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4/2/2004
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Sun And Microsoft End Bitter Legal Dispute

Microsoft will pay Sun nearly $2 billion; Sun to lay off 3,300 in cost-cutting move

Microsoft and Sun Microsystems ended one of the technology industry's longest-running feuds last week when the companies said they would settle all outstanding legal disputes and work to ensure more interoperable products.

The legal settlement and technology-sharing agreement was reached after an all-night bargaining session that capped nearly a year of talks. It calls for Microsoft to pay Sun nearly $2 billion. Sun chairman and CEO Scott McNealy and Microsoft CEO Steve Ballmer unveiled the deal at a hastily called news conference in San Francisco during which the two exchanged Detroit Red Wings hockey jerseys. Both executives grew up in Michigan, and McNealy is an avid hockey fan.

Sun also said it expects to lose up to $810 million in its just-completed third quarter and will cut 3,300 jobs, about 9% of its workforce. At the same time, the struggling vendor named Sun software executive Jonathan Schwartz as president and chief operating officer.

Sun CEO McNealy (left) and Microsoft CEO Ballmer

Sun CEO McNealy (left) and Microsoft CEO Ballmer trade hockey jerseys to mark the end of long-standing disputes.

Photo by Noah Berger/Bloomberg News/Landov
Under the settlement, Microsoft will pay Sun $700 million to resolve antitrust issues and $900 million to resolve patent issues. In addition, the companies will pay royalties for use of each other's technology, with Microsoft making an up-front payment of $350 million. Sun is expected to make royalty payments to Microsoft when Microsoft technology is incorporated into its server products.

Ballmer and McNealy, who have known each other for years, began settlement talks on the golf course a year ago after McNealy called Ballmer to set up a meeting. The two said they reached a deal because customers demanded an end to the fight between two important vendors.

Microsoft's reluctance to support non-Microsoft Java standards has caused the IT staff at casino operator Harrah's Entertainment Inc. to run into integration and interoperability problems, says CIO Tim Stanley. Anything that reduces those problems is welcomed. "We're so highly integrated, having the Java world and the Microsoft world be more interoperable on the software and integration level would be a big win for us," he says.

Crossmark Inc., a provider of sales and marketing services, has been using Microsoft's Java Virtual Machine but was switching to Sun's version because of earlier legal rulings. The agreement may change that, says Charlie Orndorff, VP of infrastructure services, who welcomes the truce. "This was more of an ego battle," he says. "The technologies need to work together, rather than having the companies doing things to spite each other."

Under the agreement, the companies will gain access to aspects of each other's technology and will use the information to develop products that will work better together. Initially, the work will center on Windows servers and PCs but also will include other areas, such as E-mail and database software. It should be easier to share information between Microsoft Active Directory and the Sun Java System Identity Server, resulting in less-complex and more-secure platforms.

Sun has agreed to license the Windows desktop operating system communications protocols, and Microsoft will continue to provide support for Microsoft Java Virtual Machine that customers have deployed in Microsoft products. Sun and Microsoft said they would work to improve technical collaboration between Java and .Net technologies.

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