AlCATEL -LUCENT v. Microsoft 2003 - 2007

1. AlCATEL-LUCENT v. Microsoft2003 - 2007 Samuel Zats, IEOR 190G, April 9, 2008

2. Lucent Technologies V. • Founded in September 30, 1996 • Spun off from AT&T (Western Electric and Bell Labs) • Provides end-to-end solutions to deliver voice, data, and video communication • One of largest R&D powerhouses • December 1, 2006 – Lucent merges with Alcatel of Paris, France to form ‘Alcatel-Lucent’

3. Microsoft V. • Founded in April 4, 1975 • Software corporation which develops, manufactures, licenses, and supports range of products for computing devices. • Best-selling product: Microsoft Windows operating systems • Windows incorporates hundreds of applications, software packages, and features

4. The Technology V. • Late 1980’s, Inventors James Johnston and Joseph Hall (Bell Labs, division of AT&T) • Quantizing noise – approximation of continuous range by values by relatively small set of discrete values. • Invented method and apparatus to produce quantized audio signal using interpolated scale factor. Advantage - Data compression – Same or similar signal can be represented with less data

5. The Patents V. • Filed: Dec 1988 • Assignee: Bell Laboratories • U.S. Patent No. 5,341,457, Perceptual Coding of Audio Signals, to Joseph L. Hall and James D. Johnston (Dec 1988) • U.S. Reissue Patent No. RE39,080, Rate loop processor for perceptual encoder/decoder, to James D. Johnston (Dec 1988, Reissued Sep 1994)

6. Patent 5,341,457 V. A technique for the masking of quantizing noise in the coding of audio signals is adapted to include geometric interpolation between the thresholds for a tone masking noise and for noise masking a tone, in order to reduce use of bit-rate capability where it is not necessary for transparent or high quality. The technique is usable with the types of channel coding known as "noiseless" or Huffman coding and with variable radix packing. The stereophonic embodiment eliminates redundancies in the sum and difference signals, so that the stereo coding uses significantly less than twice the bit rate of the comparable monaural signal. The technique can be used both in transmission of signals and in recording for reproduction, particularly recording and reproduction of music. Compatibility with the ISDN transmission rates known as 1 B, 2 B and 3 B rates has been achieved.

7. Patent RE39,080 V. A method and apparatus for quantizing audio signals is disclosed which advantageously produces a quantized audio signal which can be encoded within an acceptable range. Advantageously, the quantizer uses a scale factor which is interpolated between a threshold based on the calculated threshold of hearing at a given frequency and the absolute threshold of hearing at the same frequency.

8. The Case V. • In 2003, Lucent files suit against Gateway, Dell, and eventually Microsoft in U.S. District Court, San Diego, CA. • Claim: Infringed two patents developed by Bell Labs in MP3 compression and playback within Microsoft Windows Media Player • Sought 0.5% royalty of total Windows computers sold

9. The Case V. • Microsoft claims: • Received license for MP3 technology from Fraunhofer Institute (Bell Lab’s parent research organization) for flat $17 million. • Loop processor not applicable for WMP application. • 0.5% rate exorbitant! “Only one of 10,000 features”

10. The Results V. • Ruling agreed that patents were developed by Bell Labs before joining with Fraunhofer to create MP3 • Rights to patents exceeded value of $17 million paid for license • February 22, 2007, Alcatel-Lucent awarded record $1.5 billion in damages from Microsoft. Jury unable to find ‘willful’ infringement for $4.5 billion damages. • August 6, 2007, Microsoft granted retrial. Verdict overturned based on insufficient evidence by Judge Rudi Brewster.