2001: In the courts

Microsoft, Intel, Orange, Rambus and even a Russian programmer made the headlines in 2001 for their court appearances
Written by Matt Loney, Contributor

  • Case: Microsoft vs DoJ
  • Implications: If Microsoft gets away with its illegal practices, consumer and business will be further locked into its products

    Status: Microsoft is guilty of using illegal practices to maintain its operating system monopoly. A settlement is being negotiated

    The facts: A little over a year ago, Judge Thomas Penfield Jackson, presiding over the Department of Justice case against Microsoft, ruled that the software giant be broken into separate operating systems and software applications companies.

    He stayed action pending appeal, but even the Appeals Court found Microsoft to have broken the law.

    In late June, almost exactly a year after Jackson's original ruling, Microsoft won its appeal and dodged a break-up, but the charges over illegal monopoly practices, in contravention of the Sherman Act, stood.

    On Friday, 2 November, Microsoft and the DoJ reached their famous settlement.

    Consumer groups lamented the deal, Sun said it would sue over the inadequate remedies it said the settlement proposed, and several states said they would take the litigation further.

  • Case: Microsoft vs Europe
  • Implications: If Microsoft is found guilty, it could face massive fines and further restrictions on its business practices

    Status: The investigation is ongoing

    Lesson: You can't buy off Mario Monti

    The facts: Despite the pending settlement in the US, the European Commission is pursuing its investigation into Microsoft's anticompetitive practices.

    In Europe, Microsoft stands accused of abusing its dominant position in violation of Article 82 of the EU Treaty. Like the US Sherman Antitrust Act, under which the DoJ prosecuted Microsoft, Article 82 of the EU Treaty prohibits the manipulation of a dominant position in one market to gain a competitive advantage in another market.

    The EC's action is aimed at "anticompetitive" actions taken by Microsoft to use its dominance in the desktop operating system market to improve its position in the server software market. Microsoft is also accused of using its dominance in the low-end server market to quell competition in that market. In August, the EC issued a new Statement of Objection, expanding its investigation of Microsoft to look into whether it is illegally tying its Media Player to its Windows operating system.

    Microsoft had the chance to respond to the charges, but in what was seen as a display of arrogance, snubbed the investigation.

    This case is expected to last well into the middle of 2002. If Microsoft is found guilty, it could face a fine of up to 10 percent of its annual revenue and/or obligations of conduct.

  • Case: Recording industry vs Napster
  • Implications: Other music-swapping services on the Internet now risk prosecution.

    Status: Napster lost, was swallowed up by music publishing giant Bertelsmann, and is bringing out a paid-for service

    Lesson: If you can't beat them, join them

    The facts: Napster was one of the great Internet phenomena. Its peer to peer, distributed file-swapping service promised to revolutionise the Internet, letting people swap music online all over the world. At its peak, nearly 60 million people were using the service. Then the music companies woke up to what they saw as a threat to their revenue, and sued.

    That lawsuit would eventually cost Napster close to $100m when a settlement was hammered out earlier this year. Most of the money came from parent company Bertelsmann: a $36m up-front settlement ($26m to publishers), plus a $60m loan from Bertelsmann, and a second loan of around $12m.

    Napster is now hoping to create a subscription service. Former chief executive Hank Barry said earlier this year that subscription prices were likely to range between $4.95 and $9.95, depending on how much music subscribers wanted and whether they wanted the ability to burn CDs or move the music to portable devices.

    In July, Napster said it planned to do away with the MP3 file format that it made famous. Details of the replacement -- .nap -- remain sketchy, but it will include rights management features to control what can be played back, how many times and possibly on what devices.

    But, Napster has found it difficult to sign up major record labels, and has said this is the reason for the delayed launch of the new service. "The biggest hurdle Napster faces is obtaining content," said Konrad Hilbers, Napster's chief executive officer, adding that the company's new service would now launch in the first quarter of 2002 -- months later than originally planned.

    Meanwhile the big labels have been pressing ahead with their own services; Pressplay and MusicNet. MusicNet is owned by AOL Time Warner, Bertelsmann AG, EMI Group and digital media company RealNetworks.

    Pressplay is owned by Sony's Sony Music Entertainment and Vivendi Universal.

  • Case: Belgium vs Lernout & Hauspie
  • Implications: The company that did more than any other to popularise speech recognition is now struck dumb

    Status: Awaiting trial

    Lesson: Company directors should be very careful how they report sales figures

    The facts: Perhaps the most bizarre legal case of 2001 has yet to be played out in the courts. In April, Jo Lernout and Pol Hauspie, founders of the speech recognition company that had once been the rising star of Belgium's Silicon Valley, were been charged with fraud and stock manipulation.

    The news broke as shareholders met to hear whether the beleaguered company would have any future once courts removed it from bankruptcy protection.

    L&H's stock had been suspended from trading on both the US Nasdaq and the Nasdaq Europe exchange after questions arose over financial results going back to 1998, leading the stock to lose nearly all of its value. Two regulatory investigations were launched and the company filed for protection from its creditors.

    At the time of the charges, neither Lernout nor Hauspie held any managerial positions at the company. They had already resigned from the board. A month later, former chief executive Gaston Bastiaens was arrested in a Boston suburb on allegations of financial fraud, stock price manipulation and other charges contained in a Belgian warrant. Bastiaens was extradited to Belgium where he could face up to 15 years in jail if convicted.

    Jo Lernout, Pol Hauspie amd Gaston Bastiaens are still awaiting trial. Lernaut & Hauspie, the company, continues to sell voice recognition software, but suffered a set-back in June when a Belgian judge rejected a recovery plan that had the backing of the company's creditors

    L&H still owes around $480m to creditors and faces legal claims from companies that sold it assets in return for shares that are now worthless.

  • Case: Rambus vs most of the chip industry
  • Implications: If Rambus wins, memory prices are likely to increase.

    Status: Some memory manufacturers capitulated. Rambus vs Infineon is awaiting appeal, and in the absence of a judgement Rambus cannot launch new lawsuits against Hynix or Infineon.

    Lesson: Companies who donate technologies to groups creating industry standards should declare if those technologies are covered by a patent that it plans to start charging for

    The facts: Rambus, the developer of memory technologies that it then licences to other companies to manufacturer, has rarely been out of the courts in recent years.

    2000 saw it wrangling with the likes of Micron and Hyundai over memory patents, but it was the Infineon and Hynix cases that took up most of 2001.

    Rambus suffered heavily as a result of its litigious nature. In May, all but three of Rambus patent claims against Germany's Infineon were dismissed by a US federal judge in Richmond, Virginia. Rambus had accused Infineon of infringing on patents related to synchronous DRAM, a memory technology found in most PCs, and double-data-rate (DDR) DRAM.

    Infineon in turn accused Rambus of misleading the Jedec committee -- which was hammering out open memory standards in the early 90s -- over the status of Rambus patents. Rambus claimed that the open standards created by Jedec, used in mainstream SDRAM and DDR DRAM memories, incorporate Rambus-owned ideas. If successful, Rambus could have won the right to receive about $1 on every PC sold for the foreseeable future, according to some estimates.

    Rambus has received SDRAM licensing agreements from seven memory makers. Micron and Hynix countersued the company after they became subjects of lawsuits from Rambus, seeking to recoup royalties.

    Rambus was later found guilty by jury of fraud. This verdict was later overturned, and the case is still rumbling on, now waiting to be heard by an appellate court.

    At the end of November, Rambus's case against Hynix was thrown out by another judge. Both Infineon and Hynix are now immune from Rambus patent-infringement lawsuits, although this situation could change if the Infineon case goes in Rambus' favour. In the meantime, Rambus will not be able to charge royalties for SDRAM and double data rate (DDR) DRAM memory products.

  • Case: Recording industry vs MP3.com
  • Implications: Helping unsigned artists reach an audience without the help of a major record label is potentially dangerous

    Status: MP3.com lost and was swallowed up by Vivendi Universal

    Lesson: See Recording industry vs Napster

    The Facts: Any site dealing with MP3s is potentially also dicing with death. MP3.com was no exception and, in March, lost a crucial lawsuit even after it had already paid an estimated $133m to end its disputes with five major record labels. The company later saw the error of its ways, and cosied up to the big labels before being bought by Vivendi Universal about $350m (£243m). The deal, like Bertelsmann's purchase of Napster, marked a critical moment of detente and an admission that the labels need the help of their one-time enemies as they get serious about online distribution. It was also seen as some analysts as a very symbolic nail in the coffin for the concept of the Internet as a liberating force from the major music labels.

  • Case: Orange vs Stockport Council
  • Implications: If network operators are allowed to flout planning permission and ignore local concerns when erecting mobile phone masts, some people fear that they will be creating a time bomb

    Status: Settled out of court: one mast was taken down

    Lesson: Local groups can win against big business

    The facts: Orange, a company not averse to flouting planning permission when building mobile phone masts, found itself taken to court in March by Stockport Council. The council wanted to force Orange to remove mobile phone masts from two Stockport schools because of concerns over health effects. Orange had refused, despite the fact that its contract ran out in November 2000, and insisted the equipment is vital for maintaining service levels. This was thought to be the first court action of its type in the UK.

    Orange later backed down halfway and agreed to remove one of the masts. The climbdown was believed to be the first time a mobile phone operator in the UK had agreed to remove existing phone masts, and could influence disputes elsewhere in the country.

    There is increasing public concern about the safety of mobile phone masts, despite there being no proof that the radio waves they emit have any health effects. With the number of masts in the UK set to increase by at least 50 percent in the next 18 months, there are worries that attempts by local authorities to restrict the erection of new transmitters in their area may hamper the rollout of GPRS and 3G services.

    Orange still refuses to discuss whether other schools could use this procedure in the future, and also refuses to say how many similar disputes it is involved in.

  • Case: Dmitry Sklyarov vs the US (and Adobe)
  • Implications: If Sklyarov is found guilty, it will send a message that computer experts could be arrested under US laws, even if their work is entirely legal in their own country. It will also send a message that exposing weaknesses in content protection software is a crime.

    Status: Awaiting trial

    Lesson: Don't visit the US -- you never know what you could be arrested for

    The facts: The arrest of a Russian software programmer in the US last July shocked the tech industry. Dmitry Sklyarov was arrested by FBI in Las Vegas for allegedly publishing a program that removes the security protections from Adobe eBook files. The bureau said such activity was a violation of the much-criticised Digital Millennium Copyright Act. Sklyarov's arrest was all the more controversial because he was not on US soil when he committed the alleged crime -- co-authoring an application designed to strip various security measures from Adobe's eBook format. His company, Elcom, claimed that such alterations were necessary to allow backups required by Russian law.

    Amid massive criticism, Adobe later tried to distance itself from the issue, but with little success.

  • Case: Film Industry vs 2600.com
  • Implications: Copyright laws have always granted rights to consumers as well as to copyright holders, but new laws such as DMCA together with digital rights management technology, are quietly eroding these rights. The big media companies are behind the changes, and there's nothing you can do about it.

    Status: 2600.com lost

    Lesson: Don't try to rock the boat. You'll lose

    The facts: The film industry returned to court with a hacker Web site called 2600.com last April in a legal dispute that would dictate whether it's legal to publish or link to certain materials online.

    The panel of appellate judges were to decide whether to uphold a lower court ruling preventing online hacker magazine 2600 from linking to code that theoretically could be used to crack DVD security. Legal experts said the case could have wide-ranging ramifications for linking, publishing and copyright on the Internet. The case was also the first major test of the Digital Millennium Copyright Act (DMCA), an entertainment industry-backed law designed to extend copyright protections into the Digital Age.

    The DMCA, passed in 1998, prohibits the circumvention of copy protection and the distribution of devices that can be used to bypass copyrights -- even if their users don't do anything illegal once they've broken the security. Software makers, Hollywood and the music industry make up the core proponents of the law.

    The legal dispute began in January 2000, when the Motion Picture Association of America sued 2600 and several other Web sites for publishing and linking to DeCSS code, claiming that it violated their copyrights. DeCSS was originally designed to let programmers create a DVD player for Linux machines -- technology that did not exist at the time -- but the movie industry argued that it eventually could be used to copy DVDs.

    Other sites named in the suit caved and removed the code, leaving 2600 and its publisher as the only defendants in the case. After a lively trial featuring teen hackers, computer scientists and record executives, New York Federal District judge Lewis Kaplan sided with the MPAA, ruling that 2600 could neither post nor link to the code.

    At the end of November, the court ruled against 2600 -- a decision with sweeping significance for free speech rights and copyright protection on the Internet.

    The decision is a major win for copyright holders in general, but especially for the movie industry, which has been fighting to ban DeCSS from the Internet for about two years. Civil rights advocates have been closely watching the case, arguing that the DMCA is too broad and that banning links to content online could wreak havoc with free expression on the Internet.

  • Case: Intel vs Via
  • Implications: If Via wins, there will be a wider choice of cheaper P4 motherboards and systems

    Status: Unresolved

    Lesson: If you're going to launch a chipset, any chipset, prepare to be sued by Intel

    The facts: You could see it coming. When Via announced the launch of its P4x 266 chipset, everyone just knew Intel would sue. Via was not the only chipset maker to launch rival P4 chipsets in 2001, but it was the only one that Intel considered not to have a licence to do so.

    Via has run into high-profile legal trouble with Intel in the past for making Pentium chipsets without a licence. Via negotiated an undisclosed, out-of-court settlement with Intel in July last 2000. The company believed it could launch its Pentium 4 chipset without trouble.

    The trial continues, although Via received a boost recently when in a separate court case, it was granted a summary judgment in a patent infringement case filed by Intel in 1999. That case centred on a chipset created by Via to work with AMD's Athlon processor, which Intel claimed violated its intellectual property. The judge said Via did not infringe on Intel's intellectual property.

    See ZDNet UK's Christmas & New Year Special for our look at the tech world in 2001, and what's coming up in 2002, plus a shopping guide with reviewers' best buys.

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