Microsoft pays Sun almost $2 billion to settle suit

San Francisco (CA) - Update - Microsoft and Sun agreed to settle pending antitrust and patent issues. The companies entered a "broad technology collaboration arrangement" which will end all litigation activities between the two companies.

The ten-year agreements involve payments of $700 million to Sun by Microsoft to resolve pending antitrust issues and $900 million to resolve patent issues, the companies said in a joint statement.
Additionally Microsoft will make an upfront payment of $350 million to Sun, which will cover licensing fees for Sun’s technology in Microsoft’s server products. The companies also agreed to pay royalties for the use of each other’s technologies.

Besides the financial transaction, both firms agreed to work together on new technologies, on Microsoft’s Communications Protocol Program, Support for Java, Windows certification for Sun Server, as well as future technologies for Java and .Net. Most significantly, "Sun will be certifying all of its products to be Windows-ready", Sun CEO Scott McNealy said during a press conference. He expects an "evolutionary process which will show more an more interoperability between Microsoft’s and Sun’s products each quarter".

While McNealy is known for his harsh comments about Microsoft’s business practices, he mentioned that he "will do his best to be good in future."
According to Microsoft CEO Steve Ballmer, both companies have been working for a long time together on a high level basis. Asked, if the settlement is a result of a changed behavior of Microsoft, McNealy carefully replied that both companies never had asked for "a relationship of this kind before."

Mc Nealy indicated, that a major driver behind the agreement with Microsoft in fact was the customer : "Maybe we have grown up, maybe Microsoft has grown up. Maybe the customer is more in charge these days. They told us to stop the noise," he said. Analysts have been criticizing Sun for a long time to put all eggs in one basket and not providing interoperability with other hardware and software manufacturers.

According to both executives the agreement is limited to "collaboration", sharing or merging of technologies between Java, C#, and .Net is not planned. Sun will likely extend its x86 product offering with Intel and AMD Opteron servers and work with Microsoft to improve server-to-server and server-to-client interoperability. McNealy and Ballmer declined to go into further details about licensing and collaboration deals. "This is complicated stuff," Ballmer said. "The problem was to figure out how we interoperate without giving away the crown jewels."

The windfall payment could not come at a better time for Sun. Last week, the company said its profits for the most recent quarter would fall short of expectations. On revenues of $265 million, Sun expects a loss of $710 million to $810 million. The company also announced that it wil layoff another 3,300 people of its workforce of 35,000 to cut costs.