TELECOM Digest OnLine - Sorted: IBM Lawsuit Against Microsoft

IBM Lawsuit Against Microsoft

Lisa Minter (
Tue, 5 Jul 2005 11:37:19 -0500

IBM Wins $850M Settlement vs. Microsoft
By BRIAN BERGSTEIN, AP Technology Writer

BOSTON - IBM Corp. will get $775 million in cash and $75 million worth
of software from Microsoft Corp. to settle claims still lingering from
the federal government's antitrust case against Microsoft in the
1990s, the companies announced Friday.

The payout is one of the largest that Microsoft has made to settle an
antitrust-related case. And it brings the software giant closer to
moving on from claims involving technologies long since eclipsed.

IBM was pressing for restitution for the "discriminatory treatment"
that U.S. District Judge Thomas Penfield Jackson cited when he ruled
in 2000 that Microsoft had broken antitrust law.

IBM and Microsoft once had a trailblazing collaborative relationship,
dating to Big Blue's historic decision in 1981 to have Microsoft write
software for the original IBM PCs.

Later, IBM and Microsoft would jointly create the OS/2 operating
system. But the partnership soured, and Microsoft eventually focused
on Windows and left OS/2 development to IBM.

In the mid-1990s, IBM irked Microsoft by selling PCs that were loaded
with OS/2 as an alternative to Windows and with its SmartSuite
productivity software, a rival for Microsoft Office programs. IBM also
backed Java, a programming language that doesn't need Windows to run.

Jackson noted that Microsoft retaliated by charging IBM more than
other PC makers for copies of Windows.

There were other tactics. Months before Windows 95 came out, Microsoft
let other PC companies pre-install the operating system on new
computers that could go on sale right after the launch. But IBM got
its license only 15 minutes before the event.

As a result, many customers eager for the latest software opted for
machines made by IBM's rivals. Since Windows 95 arrived in August, IBM
missed out on back-to-school sales and lost "substantial revenue,"
Jackson wrote.

IBM didn't sue Microsoft over the findings, but kept the right to do
so under a 2003 agreement between the companies. Similar talks led to
a $150 million settlement with Gateway Inc. in April.

Separately, Microsoft has spent more than $3 billion in recent years
settling lawsuits by rivals, including a $1.6 billion deal with Sun
Microsystems Inc. in 2004 and a $750 million truce with America
Online, part of Time Warner Inc., in 2003.

Redmond, Wash.-based Microsoft still faces legal challenges, including
a lawsuit by RealNetworks Inc. and an appeal of a $600 million
antitrust ruling by European regulators. Though software maker Novell
Inc. reached a $536 million settlement with Microsoft in November,
Novell got a judge's approval last month to proceed with a separate
antitrust suit over the WordPerfect word-processing program.

Even so, Microsoft's general counsel, Brad Smith, said he believes
antitrust issues are close to being resolved. IBM had been the biggest
rival with a pending claim.

"This takes us another very significant step forward," he said. "We're
entering what I think is the final stage of this process."

The $775 million payment will pad IBM's second-quarter earnings, which
are due to be released in two weeks. The Armonk, N.Y.-based company is
coming off a first-quarter report that included a $1.4 billion profit
but fell short of Wall Street's expectations.

Microsoft set aside $550 million for antitrust claims in April, during
the company's fiscal third quarter. At least part of the IBM payment
could result in a charge in the company's fourth quarter; results are
expected July 21.

IBM shares rose 47 cents to close at $74.67 on the New York Stock
Exchange. Microsoft shares fell 13 cents to $24.71 on the Nasdaq Stock

When Jackson ruled against Microsoft in 2000, he ordered the company
broken into two as punishment. But a year later, the Clinton-era
Justice Department having given way to the Bush administration, the
government decided not to seek the breakup. The case was settled in

Even with Friday's deal, IBM reserved the right to press claims that
its server business was harmed by Microsoft's behavior. But such
claims appear unlikely to surface soon. IBM agreed not to seek damages
for actions that occurred before mid-2002, meaning the findings in
Jackson's ruling would no longer apply.

But while much of that case is anachronistic now -- OS/2 faded by the
late 1990s, and IBM doesn't even make PCs anymore, having sold the
business to China's Lenovo Group Ltd. -- there's still conflict
between Microsoft and IBM.

Perhaps Microsoft's toughest competitive challenge today comes from
the open-source Linux operating system, which has made steady gains
especially in overseas markets. Some of Linux's biggest backing has
come from IBM.

Copyright 2005 The Associated Press.

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