Fujitsu Payments to IBM Could Surpass $1 Billion

Times Staff Writer

As part of a settlement that ultimately could be worth more than $1 billion, Fujitsu Ltd. was ordered Tuesday to pay International Business Machines Corp. an immediate $237 million to end a bitter six-year dispute over licensing rights to proprietary software for IBM’s largest computers.

Fujitsu already has paid IBM hundreds of millions of dollars, and the additional amount will bring the total value of the settlement so far to $833 million. The large Japanese manufacturer will make further payments over the next nine years.

The order gives Fujitsu access to software code that should help it make computers that are compatible with top-selling IBM mainframe models.

IBM claimed in 1982 that Fujitsu had illegally copied the code, and the U.S. giant demanded royalty payments in exchange for Fujitsu’s right to continue using it.


The settlement, devised by two members of the American Arbitration Assn., essentially allows Fujitsu to continue using the IBM code it already has and gives the company controlled access to additional IBM programming information until 1997.

Of the total $833 million in retroactive fees assessed by the arbitrators, Fujitsu has paid IBM all but $237 million.

Over the remaining nine years of the agreement, however, Fujitsu will be charged additional fees for use of IBM material according to a complex payout plan. Total payments could exceed $1 billion over the life of the agreement.

In active trading on the New York Stock Exchange, IBM shares rose 50 cents Tuesday to close at $119.375. On Monday, the stock gained $2.875.


In prepared statements, executives of both companies said they were pleased with the results of the arbitration.

IBM said the agreement “recognized the enormous investment” the company has made in developing its software. Fujitsu said the settlement allows the rivalry between the companies to return to its “natural and appropriate arena--the marketplace.”

However, analysts said IBM seems to have gotten the sweeter end of the deal.

“This is very favorable to IBM,” said Jay Stevens, an analyst with Dean Witter Reynolds in New York. “Fujitsu has not gained access to everything it could have. IBM’s main secrets are still protected.”

Stevens specifically noted that Fujitsu has access only to “interface specifications,” a code that, in effect, describes what a program does, not how it does it.

Stevens and other analysts downplayed the importance of the cash payment, given IBM’s annual revenue of more than $54 billion.

Other analysts noted that while Fujitsu has been given access to IBM code, accessibility alone does not guarantee that the Japanese company will be able to replicate the internal workings of IBM’s mainframes, which now control about 65% of the worldwide market for such machines.

“IBM is basically selling the keys to open a door,” said James Meyer, an analyst with Janney Montgomery Scott Inc. in Philadelphia. “They are not necessarily required to give Fujitsu any help after that.”


The agreement allows Fujitsu to establish a “secured facility” in Japan where IBM will deposit the reams of code that certain Fujitsu workers--not including any involved in software development--have the right to examine.

Although IBM has a similar right to establish a facility for comparable Fujitsu material, IBM has said it does not plan to exercise its option.

Armonk, N.Y.-based IBM first accused Fujitsu of illegally copying its mainframe software in 1982.

The companies reached a private settlement in 1983, but the vaguely worded agreement fell apart, and in 1985 IBM asked to have the dispute settled by binding arbitration.

IBM and Fujitsu have agreed to let the arbitrators supervise all disputes growing out of the case until the year 2002.

The arbitrators are Robert H. Mnookin, a Stanford University law professor, and John L. Jones, a computer expert who is a retired executive vice president of Norfolk Southern Corp.