Microsoft not out of legal woods yet

Settlement with RealNetworks deprives EU's antitrust prosecution of major corporate ally. But Real's evidence was already in.

Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
Declan McCullagh
4 min read
Microsoft's settlement with RealNetworks on Tuesday eliminates one lingering headache for the embattled software maker, but other legal migraines remain.

Most prominent is the European Union's ongoing pursuit of Microsoft through the courts. In March 2004, then-European Competition Commissioner Mario Monti levied a 497 million euro ($596 million) fine after ruling that the company had unfairly wielded its market power against rivals.

RealNetworks was the largest corporation participating in the European Union's antitrust prosecution and must withdraw from those proceedings under the terms of the settlement. But RealNetworks' absence likely won't make a difference during Microsoft's appeal.

"The settlement strengthens the Commission's case," said Thomas Vinje, an antitrust attorney with Clifford Chance in Brussels, Belgium. "Real has already provided evidence for the case, and that record is complete and in Luxembourg."

Vinje predicted the Commission will continue to scrutinize Microsoft's adherence to its ruling even though RealNetworks has dropped out. "Nothing changes," he said. "The EC will vigorously pursue this case as they had before. The only thing that happened is they did make Real's U.S. antitrust case go away."

The European Union's ruling requires Microsoft to provide key technical details to server software makers and to offer a version of Windows without Media Player. That was in part designed to help RealNetworks' competing RealPlayer application. (Microsoft has appealed the requirement to the Court of First Instance in Luxembourg, but no date has been set for a hearing.)

The Bank of Microsoft
Tuesday's announcement highlights the divide-and-conquer legal strategy Microsoft has doggedly followed while defending itself from antitrust claims. Though technical details of the settlements have varied, two things have remained constant: a fat check from Microsoft and a mandatory withdrawal from the European complaint process.

When Microsoft agreed to pay Novell $536 million last November, the condition was that Novell agree to drop out of the European proceedings. The same requirement attached to the $1.95 billion deal with Sun Microsystems and the $750 million peace treaty with AOL Time Warner. Microsoft also settled a lawsuit with IBM.

Big payouts
Microsoft has paid a pretty penny in the last few years settling notable legal cases, largely on antitrust issues.

$1.95 billion Sun Microsystems
$850 million IBM
$750 million AOL Time Warner
$536 million Novell
$460 million RealNetworks
$440 million InterTrust Technologies
$150 million Gateway
$23 million Be

Source: CNET News.com research

The Computer and Communications Industry Association--another critic that was a vocal agitator in Europe--also cashed a hefty check, and CCIA President Ed Black received a pay raise from $200,000 to nearly $1 million a year.

In a telephone interview Tuesday, Microsoft general counsel Brad Smith acknowledged that the European antitrust process may have spurred the RealNetworks lawsuit toward a settlement: "To some degree those hearings also helped to sharpen those issues."

Remaining Microsoft foes pursuing their complaints in Europe include VideoBanner.com (formerly AudioBanner.com), the Software and Information Industry Association in Washington, D.C., the Free Software Foundation Europe, and the European Committee for Interoperable Standards. FSF Europe says it is "worried that the loopholes in the (EU's March 2004) decision can be exploited by Microsoft's lawyers."

Future problems
For the world's most famous antitrust defendant, other possible legal woes remain.

EU Competition Commissioner Neelie Kroes told The International Herald Tribune last month that: "We have had informal complaints, and we are using our time now to look at them. We're not going to wait and do nothing."

There's the Kai-Fu Lee case involving a bitter employment dispute with Google (which Microsoft characteristically offered to settle). A federal judge in Baltimore has permitted portions of a subsequent lawsuit filed by Novell to proceed.

Microsoft lost a round last month when the U.S. Patent Office reaffirmed the Eolas Web-browsing patent, and pen-computing pioneer Go sued Microsoft in July on antitrust grounds.

And the software titan remains such a tempting bull's-eye that it's likely to face a continued barrage of lawsuits, said one attorney who specializes in antitrust matters.

"They're a big company and have a dominate position in the OS business, so they will always be a target," the attorney said. Microsoft has been hit with antitrust lawsuits, including from Real Networks, over the bundling issue with Windows.

But it's unlikely the Justice Department or Federal Trade Commission will take action against the software giant for bundling issues, since the U.S. settlement already exists to address them, the attorney said. "I think the agencies will wait to see something more substantial, not the same music as in the old cases," said the attorney, who previously was an antitrust lawyer for the federal government.

CNET News.com's Ina Fried contributed to this report.