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Microsoft in Daum antitrust settlement

Package thought to be worth $30M

Microsoft has moved a step closer to clearing up its legal problems in South Korea. Local internet portal operator Daum Communications has agreed to accept a package worth $30m (about £17m) from Microsoft in settlement of its antitrust complaints, the two companies announced today.

However, the agreement won't necessarily end an investigation into Microsoft by the Korea Fair Trade Commission (KFTC) that began in April 2004.

“It is significant that we have reached this settlement with Microsoft on terms that we believe are favourable to Daum, and are able to work together with Microsoft to build a new business partnership,” said Daum vice-CEO Kim Hyun-Young in a statement.

In the same statement, Tom Burt, corporate vice-president and deputy general counsel at Microsoft, said: “This agreement marks not only the end of our legal dispute, but more importantly, the beginning of a closer working relationship between our companies.”

Microsoft’s settlement with Daum, a Seoul-based portal operator with 55 million users worldwide, involves a $10m (£5.7m) cash payment, an advertising contract valued at $10m and a further package of measures valued at $10m including “marketing and promotional opportunities between the two companies", the two companies said.

However, the terms of the third part of the package remain unclear. “What we’ve agreed is to run some selected online content from Daum on MSN,” said Oliver Roll, a Microsoft spokesman in Singapore. “We have no more details at this stage.”

The dispute dates back to 2001 when Daum filed a complaint with the KFTC over Microsoft’s bundling of Windows Messenger with the Windows OS (operating system). Daum operates its own competing instant messaging platform in South Korea. This was followed by the filing of a lawsuit against Microsoft in 2004. Both the suit and the antitrust complaint are resolved by today's deal.

However, the KFTC launched a probe of Microsoft on its own initiative in April 2004.

After this had begun, RealNetworks filed a complaint with the commission on 28 October 2004, alleging that Microsoft damaged other software producers by bundling audio and video software with Windows. Last month, Microsoft reached an out-of-court settlement with RealNetworks, paying $761m (about £438m).

Asked whether antitrust penalties could still be levied in the case, Lee Hwang, head of the Microsoft task force at the KFTC, said “Yes. It is totally up to the commission.”

Lee said that although both the Daum and the RealNetworks complaints have been resolved, the KFTC is pursuing two investigations into the bundling of the Windows server OS with Windows Media streaming service and the Windows PC OS with Windows Media Player.

He did not specify when a judgment would be reached.

“We are continuing to co-operate with the commissioners,” said Roll. “We are expecting a decision in the next few weeks.”

Roll added that Microsoft is committed to Korea, “one of the most vibrant markets in Asia".

If the Korean agency rules against Microsoft, the regulator could order it to remove parts of bundled software from Windows. Microsoft has said that if it is ordered to pull Windows Messenger and Media Player from its operating systems, it could be forced to withdraw from South Korea, or limit releases of new software in the country.

However, few analysts expect events to progress that far.

“I think the KFTC will find that Microsoft has violated competition law and will order some very mild corrective measure; that would be the face-saving solution,” said Brendon Carr, an attorney with IT experience at Seoul’s Aurora Law.

“Microsoft has drawn a line in the sand that there are remedies that cannot be accepted, which include unbundling. Maybe the remedy will be more bundling. It will not remove its own products, but maybe will add Daum products.”

The commission could also fine Microsoft five percent of its annual Korean sales. What those are is unclear, as the company does not release revenue figures from separate markets.

Currently, Microsoft faces two antimonopoly lawsuits worldwide: one in the EU and one in Korea.

Daum, meanwhile, saw its stock value rise by about 10 percent on the day.


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