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RealNetworks sues rival Microsoft

RealNetworks, the Seattle-based streaming media pioneer founded by a former Microsoft executive, filed suit against the software giant Thursday, charging antitrust violations and seeking $1 billion in damages.
/ Source: msnbc.com staff and news service reports

Microsoft was hit with a new antitrust suit Thursday when longtime rival RealNetworks charged it with exploiting its monopoly status to dominate the market in multimedia Internet software.

In a complaint filed in federal court in San Jose, Calif., RealNetworks claimed 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.” (MSNBC is joint venture of Microsoft and NBC.)

“We believe that we have a very strong case against Microsoft,” said RealNetworks chairman and chief executive Rob Glaser, a former Microsoft executive. RealNetworks is seeking more than $1 billion in damages.

RealNetworks said that its lawsuit was complementary to an ongoing European Commission investigation into Microsoft’s activity involving media playing software and that it was cooperating with the EC.

Microsoft spokesman Jim Dessler said the company had not yet seen the lawsuit, and he could not comment immediately.

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, restricts how PC makers install competing media players. Microsoft forces Windows users to accept Microsoft’s media player, “whether they want it or not,” to the exclusion of players made by RealNetworks or other competitors, RealNetworks alleges.

“While we much prefer competing in the market — as we are doing and have done for nine years — 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,”  Glaser said in a statement.

Glaser was a high-ranking executive of Microsoft before he left a decade ago to found RealNetworks, which pioneered the "streaming" technique that made audio and video far more practical over the Internet.

The two companies were once on good terms, with Microsoft making an initial investment in RealNetworks, but the relationship turned sour after Glaser testified against Microsoft in the U.S. government’s long-running antitrust case.

In Friday’s filing, RealNetworks said Microsoft used its monopoly power to force “every Windows user to take Microsoft’s media player, whether they want it or not.”

Rob Glaser, Chairman and CEO of RealNetworks Inc., appears before the House Judiciary's subcommittee on Courts, the Internet, and Intellectual Property May 17, 2001. Glaser gave testimony on the impact of the internet on the owners of musical copyrights. REUTERS/Win McNameeWin Mcnamee / X00183

RealNetworks, which has been branching out into online content subscription services, sells its media player as a downloadable software product or with a monthly subscription.

Although Microsoft and RealNetworks have declined to provide specific figures, experts and analysts agree that Microsoft’s share of the digital media player market is expanding rapidly while that of RealNetworks is shrinking.

RealNetworks said it had already spent more than $1.5 million on the litigation during the current quarter and expects to spend $12 million next year. RealNetworks is expected to generate revenues of about $56 million in the current quarter and to post a slight loss.

“We believe our business would be substantially larger today if Microsoft were playing by the rules,” Glaser said in a statement.

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 the Media Player or incorporate rival programs into the package.

Microsoft has settled other antitrust suits filed by competitors, including some filed after a  federal court ruled in 1999 that Microsoft abused its power to maintain its monopoly on the Windows operating system.

In the biggest settlement, 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.

The Associated Press and Reuters contributed to this report.