Interop Push Crowns Sun, Microsoft Settlement

Instead of voting Scott McNealy off the island, Sun Microsystems Inc. has decided to forge a secret alliance with archrival Microsoft Corp. in the latest, strange twist in the technology-industry reality game.

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And not just any old alliance, but an old-fashioned lovefest between two hometown boys, is how McNealy, Suns chairman and chief executive, and Steve Ballmer, Microsofts chief executive, played the settlement of their legal differences during a news conference Friday in San Francisco.

During the event, McNealy said he initiated the settlement and collaborative agreement almost a year ago with a phone call to Ballmer, a cross-town high-school rival in suburban Detroit, as well as a fellow student at both Harvard University and Stanford Universitys business school. That call led to a game of golf, when the two discussed the possibility of settling Suns lawsuit and beginning a pattern of working together.

McNealy and Ballmer opened the news conference by trading Detroit Red Wings memorabilia. "We couldnt make a stronger statement than, at playoff time, to exchange gifts," McNealy said, calling himself and Ballmer "Motown fans."

With Sun settling its lawsuit against Microsoft and gaining nearly $2 billion to boot, McNealy took the lead in the news conference, which was set in his back yard. McNealy said the agreement came "at the prodding of almost every customer we have, who said, Cut the rhetoric, Scott, and go get interoperable; stop the noise. Its a very unique and special way we can advantage our customers while respecting each others intellectual property."

Click here to read analyst Rob Enderles take on the deal.

"Im very thankful of Scotts initiation of this a year ago," Ballmer said. The deal, he said, is "an agreement that is really all about helping our customers, who will continue to buy our products that compete with each other."

The settlement, which stems from a lawsuit Sun filed in 2002, will include Microsoft continuing to support Suns Java Virtual Machine, as well as Microsoft paying $700 million to Sun to resolve pending antitrust issues and $900 million more to resolve patent issues.

Meanwhile, Sun and Microsoft have agreed to pay royalties for use of each others technology, with Microsoft making an up-front payment of $350 million and Sun making payments when its competitors technology is incorporated into its server products.

Next Page: Patent regime between companies was key component of deal, Ballmer says.