Microsoft was ordered last night to pay more than $1.5 billion (£765 million) to Alcatel Lucent after losing a legal battle with the French technology company over the rights to use the popular MP3 format for digital music.

The ruling, by a federal jury in San Diego, California, could have big implications for the digital music industry.

The jury decided that Microsoft infringed two Alcatel patents in using the MP3 file format for playing digital music on its Windows Media Player device. The jury found that Alcatel is entitled to more than $759 million for each of the patents found to be infringed. The landmark decision was reached after a week of deliberation at the end of a 12-day trial.

Microsoft reacted angrily to the decision, however, and vowed to fight payment of the $1.5 billion penalty while leaving the door open to appeal against the judgment.

Tom Burt, Microsoft’s deputy general counsel, said that the verdict was not supported by the facts of the case. He said that Microsoft had already paid a far smaller sum for the rights to use MP3 to Fraunhofer, the German research centre, which claims to hold patents for the technology.

Mr Burt said: “Like hundreds of other companies large and small, we believe that we properly licensed MP3 technology from its industry-recognised licensor, Fraunhofer. The damages award seems particularly outrageous when you consider we paid Fraunhofer only $16 million to license this.”

There are now fears that Alcatel will use the ruling to pursue similar cases against hundreds of companies that bought the right to use MP3 technology from Fraunhofer.

Scott Kessler, of the Standard & Poor’s ratings agency, said: “This potentially has some pretty wide implications.” It may lead some businesses to seek alternatives to MP3 and make others deal directly with Alcatel, he said, and it could take years to get a definitive ruling on whether Alcatel owns MP3.

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