Microsoft to Pay to Settle IBM Claims
Microsoft Corp. said Friday that it agreed to give $775 million in cash and $75 million worth of software to IBM Corp. to resolve one of the largest remaining antitrust claims against the world’s biggest software maker.
The settlement is the latest in a string of arrangements with customers and longtime business rivals that began after Microsoft resolved a long-running antitrust case with the Justice Department.
Including the IBM accord, Microsoft has now agreed to pay $4.5 billion to settle class-action consumer suits and business cases brought by Time Warner Inc., owner of the vanquished Netscape Web browser, as well as by Sun Microsystems Inc. and others. It takes Microsoft less than a month to earn what it’s paying IBM.
“Over the last few years we have been focused on resolving our disputes with other companies, and today’s announcement takes another significant step towards achieving that goal,” Microsoft General Counsel Brad Smith said in a statement issued jointly with IBM. “With these antitrust issues behind us, both Microsoft and IBM can move ahead.”
Still pending against Microsoft is a suit by RealNetworks Inc., which makes a video and music player for computers. RealNetworks is seeking $1 billion in damages.
Unlike Microsoft’s settlements with Time Warner and Sun, the Microsoft-IBM agreement makes no reference to any broader framework for cooperation. IBM reserved the right to take action against Microsoft over other alleged improper behavior in the computer market.
Microsoft’s stock slipped 13 cents to $24.71, while IBM shares rose 47 cents to $74.67.
IBM was seeking restitution for misbehavior by Microsoft identified in 1999 by U.S. District Judge Thomas Penfield Jackson. Jackson ruled that IBM and Gateway Inc. had to pay more than other firms to install Microsoft’s Windows operating system on the computers they sold because those two companies wouldn’t help Microsoft suppress competition.
Jackson found that Microsoft retaliated against IBM because of Big Blue’s promotion of its own operating system and its decision to install its SmartSuite bundle of productivity applications, which competed with Microsoft’s Office programs.
When IBM refused to stop promoting its competing products, Jackson wrote in his decision, Microsoft “punished” IBM by charging higher prices, delaying the license IBM needed to install the crucial Windows 95 operating system on its computers, and withholding technical and marketing support.
“Microsoft did not grant IBM a license to pre-install Windows 95 [on its computers] until 15 minutes before the start of Microsoft’s official launch event,” Jackson wrote. That was five weeks after other manufacturers got their copies of Windows.
IBM lost large accounts worth about $180 million in revenue during that period because those computer buyers worried that the tension between the two tech giants would keep Microsoft software from performing as well on IBM machines, the judge said.
IBM didn’t sue Microsoft, but Jackson’s findings significantly increased the odds that Big Blue and others who Jackson said suffered from the hardball tactics could win in court.
Microsoft and IBM began negotiating a settlement shortly after a group backed by IBM asked for permission in April to make arguments during Microsoft’s appeal of European antitrust sanctions.
The animosity between the two giants goes back even further, to one of the great strategic blunders of the technology era.
In the early 1980s, IBM allowed Microsoft to sell the operating system it designed for IBM to other companies as well, a step that eventually made the operating system, ubiquitous and indispensable while reducing the importance of the computer it ran on. In that way, IBM helped create the monopoly it later accused Microsoft of exploiting.
Since then, the companies have cooperated in some areas, such as setting standards for programs that operate over the Internet, while squaring off in markets for databases and for operating systems, where IBM promotes Linux over Windows.
“They’re huge competitors, but they have an understanding of one another,” said Matt Rosoff, an analyst with independent research firm Directions on Microsoft.
