Microsoft settles with Daum for US$30M

Microsoft Corp. moved a step closer to clearing up its legal problems in South Korea on Friday when local Internet portal operator Daum Communications Corp. agreed to accept a package worth US$30 million from Microsoft in settlement of its antitrust complaints, the two companies said Friday.

However, the agreement won’t necessarily end an investigation into Microsoft by Korea’s 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 favorable to Daum, and to be able to work together with Microsoft to build a new business partnership,” said Daum vice Chief Executive Officer (CEO) Kim Hyun-Young in a statement.

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

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

However, the actual 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 operating system. Daum operates its own instant messenger platform in South Korea that competes with Microsoft’s product. This was followed by the filing of a lawsuit against Microsoft in 2004. Both the suit and the anti-trust complaint are resolved by Friday’s deal.

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

After this had begun, RealNetworks Inc. filed a complaint with the commission on Oct. 28, 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 $761 million.

Asked whether anti-trust 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 Windows server operating system with Windows Media streaming service and the Windows PC operating system with Windows media player.

He did not specify when a judgment would be reached.

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

Roll added that Microsoft was 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,” he added. “Maybe the remedy will be more bundling. They will not remove their own products, but maybe will add Daum products.”

The commission could also fine Microsoft 5 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 anti-monopolies lawsuits worldwide: one in the EU, and one in Korea.

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

Related links:

Microsoft threatens to pull Windows from South Korea

Microsoft criticized for higher pricing in South Korea

Is security the next antitrust battle for Microsoft?

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