IBM Wins $850M From Microsoft

IBM Corp. will receive $775 million in cash and $75 million in credit for software from Microsoft Corp. to settle claims that resulted from the federal government's antitrust case against Microsoft in the 1990s, the companies announced Friday.

The payout is one of the largest that Microsoft has made since U.S. District Judge Thomas Penfield Jackson ruled in 2000 that Microsoft engaged in anticompetitive practices. Jackson's ruling cited IBM as a company that Microsoft had forced to "desist from certain technological innovations and business initiatives."

For example, Microsoft didn't charge all computer makers the same amount for its Windows operating system, allegedly using higher prices as a cudgel against PC companies that didn't comply with Microsoft's wishes.

IBM had irked Microsoft in the '90s by pushing its own OS/2 operating system as a Windows alternative and putting its SmartSuite productivity software on IBM PCs, cutting into the market for Microsoft Office programs. IBM also was an early supporter of Java, a programming language that doesn't need Windows to run.

IBM hadn't sued Microsoft, but still pressed for retribution for the behavior cited by Jackson. Microsoft reached a similar deal with Gateway Computer Corp. for $150 million in April.

Separately, Microsoft has spent more than $3 billion in recent years settling lawsuits by rivals, including a $1.6 billion deal with Sun Microsystems Inc. in 2004 and a $750 million truce with America Online, part of Time Warner Inc., in 2003.

Redmond, Washington-based Microsoft still faces other legal challenges, including a lawsuit by RealNetworks Inc. and an appeal of a $600 million antitrust ruling against it by European regulators.

Even so, Microsoft's general counsel, Brad Smith, said he believes the antitrust issues are close to being resolved. IBM had been the biggest rival with a pending claim.

"This takes us another very significant step forward," he said in an interview. "We're entering what I think is the final stage of this process."

IBM shares were rose $1.04, 1.4 percent, to $75.24 in morning trading on the New York Stock Exchange. Microsoft shares rose 5 cents to $24.89 on the Nasdaq Stock Market.

The U.S. case against Microsoft led Judge Jackson to rule in 2000 that Microsoft should be broken into two companies as punishment for its monopolistic practices. But a year later, with the Clinton-era Justice Department having given way to the Bush administration, the government decided not to seek the breakup. The case was settled in 2002.

Neither IBM nor Microsoft have decided when the $775 million payment will be accounted for. Microsoft set aside $550 million in April to handle antitrust claims, so this deal might result in a charge from that quarter, Smith said.

Whenever it comes, the payment would be a significant boost for Armonk, New York-based IBM, which showed a $1.4 billion profit in the first quarter but fell short of analysts' expectations.

Even with Friday's deal, IBM reserved the right to press claims that its server business was harmed by Microsoft's behavior. However, such claims appear unlikely to surface soon, because IBM also agreed that it would not seek damages for actions that occurred before mid-2002. That means the findings in Jackson's ruling would no longer apply.