Microsoft to pay Sun $2bn to settle legal disputes

2 April 2004 Microsoft will pay Sun Microsystems almost $2 billion to resolve a set of long-standing disputes, in one of the biggest legal settlements in the history of the IT industry.

Under the agreement, which amounts to a long-term peace treaty between two of the IT industry’s oldest rivals, Microsoft will pay Sun $900 million to resolve patent disputes and a further $700 million to settle outstanding competition issues.

Sun did not specify which matters had been resolved. But it has been due to tackle Microsoft in court over the software company’s use of Java. It also sued Microsoft in 2002 over its rival’s practice of ‘bundling’ new products with Windows, for alleged ‘exclusive dealings’ with PC manufacturers, and for ‘unreasonable restraints on trade’.

Under the settlement, Sun and Microsoft also agreed to pay royalties to use each other’s technology, with Microsoft making an up-front payment of $350 million. That makes a total payment from Microsoft to Sun of some $1.95 billion.

The settlement will be seen as a triumph for Sun’s CEO, Scott McNealy. He has come under pressure from investors to produce tangible returns from his long-running legal disputes with Microsoft. The payments also come at a good time for Sun, which has suffered big falls in revenues and profits over the last three years.

As part of the settlement, Microsoft has agreed to license its Windows communications protocols to Sun. During the recent anti-monopoly investigations into Microsoft on both sides of the Atlantic, Sun complained that it could not make its work group servers work properly with Windows without access to Microsoft’s intellectual property.

Microsoft also promised to support Microsoft Java Virtual Machine, a developer program that Microsoft had planned to withdraw support for by September 2004.

McNealy, so often happy to be cast in the role of chief Microsoft agitator, was in an unusually conciliatory mood during a press conference with his erstwhile arch rival, Microsoft CEO Steve Ballmer.

“This agreement launches a new relationship between Sun and Microsoft – preserving customer choice. We look forward to this opportunity,” he said.

Ballmer added: “Our companies will continue to compete hard, but this agreement creates a new basis for cooperation that will benefit the customers of both companies.”

Amid a series of major announcements, Sun also bowed to Wall Street pressure to cut its costs by slashing 3,300 jobs, or about 9% of its global workforce, in the wake of a profits warning. The company will take a $475 million charge as a result.

In addition, the systems and software giant said it had promoted Jonathan Schwartz, previously executive vice president of software, as president and chief operating officer.

In the past, the company has seemed reluctant to fill the vacant post after the 2002 departure of the previous incumbent, Ed Zander. Schwartz will now be seen as the latest heir apparent to McNealy’s position as CEO.

Avatar photo

Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

Related Topics