In case anyone still needed confirmation, the recent court decision against Microsoft (see, for instance, our coverage here) in the suit over fundamental patents on the MP3 audio compression scheme is yet another indication that the international patent system is rapidly collapsing. Whether you are a Microsoft fan or whether you take any court decision against the Giant of Redmond as an excuse for a party, the implications for the industry are still extremely grave.

In brief, when Microsoft included a media player in Windows, they chose to license the MP3 algorithm from its developers, but they apparently picked the wrong developers. There are several ways to interpret this, of course. Microsoft might have sincerely done a patent search, determined who the developers of MP3 were and licensed the patents in good faith. Or they might have done a search, shopped around, and taken the best price for a package of patents that appeared to protect them. Either is possible, and the jury deadlocked on whether Microsoft intentionally did what they did.

Either way, the issue is the same. Even Microsoft, with its essentially infinite legal resources, was unable to find an unambiguous patent-holder for MP3. The company licensed patents that were granted to Fraunhofer, a research laboratory that joined the joint development work on MP3 early in the game. It chose not to license patents from what was then Lucent Technologies, which held many of the patents originally granted to Bell Labs. After the media player was deployed, Alcatel-Lucent, which now holds the Bell Labs patents, sued.

No one seems to dispute that the fundamental concepts that led to MP3 and some of the specific techniques in implementing it were developed at Bell Labs. The problem—a fundamental problem in the patent system—is combing out which claims, in which patents, actually cover the development and use of MP3 players. The problem is fundamental because it is based in the reality that virtually all “invention” today is incremental. No one sits by herself in a dark room with a really good cup of tea and invents audio compression from nothing more than Fourier’s mathematics. Teams work together, share results with other teams, and make incremental advances. This is true of any development, but it is particularly true of standards that cross corporate boundaries.

So what now? Microsoft will no doubt appeal, and my guess is that they will at least get the award reduced. There will be a brief period of muttering and grumbling, and someone in the US Congress will probably hold hearings, concluding that we really ought to do something someday. But nothing will be done. The system will remain a playing field in which large corporations use their patent portfolios to break into new markets and suppress competition.

As one commentator observed of the MP3 dispute (reported in the New York Times here,) the real problem for Microsoft is not that they licensed the wrong patents. It is that Microsoft began filing for patents of its own relatively recently, and doesn’t have a huge war chest of grants to use as a bargaining weapon. So they are vulnerable to claims from others. That is no way to run intellectual property law.