Alcatel can’t compete in digital music, so it sues its way to success instead

The jury has weighed in on the Alcatel-Microsoft case, forcing Microsoft to fork over $1.5 billion to Alcatel for violating two audio patents held by Lucent Technologies (which merged with Alcatel). Ironically, the patents cover standards for converting audio into the open MP3 format that spawned the digital music revolution back in the early 1990s. But the irony goes deeper.

While Lucent did have a hand in developing the MP3 format along with the Fraunhofer Institute in Germany in the 1980s, it never did anything to commercialize it. In fact, some readers may recall that Lucent actually developed and released a proprietary format to compete with MP3 in 1999. It called its format the Enhanced Perceptual Audio Coder (EPAC) and claimed it delivered superior audio quality. Lucent deemed MP3 to be too “insecure” to be commercially viable and assumed it would never fly so long as the music industry had its way. So it teamed up with Texas Instruments and a company called e.Digital to develop a digital music player that would comply with the recording industry’s secure digital music initiative (SDMI). Neither SDMI nor Lucent’s device went anywhere.

Since Lucent’s product went nowhere, and it missed the boat on MP3, Alcatel (which assumed ownership of Lucent’s patent portfolio when the companies merged) probably figured that the best way to cash in on digital music was to sue the companies that have actually worked hard to develop viable offerings. You see, waiting until companies like Microsoft have already made deep investments in MP3-related products and services maximizes the potential damages it can extract in an intellectual property case. Unfortunately, Alcatel won. And you can be pretty sure that Microsoft is just door one. Everyone company that uses MP3 technology today is potentially on Alcatel’s hitlist.