Microsoft hit by Google move and $1.5bn suit

The pressure on Microsoft mounted yesterday as it lost the first of six patent lawsuits brought by Alcatel-Lucent, and Google launched a suite of business software aimed at challenging the supremacy of Microsoft Office.

A US federal jury found that Microsoft infringed audio patents held by Alcatel-Lucent and should pay $1.52bn (£780m) in damages. The Paris-based telecom equipment maker had accused the world's biggest software maker of infringing patents related to standards used for playing computer music, or MP3, files.

Microsoft said it planned to ask the trial judge to knock down the ruling and will appeal if necessary. It said the verdict was unsupported by the law or the facts.

Meanwhile, Google moved its tanks squarely on to Microsoft's lawn yesterday with the launch of the "premier edition" of Google Apps - the first software that Google has begun selling direct to users, instead of paying for it with advertising in the same way that it does with its internet search service.

Companies will pay $50 a year per employee, in exchange for email, word processing and spreadsheets, data storage and full technical support.

The software and documents reside on Google's web servers, representing a dramatic shift from Microsoft's more traditional approach of selling software for installation on individual personal computers - one which Google says will give employees greater flexibility to access and share documents.

The launch comes at a dangerous time for Microsoft, which is experimenting with a web-based version of Office called Microsoft Live, at the same time as trying to sell a new PC-based version of the Office suite, which includes the Word and Excel programs.

Analysts are split on whether Google or Microsoft will triumph if businesses switch wholesale to web-based software.

Erica Driver, an analyst at Forrester Research, said: "Google presents a very clear and present danger to Microsoft in the messaging and collaboration and office productivity tools market, even though Google is currently positioning Google Apps Premier Edition as more complementary than competitive to Microsoft Office."

Eric Schmidt, Google's chief executive, said he believed Google Apps premier edition would win "millions and millions" of users and was superior to Microsoft Live. "We can offer a more functional product for a lower price."

More than 100,000 small businesses are already using the existing free, advertising-supported Google Apps service, while hundreds of universities around the world are using a free version of the service that does not include any ads, Google officials said.

Potential Google Apps customers include retail store clerks, customer service phone operators and manufacturing workers - jobs where companies are often reluctant to equip staff with more expensive computer systems, said Dave Girouard, vice president of Google's business unit.