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If it's illegal for ubuntu to use their current method have any lawsuits been brought against them, or I'd even guess dell?

It's not illegal at all. People are getting scared by someone coming along and demanding money, so they assume it's illegal.

Roll on 2010.

Are you scared of being sued, hm..? And so you are worried about using Ubuntu and use something else instead..?
Let me remind you: Linux as a whole is said (sic) to infringe on all sort of things, e.g. the MS patents and heaps of stuff which we even don't know about yet. So it is save to say that it is not save to use Linux all together by that logic. Accordingly, you will have to use Windows instead... no wait, MS is being over patents, too! Hey, just don't bother about it, nobody is suing you and your little Ubuntu desktop.

Codec Buddy points to the fluendo site for codecs, most of which are commercial (royalties paid when you purchase it) except for the mp3 license that they paid a fee to obtain for free distribution, as an admirable gift to the community and my hat is off to them for that. But then the fluendo codecs only work with gstreamer, which isn't the only media backend.

The patent holders of mp3 have already said that they won't pursue violations for individual users of their codec, but they reserve the right to go after unlicensed distributors. That patent is almost up anyways, but then when you consider that Microsoft was sued for $1B for violating the mp3 patent, despite the fact they paid a licensing fee, you can understand where US-based companies may be concerned about patents.

Dell was recently named in a lawsuit (among other manufacturers) for simply distributing PC's with Windows since they contain media player, which apparently violates a patent that some dork of a company received for playlists. Microsoft is also being sued, but these guys seem to be trying to get a piece of everyone.

So yes, Dell et al. are vulnerable to lawsuits as well based on the software they distribute. When it comes to the servers loaded with SLES or RHEL, they have indemnity clauses in place with Novell and RH, but I highly suspect they have no such indemnity agreements in place with Canonical, so Dell would be likely to run as fast as they can from Ubuntu *if* a patent threat ever came up.

At the end of the day, this legal mess really only exists in the US, but it impacts any company wanting to do commercial business in the US. Which is, pretty much, most of them. But while the "free" distros can generally get away with things, the commercially backed distros don't always have the same leeway.

As for Ubuntu, Canonical itself is based in the Isle of Man, so they barely have to pay taxes, let alone worry about US patent legislation.