Real To Microsoft: See You in Court

In a complaint that sounds a bit like a replay of the browser wars of yesteryear, media player company RealNetworks has sued Microsoft, charging that it used its Windows monopoly in order to limit choice in digital media players.

“This is the day we’ve been waiting for for a long time,” RealNetworks Vice President and General Counsel Bob Kimball told He said the company has spent months preparing its case, but it had been looking at the issues for years.

Seattle-based RealNetworks complained that the company violated federal and state antitrust laws in its lawsuit, filed in a San Jose, Calif. court.

Meanwhile, RealNetworks is cooperating with the European Commission, which is pursuing its own anti-trust suit against Microsoft over whether its bundling of the Windows Media Player with its dominant Windows operating system is stifling competition in digital media.

The complaint alleges that Microsoft “has 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.”

Microsoft kept PC makers from installing competitive media players, in effect forcing every Windows user to take Microsoft’s media player, like it or not, according to the complaint. RealNetworks, of course, makes the RealPlayer, which includes the Rhapsody paid music download service.

In a statement, RealNetworks chairman and CEO Rob Glaser said, “We believe our business would be substantially larger today if Microsoft were playing by the rules.”

In fact, there’s been bad blood between the two companies since late in 1998. The companies had tried to partner in developing a media player, even as Microsoft moved forward with development of its own Windows Media Player. When Glaser accused Microsoft of intentionally disabling its products, the software giant dumped its 3.3 million shares of REAL.

RealNetworks’ Kimball said the company is basing its case on previous rulings against Microsoft by U.S. courts. “We think we have a solid case and can take advantage of solid findings from the Department of Justice case [against Microsoft],” Kimball said. “We feel we’re in the sweet spot: We’re stepping in with well-established law and pattern of conduct which two U.S. courts have already found to be illegal.”

While there are parallels between the DOJ’s anti-trust suit against Microsoft, said Jupiter Research senior analyst Joe Wilcox, there are important differences. For one thing, RealNetworks filed the case itself rather than relying on the DOJ. Also, Netscape was already on its last legs by the time the DOJ stepped in. “I don’t see RealNetworks on the same self-destructive path as Netscape,” he said. “It’s a strong company.” The company reported more than 1.15 million subscribers to its paid content services, including more than 250,000 subscribers for its Rhapsody Internet jukebox service.

RealNetworks is pursuing damages it said could exceed $1 billion, plus injunctive relief. But Kimball said his company would not ask for a preliminary injunction against Microsoft. “At this point, we want to focus on getting the case filed,” he said, “then getting discovery and the case under way. We want to move quickly to a full trial on merit.”

The company is prepared to spend around $12 million next year to pursue the suit. The company said its hefty legal expenses won’t dent its earnings, and that it will still make its numbers for the fourth quarter of this year. Excluding the Microsoft litigation expenses, RealNetworks expects a net loss per share for the fourth quarter to be in the range of ($0.02) to ($0.03) on revenue between $52 and $56 million.

In fact, this suit is as much about business models as bundling, Wilcox said. “Traditional companies develop products and try to sell them. RealNetworks has its digital media technology and also services that it sells. Microsoft doesn’t operate that way.” Instead, Microsoft tries to use its Media Player technology to sell more copies of Windows. “The question for the court to determine,” Wilcox said, “is whether this is a different business model or anti-competitive tactics — or both.”

A Microsoft spokesperson said the company was preparing a statement, but it was not completed by press time.

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