Court Order May Spark Another Microsoft Settlement

The talks went nowhere, but Microsoft ultimately developed multimedia technology of its own, code-named Corona, prompting Burst to sue Microsoft on charges of theft and anticompetitive behavior.

Though Microsoft denies any wrongdoing, legal and industry experts believe it's a matter of time before Microsoft seeks a settlement following a legal setback by a federal judge who has appeared skeptical of the company's claims.

Last month, U.S. District Judge Frederick Motz in Baltimore ordered from the bench that the world's largest software company must search for any deleted e-mails relating to those discussions with Burst.

"Microsoft has been lately on a sort of settling spree, and I think they might take a serious look at settling this case with Burst," said Matt Rosoff, an analyst with Directions on Microsoft, an independent research firm in Kirkland, Wash., near Microsoft's Redmond headquarters.

The case, moved from San Francisco to Baltimore for pretrial matters as part of a consolidation of similar lawsuits against Microsoft, is not expected to go to trial for another year, barring a settlement.

Microsoft spokesman Jim Desler won't comment on the likelihood of a settlement with Burst, but he said, "We're always open to looking at reasonable ways to settle ongoing litigation."

Microsoft has already settled an antitrust lawsuit with the federal government and all but one state that had sued over its use of the Windows operating system to muscle out rivals, including competitors to its Web browser. The settlement gives rivals more flexibility to offer competing software features on Windows computers.

In a separate settlement, the company also agreed to pay $750 million to AOL Time Warner, which had seen an erosion in the market share of its Netscape browser as Microsoft's Internet Explorer grew.

And Microsoft came to terms with a rival operating system developer called Be Inc., which had complained it could not compete because Microsoft had agreements with major computer makers to use Windows.

Microsoft also faces an antitrust lawsuit from Sun Microsystems, along with 12 private, state class-action lawsuits filed on behalf of consumers.

Motz is not new to Microsoft lawsuits. In December, he ordered Microsoft to ship Windows with the latest version of Sun's Java programming language. The preliminary injunction was later overturned on appeal, though the case itself is pending.

Bob Lande, director of the American Antitrust Institute in Washington, said Motz's past actions indicate the judge is leery of Microsoft's arguments.

"This judge hasn't believed them in the past, so he's going to approach their arguments with a bit of skepticism," Lande said.

The Burst dispute is over technology it believes could potentially power next-generation video-on-demand services.

Burst's streaming technology pushes data, through compression and other means, faster than what consumers are able to watch or hear. The extra information is stored on the user's computer and gets called upon to smooth out any disruptions resulting from network congestion.

Corona, announced in late 2001 and now known as Windows Media 9, does the same thing and uses ideas Burst shared with Microsoft during the discussions, Burst said in its lawsuit.

The lawsuit, filed in June 2002, also accuses Microsoft of shutting out potential competitors like Burst through exclusive deals and other practices that build on Microsoft's dominance with Windows. Burst, based in Santa Rosa, Calif., seeks unspecified damages and an end to Microsoft's use of the technology.

Microsoft says it did nothing wrong.

"Our contention is that nothing really came of these discussions," Desler said. "And that there's simply not the number of e-mails Burst speculates there are because there simply wasn't much interest in pursuing this on Microsoft's end."

The e-mail dispute is over evidence Burst is trying to get from Microsoft as part of the pretrial discovery process. In the governments' antitrust case, e-mails written by Microsoft chairman Bill Gates formed much of the key evidence against it.

Burst attorney Spencer Hosie contends there are "profound gaps" in e-mails that Microsoft had produced. Hosie wants e-mails, mostly from fall 1999 through early 2001, relating to meetings about Burst's technology.

Hosie said he has 70 e-mails that went back and forth between the companies but has not been produced by Microsoft during discovery. He believes even more e-mails exist.

"These were e-mails that absolutely undeniably existed once, but for some reason are no longer at Microsoft System," Hosie told the judge during an August hearing.

Desler said the company has cooperated and has already submitted more than 300,000 pages of documents.

"This is essentially Burst's speculation that a large group of e-mails may exist," Desler said. "And that's just what it is - speculation."

Microsoft attorney John Treece argued at the time that "looking for e-mails on file server backup tapes is highly unlikely to be successful, but absolutely certain to be enormously time-consuming and expensive."

Motz later called it "a burden of Microsoft's own making."

AP Writer Alex Dominguez contributed to this story.

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