RealNetworks stands alone in Microsoft's way

As the list of Microsoft adversaries receiving multimillion-dollar legal settlements grows, eyes are now turning to streaming media pioneer RealNetworks as a potential buy-off candidate.

Following deals this week with Novell and a computer industry trade group, Microsoft's top lawyer called RealNetworks the last company standing in the software giant's "litigation path" as it seeks to overturn a seminal European antitrust ruling that could force it to break out applications bundled in its Windows operating system.

RealNetworks has been a key participant in Europe's antitrust actions against Microsoft, and last December filed its own lawsuit charging Microsoft with illegally using its monopoly in desktop computer operating systems to thwart competition in the market for digital-media players.

A representative for Microsoft declined to comment on settlement talks between the two companies, saying only that the RealNetworks case was still developing, with nothing new to report at this time.

"It's still in the early stages of discovery," Microsoft spokesman Jim Desler wrote in an email.

In an interview, RealNetworks deputy general counsel Dave Stewart also declined to comment on the status of settlement negotiations with Microsoft. But he took what appeared to be a hard line, saying this week's settlements with Novell and the Computer & Communications Industry Association would not affect RealNetworks' support of the European Commission.

"The European Commission's decision is intended to promote competition and provide more choice to consumers and PC makers," he said. "Microsoft's payments to Novell and CCIA do not change the anticompetitive conduct condemned by the European Commission. We continue to support the commission."

Microsoft is challenging record damages and groundbreaking restrictions imposed by the European Commission in a March antitrust ruling. The commission found that Microsoft hurt competition in the market for digital media players, fined the company €497m and ordered it to ship a version of its Windows operating system independently of its Windows Media Player product.

The European Court of First Instance is expected to issue a ruling, possibly as early as this month, on whether Microsoft will have to abide by the European Commission's sanctions immediately, or whether enforcement can wait until the outcome of the appeal.

The industry is closely watching the case, which could have wide-ranging repercussions throughout the tech industry -- from giving developers and computer makers the option of using a non-Microsoft media player to providing the legal means to force Microsoft to unbundle other applications from Windows.

RealNetworks has played a prominent role in the commission's investigation and a recent appeal hearing, providing expert witnesses and technical tests that claim to prove Microsoft can comply with remedies requiring it to separate its media player software from its Windows operating system. That assistance has come at a price. In recent earnings reports, RealNetworks has cited the costs of litigation with Microsoft as a drag on earnings.

It is unclear what impact, if any, the recent settlements might have on the outcome of the case. The European Commission this week insisted that its antitrust case against Microsoft remains on track. "Antitrust enforcement by the commission does not hinge upon complaints by individual parties," commission spokeswoman Amelia Torres told Reuters this week.

Still, Microsoft's legal strategists have said they believe settling claims with aggrieved competitors could help the company in a high-stakes appeal before the European Court of First Instance.

"In our minds, there were five entities that were involved in the EU case," Microsoft general counsel Brad Smith said in a conference call announcing the Novell settlement on Monday. "We have reached an agreement with four of them. Now all that is left is RealNetworks, which means RealNetworks is standing alone in the litigation path in Europe and elsewhere."

Microsoft has settled two other major legal issues against it recently. In April, the company signed a 10-year pact with Sun Microsystems that called for the software company to pay Sun $700m to resolve antitrust issues and $900m to resolve patent issues.

And in May 2003, Microsoft paid $750m to Netscape Communications parent Time Warner as part of a wide-ranging settlement that also called for the companies to jointly cooperate on software distribution and digital media.

Microsoft's dollars have not smoothed the waters completely, however.

The company's dealings with Time Warner have since drawn scrutiny from the European Commission, which is investigating a plan by the companies to jointly acquire digital rights management developer ContentGuard.

Meanwhile, Novell on Friday filed an additional antitrust claim against Microsoft, seeking unspecified damages related to Novell's WordPerfect software business.

ZDNet UK sister site CNET News.com's Stefanie Olsen and Dawn Kawamoto contributed to this report.