IBM, Microsoft settle antitrust claims

Redmond's lawyers may yet run out of work

Microsoft will pay IBM US$775 million (NZ$1.135 billion) and give it another US$75 million in credit under an antitrust settlement announced by the two companies.

The settlement resolves all discriminatory pricing and overcharging claims stemming from the US government's mid-1990s antitrust case against Microsoft, the companies said in a press release. The settlement also resolves most other IBM antitrust claims, including those related to its OS/2 operating system and SmartSuite products. IBM's claims of harm to its server hardware and server software businesses are not covered by the settlement, however.

Friday's settlement, of private antitrust claims by IBM, focuses only on the desktop-related antitrust issues addressed in the US government's antitrust case against Microsoft, says Scott Brooks, an IBM spokesman.

The settlement resolves claims arising from the US government's antitrust case against Microsoft, in which US District Judge Thomas Penfield Jackson found that IBM was hurt by Microsoft antitrust practices.

Both companies say they are pleased by the settlement. With the agreement, the two companies "move ahead, at times cooperatively and at times competitively", Brad Smith, Microsoft's general counsel and senior vice president, said in a statement.

Microsoft can afford to make the agreed-upon payment, which isn't exorbitant, and IBM can use the money, so the settlement seems favourable to both parties, says Rob Enderle, principal analyst at Enderle Group.

The one sticking point for Microsoft is the exclusion of IBM's harm claims regarding its server hardware and server software, Enderle says. By not settling those in this agreement, IBM leaves itself the option of taking additional legal actions against Microsoft with regard to server damage, especially in Europe, where the EU's antitrust litigation is still ongoing, Enderle says.

"Clearly Microsoft would like to put a cap on those [claims] but IBM was successful in leaving that unsettled, which is wise pending the outcome of the European litigation," Enderle says.

Last year, the European Commission — the EU's executive branch, with antitrust powers — ruled against ruling Microsoft in an antitrust case, in a decision that the company is appealing. The Commission determined the software maker had abused its dominance in desktop operating systems to gain an unfair advantage in related markets, including servers. The Commission fined Microsoft €497 million (NZ$869 million) and ordered the company to open up interfaces for its workgroup server software.

In the case with IBM, Enderle says, the provision for US$75 million worth of Microsoft software is also interesting, considering IBM competes head-to-head against Microsoft on a lot of infrastructure software segments, such as messaging and collaboration.

IBM will most likely procure Microsoft PC software, such as operating systems and office productivity applications, with that credit, Enderle says.

Including Friday's settlement, Microsoft has paid out about US$4.5 billion in antitrust claims following the US government case. Pending antitrust lawsuits include ones brought by RealNetworks, Novell and Go.

Novell settled antitrust claims related to its NetWare network operating system in November 2004, with Microsoft paying the company US$536 million, but Novell has other outstanding claims related to the WordPerfect word processing software. Jerrold Kaplan, the founder of defunct handheld maker Go, filed an antitrust case against Microsoft this week, saying the company drove him out of business. Microsoft disputes those claims.

Microsoft also has class action lawsuits against it pending in six states, says company spokeswoman Stacy Drake. The company has settled 13 class action lawsuits.

As part of the settlement, Microsoft will extend US$75 million in credit toward deployment of Microsoft software at IBM. IBM will not make claims for server monetary damages for two years and will not try to recover damages on server claims made before June 30, 2002.

The two companies are not releasing further details of the settlement, Brooks says.

The settlement in the US government's antitrust case against Microsoft was approved in 2002; Microsoft currently is in the process of appealing last year's antitrust ruling in the EU's case against the company.

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