Judge Rules Against Microsoft in MP3 Case 

This week, a federal judge in San Diego issued a ruling against Microsoft in its Alcatel Lucent patent infringement case. A jury had already found that Microsoft infringed on two Alcatel Lucent patents related to the MP3 format and fined the company $1.5 billion. In a parallel part of the case, Judge Rudi Brewster had heard five defenses from Microsoft. This week, he ruled against Microsoft on four of them. A ruling on the fifth defense is expected soon.

"Lucent is the sole owner of the MP3 patents," the judge wrote in his ruling. "Microsoft is not entitled to any intervening rights." Although Judge Brewster wasn't in a position to reverse the jury's ruling, he might have lowered the jury imposed fine if he had found in favor of Microsoft in any of the defenses.

Microsoft said it will ask the court to review the verdict but is waiting for Judge Brewster's ruling on the fifth defense submission which involves procedural issues related to Alcatel Lucent's patents. A spokesperson for Alcatel Lucent believes that this week's ruling paves the way for Judge Brewster to render a final judgment on the jury's verdict.

The Alcatel Lucent patent has a wide range of implications for many digital music companies such as Apple Computer and RealNetworks. Microsoft argued that Alcatel Lucent's MP3 patents are invalid because Alcatel Lucent jointly developed the MP3 format with several other companies including the Fraunhofer Institute for Integrated Circuits (IIS) in Germany. "Alcatel Lucent," Microsoft said, "licensed the MP3 format from the Fraunhofer Institute and shouldn't be able to claim any patent ownership." Microsoft also noted that it paid $16 million to the Fraunhofer Institute to license the MP3 format which should have shielded the company from any patent infringement charges.

In a separate but obviously related case, Microsoft sued Alcatel Lucent in February for infringing on the software giant's computer and phone systems patents. The US International Trade Commission recently agreed to investigate Microsoft's complaint.

Google Testing New Online Ads 

This week Google expanded its testing of pay-per-action advertisements, an alternative to the pay-per-click model that the company now uses. Unlike the pay-per-click model, advertisers are charged for pay-per-action ads only when a user goes on to perform a specific action after clicking an ad, such as purchasing a product or completing an online form. Google said that the new ad model could help prevent click fraud, which is a common problem with the older model.

A limited beta of the pay-per-action ad model is now available to United States based Google AdWords customers. "You'll only pay when a user clicks on your ad, visits your site, and completes your desired action," Google's Web site explains. Pay-per-action ads provide a new pricing model that extends your reach and allows you to pay only when a defined action is completed on your site.

Google isn't the first company to test pay-per-action ads, but as the online ad market leader, Google's testing of this model is the first step toward making it a mainstream online revenue generator. During this test period Google isn't deploying pay-per-action ads on its high profile search site, but presumably the company will switch to pay-per-action ads at least partially sometime in the future.

Google currently controls about 56 percent of the US search market compared with 20.7 percent for Yahoo and 9.6 percent for Microsoft. Google's revenues in fiscal 2006 were more than $10'6 billion with about $10.5 billion coming from online ads.