RealNetworks v. Microsoft

RealNetworks sued Microsoft today over alleged antitrust violations. See the press release. RealNetworks is holding a conference call at 1:30 p.m. Pacific time. More to come.

Update, 1:45 p.m.: Although the filing might seem to come out of the blue, given the U.S. Justice Department settlement with Microsoft, RealNetworks has been indicating in its Securities and Exchange Commission filings that it isn't happy with that settlement. Two days ago, for example, it included this passage in an SEC filing:

Microsoft distributes its competing streaming media server, player, tools and digital rights management products by bundling them with its Windows operating systems and servers at no additional cost or otherwise making them available free of charge. Microsoft’s practices have caused, and may continue to cause, pricing pressure on our revenue generating products and services and affect usage of our competing products and formats. Microsoft’s practices have led in some cases, and could continue to lead to, longer sales cycles, decreased sales, loss of existing and potential customers and reduced market share. In addition, we believe that Microsoft has used and may continue to use its monopoly position in the computer industry and its financial resources to secure preferential or exclusive distribution, use bundling contracts for its media delivery technologies and products with third parties, such as ISPs, content delivery networks, content providers, entertainment and media companies, VARs and OEMs, including third parties with whom we have relationships. Microsoft has also invested significant money in, has provided substantial financial incentives to, or offered or conditioned placement on or through the Windows operating system, the Internet Explorer Web browser and Microsoft’s MSN service to, certain of our current and potential customers and content suppliers. We expect this trend to continue, which may cause those customers to stop using or reduce their use of our products and services and which may cause those content suppliers to withhold desirable media content from us or end users of our products and services. Such arrangements, together with Microsoft’s aggressive competitive tactics, leveraging its operating system, and marketing of its Windows operating systems, server products and digital media products, may reduce our share of the streaming media and digital distribution markets.

Update, 2 p.m.: Here's the Associated Press story: RealNetworks sues Microsoft alleging monopoly of digital media.

Update, 3:20 p.m.: An excerpt of comments by RealNetworks CEO Rob Glaser during a conference call with reporters this afternoon:

Despite our success with new products and services, we believe it’s clear our business would be substantially larger today if Microsoft were playing by the rules ...

We’ve cooperated with both U.S. and European authorities. While we’re hopeful that the European Union will impose an effective remedy for Microsoft's violations of European competition law, those proceedings will not compensate RealNetworks for the harm caused by Microsoft's conduct. And in the U.S., it has become clear that government intervention alone has not been sufficient to end and undo the harm of Microsoft's illegal actions.

Although two U.S. courts have determined that Microsoft has illegally abused its monopoly power, it has become clear that Microsoft's settlement with the Department of Justice will not fundamentally change Microsoft's predatory conduct. The settlement has many limitations and loopholes, and it’s clear that Microsoft will exploit them. Our case is based on many of the same types of conduct by Microsoft that U.S. courts have already declared to be illegal, such as failure to disclose interface information and imposing restrictions on PC makers, as well as a broad course of predatory action in digital media that goes beyond the DOJ’s case against Microsoft.

While we had hoped that Microsoft would stop using unlawful tactics after the government proved that Microsoft had abused its monopoly power, this has not happened.

Our financial strength enables us to prosecute this case aggressively. While we intend to push our claim vigorously, such cases typically take about 3 years to go through trial. We expect this litigation to cost us approximately $12 million in 2004, in addition to approximately $1.5 million related to litigation this quarter that’s already factored into our Q4 numbers.

Update, 3:50 p.m.: Click here for a .pdf document of the complaint, RealNetworks Inc. v. Microsoft Corp., U.S. District Court for the Northern District of California, San Jose Division. Also, we've asked Microsoft for a response and will post it here when and if the company comments.

Update, 4:30 p.m.: Here's Microsoft's official statement:

RealNetworks' legal action today is unfortunate and particularly surprising given the intense competition in the digital media marketplace.

The facts are clear. 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. Computer manufacturers are free to install and promote any media player on new PCs. Consumers are free to use any media player – and many consumers use several different media players.

It’s hard to reconcile Real’s own statements on their market success with today’s lawsuit. Real claims to be the number one provider of digital media solutions, with massive distribution of their software and more than one million player downloads a week. Thus, this is a case where a leading firm is seeking to use the antitrust laws to protect and increase its market share and to limit the competition it must face.

These issues are a rehash of the same issues that have already been the subject of extensive litigation and a tough but fair resolution of the government antitrust lawsuit. The government antitrust ruling imposes a range of significant restrictions on Microsoft’s business and provides considerable new opportunities for companies like Real Networks; we accept these new rules and we are committed to full compliance.

Media playback technologies have been included in Windows as far back as the early 1990s. Microsoft has competed on the merits in the digital media market by creating superior technology that delivers better quality, an open platform for software developers and device manufactuers and benefits to consumers. Companies are bringing new media players and services to the market every week. That is what is going to benefit consumers and move this market forward, and not this kind of rear-view mirror litigation.

Update, 12/19/03: Here's our story from this morning's P-I.

Update, 12/20/03: Here's our follow-up story in Saturday morning's P-I about RealNetworks' choice of the Silicon Valley as the venue for the suit.

Posted by Todd Bishop at December 18, 2003 01:31 PM