July 1, 2005

Microsoft settles antitrust claims with IBM

By Franklin Paul and Eric Auchard

NEW YORK/SAN FRANCISCO (Reuters) - Microsoft Corp. has settled antitrust claims made by International BusinessMachines Corp. , agreeing to pay $775 million to IBM,the companies said on Friday.

One major antitrust action remains against Microsoft Corp.by multimedia software maker RealNetworks Inc. as wellas a handful of smaller disputes.

The cases came in the wake of the landmark 2002 settlementby the U.S. government against Microsoft that led to subsequentagreements with several U.S. states, the European Union andother companies.

"This is a significant step toward our efforts to resolvethese issues with other companies," said Brad Smith, generalcounsel and senior vice president at Microsoft.

Under the settlement, which resolves discriminatory pricingand overcharge claims made by IBM against Microsoft, thesoftware maker will extend $75 million in credit towarddeployment of Microsoft software at IBM.

Smith said the agreement was reached late Thursday, thelast day of the fiscal quarter. He declined to comment on howthe settlement affects Microsoft's quarterly financial results,or whether monies previously set aside to pay legal claimswould be tapped in this case.

"We will provide information during our earnings call onJuly 21 about how this settlement impacts the companyfinancially," he said.

Last year, Microsoft agreed to pay $2 billion to SunMicrosystems Inc.. In April, it paid GatewayInc. $150 million. It has yet to resolve an outstandingclaim by Novell Inc. tied to its WordPerfect business.


In the largest remaining claim, RealNetworks said thatMicrosoft unfairly used its Windows monopoly to take marketshare away from its Real media player, and sued its largerrival for more than $1 billion.

Since taking over the chief executive position from BillGates in 2000, Steve Ballmer has made it a top priority toresolve the remaining antitrust claims as well as otherlawsuits facing the software giant.

In Europe, Microsoft has already paid a fine of nearly 500million euros ($597 million at today's prices) to the EuropeanCommission for antitrust violations and agreed to sell aversion of its Windows operating system without Media Player.

Also remaining is a claim by IBM that Microsoft's marketdominance harmed its server hardware and server softwarebusiness. IBM has agreed that it will not assert claims formonetary damages for two years nor seek to recover damages onserver-related claims incurred prior to June 30, 2002.

The $775 million settlement will result in an undeterminedone-time gain that IBM plans to take in the second quarter,ended Thursday, the same day the settlement was signed.

"This is a nonrecurring second-quarter event," IBMspokesman Scott Brooks said. He declined to comment on otherfactors influencing the company's second-quarter results.

The Microsoft settlement gain will join a variety of otherone-time gains and charges in IBM's second quarter. IBM hassaid it plans to take a gain of roughly $1 billion on the saleof its PC business to Lenovo Group Ltd. of China.

It will record restructuring charges to cover the costs ofcutting up to 13,000 jobs, or 4 percent of its work force.

The computer maker's quarterly results, which are scheduledto be reported on July 18, will also reflect the impact of howthe company expenses stock options granted to employees.

IBM shares rose 33 cents to $74.53 on the New York StockExchange, while Microsoft slipped 4 cents to $24.80 on Nasdaq. (Additional reporting by Reed Stevenson)