make their own MP3 files.

If they cover playback too, every company involved even tangentially with MP3 stands to lose big. Microsoft’s licensing bill for Thomson/Fraunhofer was only $16 million — about 1 percent of what it now owes Alcatel-Lucent. A significant number of the companies who offer MP3 encoders and/or players could face a similar judgment, with many being driven out of business.”

We repeat our message, previously broadcast on LawPundit, to the Rip van Winkles who currently populate the US Congress: when are you going to put a stop to this patent madness? when will there be an end to these absurd judgments? when will clueless judges and juries stop sticking their noses into technologies which they do not understand? when will there be an end to outlandish beyond-the-pale verdicts being issued in cases for which the jury system was never designed? when will an absurd intellectual property law run wild stop destroying the healthy balance of a capitalist system based on rewarding those who do rather than those who steal from those who are doing just because stupid intellectual property laws permit them to do so?

How can there be a respect for the law – the law – under these circumstances??

In a world where thieves are rewarded with billions – by the system – there can be no respect for the law, and it is small wonder that respect for the law is everywhere in decline. The little guy models his behavior after the big guys….

The sane man will retort to this whole intellectual property law mess with “patent – shmatent – burn, baby, burn – catch me if you can.