Microsoft, RealNetworks End Legal Battle

UPDATED: A bitter legal battle ended today when Microsoft and RealNetworks announced a $761
million settlement of Real’s antitrust lawsuit against Microsoft.

The deal closes a two-year-old lawsuit that accused
Microsoft of abusing its monopoly to limit choice in digital media players,
hurting distribution of RealPlayer.

“This goes beyond the settlement,” Bill Gates, Microsoft’s founder, said at
a news conference in Seattle. “There is some innovation here.”

Besides formally dropping the antitrust suit, today’s deal outlines two areas of
cooperation between the companies in hotly contested spaces.

A Digital Music Duet

First is a wide-ranging digital music collaboration that will promote Real’s
digital music subscription service, Rhapsody, on MSN properties.

Engineers have been working for weeks to integrate the offerings. In a
demonstration today, Rhapsody tabs were displayed on the MSN Music page, MSN
Messenger interface and in MSN search results.

“Our view is that digital music is still at its early stages,” Gates said,
noting that issues such as hardware and software interoperability and
digital rights management are still being hammered out.

As part of the negotiations on digital music, Real has agreed to support
Microsoft’s digital rights standards for audio and video and will have the
right to buy ads on MSN Search and the MSN network to promote Rhapsody and
its 1 million-song library.

Both companies will promote the Rhapsody To Go service. Neither company
would estimate how much they planned to spend to market music services, but
both will be trying to spread the word and dislodge Apple from its perch
atop the digital music industry.

The second area of cooperation is games. The companies will collaborate on
“casual games,” which include titles such as Bejeweled and SuperCollapse
and standbys such as Scrabble and Solitaire. Real will create a new
subscription service for MSN Games, as well as a series of new games for
Xbox Live Arcade for Xbox 360.

A Future of Cooperation and Competition

The settlement news conference in Seattle put Real CEO and Founder Rob
Glaser on the same stage with his former employer. Glaser moved to Seattle
22 years ago for a job with Microsoft and was at the company for 10 years.
He held a number of management posts, including vice president of multimedia
and consumer systems.

“We’re ending one chapter and opening a new chapter in the relationship
between RealNetworks and Microsoft,” said Glaser, who called the settlement
“an appropriate and fair outcome.”

He said the settlement lays the ground rules for cooperation, but that the
companies will continue to compete in systems software and media players.

Real’s primary charge against Microsoft was the same as the European
Union’s, which brought its own action against Microsoft. In March 2004, EU
a record fine of $613 million and imposed other penalties against

After ruling that Microsoft abused its monopoly position, it required the
company to unbundle its Windows Media Player software from Windows in
European markets.

It’s unclear how today’s move affects — if at all — that
order. A spokesman for the EU was not immediately available for

Microsoft’s settlement with Real is the latest in a growing list of deals
Microsoft has cut with rivals.

In July, it paid $775 million to IBM to settle antitrust claims.

But its biggest settlement so far has been with Sun Microsystems to end Sun’s long-running legal dispute over its Java Virtual Machine for $1.95

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