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RealNetworks sues Microsoft alleging monopoly of digital media
RACHEL KONRAD
Associated Press
Posted on Thu, Dec. 18, 2003


SAN JOSE, Calif. - RealNetworks Inc. filed an antitrust suit against Microsoft Corp. on Thursday, alleging that its competitor illegally monopolized the growing field of digital media by requiring every Windows user to take Microsoft's media player.

RealNetworks alleged that the software giant has violated state and federal antitrust laws, sold software at a loss to boost market share, and exploited its monopoly to restrict competition.

The Seattle-based digital media company said Microsoft "pursued a broad course of predatory conduct over a period of years by abusing its monopoly power, resulting in substantial lost revenue and business for RealNetworks."

Redmond, Wash.-based Microsoft called the lawsuit - the latest salvo in a bitter cross-town rivalry - "unfortunate."

"There is vibrant competition in this market, and Real Networks' own reported growth shows that they have thrived on Windows and many other operating system platforms," the company stated in an e-mail.

The lawsuit alleges that Microsoft, which builds the Windows operating system that controls more than 90 percent of the personal computers in the United States, "bullies" PC makers into installing its media player instead of rivals'. The company puts restrictions in its contracts so that PC makers that want to include Windows must also include media players and other software, the lawsuit said.

Microsoft forces Windows users to take Microsoft's media player, "whether they want it or not," to the exclusion of players made by RealNetworks or other competitors, RealNetworks alleges.

RealNetworks executives said Thursday they would seek more than $1 billion in lost business and injunctive relief. The lawsuit does not mention a specific amount in damages.

"While we much prefer competing in the market ... our board has made a carefully considered business decision to take this action to end Microsoft's illegal conduct and recover substantial damages on behalf of our shareholders," said RealNetworks chairman and chief executive Rob Glaser, who worked at Microsoft for a decade starting in 1983 before founding RealNetworks.

"We believe our business would be substantially larger today if Microsoft were playing by the rules," Glaser said.

RealNetworks filed the lawsuit against Microsoft in San Jose federal court because many of the witnesses who will testify live in Silicon Valley, said RealNetworks spokesman Greg Chiemingo.

The charges are similar to those brought by the European Commission, which has accused Microsoft of trying to squash competing audiovisual software by including its media player with Windows. European regulators are demanding Microsoft either produce a version of Windows without its media player or incorporate rival programs into the package.

The lawsuit comes as Microsoft tries to settle suits filed by competitors and the federal and state governments. The cases were filed in the wake of a 1999 federal court ruling that Microsoft abused its power to maintain its monopoly on the Windows operating system.

Microsoft agreed to pay $750 million to Time Warner Inc., which had seen an erosion in the market share of its Netscape browser as Microsoft's Internet Explorer grew. Microsoft also agreed to pay $23.3 million to Mountain View-based Be Inc. to settle that company's antitrust lawsuit.

In late October, Microsoft agreed to give $200 million worth of computer-gear vouchers to customers to settle class-action antitrust lawsuits in Kansas, North Carolina, North Dakota, South Dakota, Tennessee and Washington, D.C. With similar cases settled in California, Florida, Montana and West Virginia, Microsoft's total payments to consumers exceeds $1.55 billion.

RealNetworks expects to spend approximately $12 million on the lawsuit in 2004, in addition to $1.5 million in the current quarter.

Industry analysts have expected the lawsuit for several quarters, as Glaser escalated the tone of his statements against the software giant. But they say the case could go either way.

"There's no question Microsoft feels it has the right to include its media player in any version of Windows, which is the same argument it had for the Web browser," said Tim Bajarin, an analyst with Creative Strategies. "Now it's up to Real to prove whether Microsoft has violated antitrust laws."

RealNetworks stock closed Thursday at $5.34, up 8.8 percent from Wednesday.

Microsoft stock closed Thursday at $27.40, up 1.3 percent from Wednesday.

In 1995, RealNetworks became the first company to sell streaming media - software that allows people to send or receive huge amounts of data, such as music or videos, through Internet connections. More than 1.15 million people pay for RealNetworks products, which allow them to download MP3 music files, watch movie trailers, or listen to live radio stations broadcast on the Internet.

Microsoft, which would not say how many people use its player, began investing in streaming media in the mid-1990s.

In July 1997, Microsoft spent $30 million on a minority stake in RealNetworks but divested in November 1998, causing RealNetworks' stock to sink.

"There's bad blood between the companies," said Rob Enderle, independent industry consultant with the Enderle Group.

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Editors: AP Technology Writer May Wong contributed to this story.

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