Tech Giant Shifts to a Path of Peace
After years of a scorched-earth approach to litigation and competition, Microsoft Corp.’s $2-billion settlement Friday with Sun Microsystems Inc. marks the starkest example yet of the software giant’s attempt to impose a sort of Pax Microsoftus on the technology industry.
By using some of its $53-billion cash stockpile to make peace with major rivals, Microsoft is trying to mute some of its harshest critics and clear a path to new markets, experts said. Microsoft has agreed to pay out nearly $5 billion to settle cases since the beginning of last year -- removing political and legal obstacles with each new deal.
Sun’s own chief executive, Scott McNealy, once remarked: “It really is mankind against Microsoft. And mankind needs a bit of a break right now.” But on Friday, McNealy shared a San Francisco stage with Microsoft Chief Executive Steve Ballmer, swapping jokes as the pair outlined a future of cooperation.
Analysts said Friday’s settlement may help Microsoft head off potentially devastating antitrust action overseas, where the European Commission last month ordered the company to pay a record $600-million fine and imposed broad restrictions on the way it develops and sells software. The order would sharply limit Microsoft’s practice of routinely “bundling” new features into its flagship Windows operating system.
Microsoft has said it would appeal to the European Court of First Instance in Luxembourg.
Sun’s antitrust complaint against Microsoft helped launch the European antitrust case and the company had argued that stiff sanctions against Microsoft were needed to invigorate computer industry competition. By reaching an accord with Sun, Microsoft may have neutralized the most resourceful antitrust opponent still dogging it.
“Sun, which had been one of the big forces pushing the EC to go after Microsoft, has now cut a separate deal and that takes some of the wind out of the sails” of the European case and other antitrust actions, said Bill Wyman, an investment analyst for Precursor Group in Washington. “It makes the odds of a [European] settlement a little more likely” and minimizes the damage from any major new antitrust action, Wyman said.
Microsoft General Counsel Brad Smith acknowledged Friday the company’s efforts to repair its history of rough relations with competitors.
“Obviously, we’ve been focused on improving our relationship with the rest of the industry,” noted Smith, who later said Friday’s settlement was unrelated to the antitrust case in Europe. “That case has a life of its own. This deal today does not have the ability to change that.”
Antitrust officials in Europe could not be reached for comment. The European Commission’s top antitrust lawyer, who spoke at an American Bar Assn. meeting Friday in Washington, did not comment on the Microsoft-Sun settlement. However, the lawyer, Philip Lowe, director general of competition, strongly defended last month’s decision, telling a U.S. Justice Department official at the meeting that U.S. objections to the ruling would not sway the EC’s commitment to sanction Microsoft.
Since 2002, when Microsoft settled the landmark antitrust case filed against it by the Justice Department, the company has drawn a tiny fraction of its $53-billion cash reserve to settle nearly a dozen major antitrust and patent cases.
In May, for instance, Microsoft agreed to pay $750 million to Time Warner Inc. to settle claims that it unfairly crushed Time Warner’s Netscape Web browser. Like the Sun Microsystems deal, the Netscape accord offered a broad range of concessions that effectively turned one-time rivals into partners.
Microsoft has also made payouts of more than $1.5 billion to settle class-action lawsuits filed by the public and state attorneys general. And last September the company agreed to pay $23 million to now-defunct software maker Be Inc. to settle a suit charging Microsoft negotiated deals which cut out Be’s competing computer operating system.
Microsoft did not return calls Friday seeking comment.
The Sun-Microsoft accord is likely to put more pressure on RealNetworks Inc., which is among the last remaining firms pursuing a major private antitrust claim against Microsoft.
“I don’t think this settlement portends anything,” said David Stewart, deputy general counsel of RealNetworks, which makes audiovisual software that competes with Microsoft’s Media Player. By paying Sun such a huge amount of money, Stewart said, “you have to wonder why MS is going to such lengths.”
Stewart declined to comment on whether his company was negotiating to settle its claims against Microsoft.
Media Player is fast siphoning market share from Real just as the digital delivery of music, DVDs and photos emerges as a lucrative new market.
“I think from Microsoft’s standpoint they want their [Windows] franchise on as many devices as they can get,” said Chris LeTocq, a technology analyst for Guernsey Research. RealNetworks, he said, may be the “last man standing” in the way of Microsoft bid to invade new technology markets.
If so, other analysts say Microsoft’s settlement strategy may be an ineffective weapon in the long run because, outside of computer operating system software, the company still faces formidable competition from other corporate behemoths like Sony Corp. and Nokia.
“If Microsoft didn’t want to move into new markets their strategy would work,” said Ed Black, a prominent Microsoft critic who heads the Computer and Communications Industry Assn., a Washington trade group. “But I don’t buy companies like Sony and Nokia rolling over and playing dead. What is lost today, and what was valuable about Sun, is that they were vocal and articulate and willing to go public in criticizing Microsoft. But there are still a lot of other companies out there.”
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Times staff writer Joseph Menn in San Francisco contributed to this report.
