IBM Expected to Get Large Award in Settlement With Fujitsu Today
International Business Machines Corp. is widely expected to be awarded a substantial settlement today from Fujitsu Ltd. when arbitrators announce their final resolution to a bitter, six-year software copyright dispute between the two computer makers.
“People are expecting a big number,” said analyst Stephen Cohen of Soundview Financial Group in Stamford, Conn. “I wouldn’t be surprised by a settlement in the hundreds of millions of dollars.”
In essence, the agreement is expected to give Fujitsu the right to study the proprietary software that powers IBM’s market-dominating mainframe computers. In exchange, Fujitsu would pay IBM a fee that Cohen expects will fall in the “knock-your-socks-off” range.
In anticipation of the announcement, IBM shares rose $2.875 Monday to close at $118.875. The stock was the eighth most actively traded issue on the New York Stock Exchange, with 1.49 million shares changing hands.
Even without a huge settlement, the Fujitsu-IBM dispute offers all the elements of a well-drawn business melodrama, from allegations of industrial espionage and copyright infringement to the increasingly hardball competition between Japanese and U.S. computer makers. “I don’t know of any other case analogous to this,” Cohen said.
Still, analysts said the settlement is not likely to diminish IBM’s longstanding dominance of the mainframe market; IBM now controls about 65% of worldwide sales. Further, analysts said that because the settlement is a business arbitration decision--and not a court ruling--it won’t set a legally binding precedent for future conflicts.
However, the settlement should end the dispute that began in 1982, when IBM accused the Japanese computer maker of copying IBM’s mainframe computer operating system, the set of instructions that tell a computer how to process information. It was widely speculated within the industry that Fujitsu obtained the computer code after it was sneaked out of IBM.
The two companies tried to settle the dispute in 1983, but their agreement soon fell apart. In 1985, IBM asked the American Arbitration Assn. for a binding settlement.
Last year, the two arbitrators, a Stanford University law professor and a retired computer engineer, announced a preliminary settlement that called for Fujitsu to pay IBM for the right to analyze IBM’s mainframe software under strict security in exchange for an unspecified payment.
Details were not disclosed at the time, and all sides agreed to silence until final terms were reached. The agreement specifically prevents either company from discussing the settlement, according to a spokesman for the arbitrators.
Although IBM is expected to receive a rich payoff, it will give up exclusive control over software that has played a big role in allowing it to dominate the mainframe market. And the winner of the information is one of IBM’s three major competitors in the $20-billion-a-year mainframe computer industry and a $6.1-billion-a-year company that can probably afford to make the payments to IBM.
Still, analysts questioned whether Fujitsu, Japan’s largest computer maker, has really won much at all.
Since the dispute began, IBM has adopted a new operating system for its mainframes, and analysts say the key to the arbitrators’ decision will be whether it covers this new system or only the earlier code.
Further, analysts say the information that IBM makes available to Fujitsu may not be sufficient for the Japanese company to reproduce the code operating in the IBM machines. “Fujitsu is better off than if they didn’t have access, but they’re a long way from having a copy,” Cohen said.
