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Microsoft busy settling lawsuits, but faces more

By Kim Peterson
Seattle Times technology reporter

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Those payments include a $440 million settlement announced yesterday with InterTrust Technologies, a Silicon Valley company with broad patents covering technology for handling rights to online music and video; and a $1.6 billion antitrust and patent settlement with Sun Microsystems.

With those payouts, Microsoft rid itself of two major legal hurdles that made its future plans uncertain.

Last month, Microsoft settled a patent lawsuit brought by AT&T by making an undisclosed payment to the company. Last May, it agreed to pay Time Warner $750 million to settle an antitrust lawsuit filed on behalf of Netscape Communications, a Time Warner subsidiary.

It appears the company is well on the way to clearing up the major legal issues that have burdened it for years. Although Microsoft's investors might not like to see the company writing checks with so many zeroes, analysts say it's worth the money to remove some uncertainties.

"My sense is that Microsoft is doing their best to put as many of the legal issues behind them as they can," said Neil Herman, an analyst who follows the company for Lehman Brothers. "It helps push forward the perspective of a kinder, gentler Microsoft, which is, I think, something that they've been working toward."

But there are plenty of legal questions left to be addressed. On the antitrust front, Microsoft is at the beginning of what could be an extended court battle with antitrust regulators in Europe, who imposed a $612 million fine on the company last month and ruled that it violated competition rules on the continent. Microsoft plans to appeal.

The company also faces a consumer class-action case in Minnesota, currently in trial, and a $1 billion private antitrust lawsuit by rival RealNetworks.

While antitrust cases get the most attention, about 35 patent lawsuits remain against the company.

In one of the most significant, a jury last summer decided Microsoft should pay $521 million to Chicago-based Eolas Technologies for infringing a patent with its Web browser. But the U.S. Patent and Trademark Office, upon further review, rejected the patent last month. Eolas has until May to respond.

The settlement with InterTrust Technologies includes a one-time payment of $440 million that allows Microsoft to license the privately held Santa Clara, Calif., company's patent portfolio.
 
InterTrust, which holds 30 patents and has 100 more pending, is jointly owned by Sony, Royal Philips Electronics and an Arkansas holding company, Stephens Group.

InterTrust has focused its patents on digital-rights management, an up-and-coming area of technology that governs how files are used. The technology also can protect digital media, such as songs and movies, from being pirated illegally.

Also known as DRM, the technology is of particular interest to Microsoft as it expands its products and services into the digital media arena. It is crucial, for example, to offering movies and music on the portable players and online media sites the company is developing.

InterTrust tried to do deals with Microsoft in 1999 and 2000, but the talks collapsed, said Chief Executive Talal Shamoon. It sued in 2001, claiming Microsoft infringed its patents in a range of products.

Microsoft lost some key rulings in the case, Shamoon said. That, combined with the fact Microsoft is implementing DRM technology into many of its future products, led it to the settlement table, he added.

"I feel really good about the system," he said, "and about inventions being protected and rewarded by the government and the Constitution and the court system really defending inventors' rights."

Microsoft sees the issue a bit differently.

"Over time, we came to realize this was good, valuable intellectual property that we wanted to have access to," said David Kaefer, a business-development director for Microsoft's intellectual-property and licensing group. "We recognized that we wanted to remove questions about the licensing."

In some ways, it's not surprising Microsoft faces dozens of active patent lawsuits. Microsoft holds 5,000 patents, has applied for 10,000 more and is on the cutting edge of technology along with competitors and university researchers. There are bound to be conflicts over patent rights.

Patent lawsuits have also proliferated, and big companies such as Wal-Mart and Hewlett-Packard are named in dozens of cases, said Microsoft spokesman Jim Desler.

"Microsoft is not alone in this industry dynamic," he said.

But a lawyer involved in a separate patent lawsuit against Microsoft said the company didn't go after patents as aggressively in the past as it does now.

"My general impression is that there was a time when Microsoft was neither applying for patents, nor were they paying much attention to patents of others," said Norm Beamer, a Silicon Valley patent attorney. "I think they're much more sophisticated now."

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

South Korean Internet company sues for nearly $9 million

SEOUL, South Korea — A South Korean Internet portal filed an antitrust lawsuit against Microsoft yesterday, alleging the software giant violated trade regulations by tying instant-messenger software to its Windows operating system.

Daum Communications said it is seeking 10 billion won ($8.7 million) in damages it claimed resulted from Microsoft's Windows XP, which includes the instant-messaging system MSN Messenger.

Daum, which controls about 10 percent of Korea's instant-messaging market, filed the lawsuit in a Seoul district court. "Such anticompetitive behavior has resulted in massive financial losses to Daum," the company said.

Microsoft denied the accusation.

"Microsoft has competed fairly, consistent with Korean competition law," spokesman Min Seog-seo said. "There is robust competition in the Korean instant-messenger market, and that competition continues to be a good thing for Korean consumers."

— The Associated Press

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