RealNetworks has filed a lawsuit against Microsoft alleging that the software giant has illegally used its power as a monopoly to control the digital media market.

The lawsuit, filed in federal court in California, claims that Microsoft has forced PC manufacturers to include it's media player while at the same time placing restrictions on how competing players may be installed, according to RealNetworks.

"We're accusing Microsoft of engaging in a broad range of predatory practices to protect their operating system monopoly and to try to create a new monopoly in the digital media space," said David Stewart, deputy general counsel for RealNetworks.

RealNetworks is accusing Microsoft of unlawful tactics including product bundling, restrictive licensing, exclusive dealing, predatory pricing, refusing to sell unbundled operating systems and the discriminatory disclosure or withholding of information needed to interoperate with the Windows operating system.

The lawsuit seeks to recover damages lost because of "Microsoft's illegal conduct", according to a quote in the statement attributed to Rob Glaser, RealNetworks' chairman and chief executive officer.

If the claim is succesful, damages could exceed US$1 billion (about £58 million).

"We're trying to stop Microsoft's conduct in the digital media space and we're seeking good compensation for the harm Microsoft has caused us," Stewart said.

The settlement Microsoft reached in November 2001 in the antitrust case brought against it by the US Department of Justice (DOJ) and several US states is flawed, Stewart said. The settlement orders Microsoft not to retaliate against PC makers who offer competing software products, such as RealNetworks' media player, with the PCs they sell.

"We cooperated extensively with the DOJ in the antitrust case, but it has become clear that government action wasn't enough," Stewart said. "The settlement is full of loopholes and Microsoft is using them all. Microsoft is still restricting how PC makers install media players on PCs and forcing PC makers to install Windows Media Player."

Microsoft issued a statement calling RealNetworks' action "rear-view mirror litigation". There is "vibrant competition" in the digital media market, the vendor said. Computer makers are free to install and promote the media player of their choice on new PCs and consumers are free to select which player they want to use, Microsoft said.

Michael Gartenberg, a research director at Jupiter Research, said the case is not about technology or adoption of media players, but about business practices.

"Both Microsoft's and RealNetworks' formats are very widely supported today; the question is about what the implications are of the fact that Windows Media Player is bundled with Windows and what Microsoft business practices prevent RealNetworks player adoption by PC vendors," he said.