Lucent Technologies, a "network technology" company is claiming that Microsoft has infringed upon their patent for an MPEG-2 decoder that is used by the Xbox 360 in certain video functions. Lucent claims they filed the patent in 1993, and that Microsoft is in violation.
In addition to suing the console manufacturer, Lucent has also demanded that the Xbox 360 be removed from the market – which is very unlikely.
It is most likely that the two parties will settle out of court, but this may turn into a very interesting case. XboxSpace will keep you posted on the latest news in the case as it becomes available.