Mumbai: A US federal judge in San Diego has reversed an earlier jury decision ordering Microsoft Corporation to pay phone company Alcatel-Lucent $1.5 billion (£740 million) for infringing music patents.

The French telecom equipment maker, however, argues that the jury''s original $1.5 billion fine should have stood in MP3 patent case and that it will appeal the federal court decision.

The fine, imposed six months ago, was the largest ever handed down by a US jury in a patent infringement case. The ruling could yet have an effect on the wider digital music market, analysts said.

The jury, which ruled that Microsoft''s Media Player software infringed on two Alcatel patents, had imposed a $1.5 billion (£740 million) fine on Microsoft in March.

Both patents regarded how audio was converted into MP3 files.

Microsoft said the reversal of the order was a "victory for consumers" while Alcatel said it would appeal against the decision.

"This reversal of the judge''s own pre-trial and post-trial rulings is shocking and disturbing," a spokesperson for Alcatel-Lucent said.

Judge Rudi Brewster ruled that Microsoft had not breached patent laws because Microsoft had already paid German firm Fraunhofer $16 million to use one of the patents in question.

The judge also rejected the argument that the music sales helped Microsoft gain 0.5 per cent of its global personal computer sales since 2003.

The Windows Media Player, part of Microsoft''s basic operating system software, plays audio files using the MP3 standard, the most common method of distributing music on the Internet.

The case centered on origins of the MP3 standard, a digital audio encoding format that was developed almost two decades ago.

The ruling could have an impact on Apple, the dominant maker of digital music hardware and software, as well as hundreds of other companies that use the standard.

Microsoft and others have licensed MP3 - not from Alcatel-Lucent, but from a consortium led by the Fraunhofer Institute, a large German research organisation that was involved, along with the French electronics company Thomson and Bell Laboratories, in the format''s development.

The current case turns on two patents that Alcatel-Lucent says were developed by Bell Labs, a forebear of Lucent, before it joined with Fraunhofer to develop MP3.