Intellectual property and patents are at the heart of the $1.6 billion settlement between Sun Microsystems Inc. and Microsoft Corp., with more than half of Microsofts payments to Sun coming from patent disputes involving Java technology.
While the settlement announced on Friday ends Suns antitrust litigation against Microsoft, it also ends a dispute over infringement on Java technology patents that played a role both in the latest case Sun had filed against Microsoft in 2002 and the one the companies settled in 2001, a Sun spokeswoman said.
Microsoft is paying Sun $900 million to settle those past patent disputes, and the companies also have agreed on what Microsoft CEO Steve Ballmer called a “patent regime” for dealing with future intellectual property issues.
Ballmer on Friday said the two companies “believe in intellectual property…(and) are respecting intellectual property.” But legal experts say that by settling, Microsoft also is acknowledging the legitimacy of Suns patent infringement claims.
“The reality is that Microsoft had to pay a lot of money to avoid a court ruling on the [patent] infringement issue, and they dont pay that kind of money unless theyre extremely concerned that theres a likelihood for a jury to find that there was infringement,” said David Aronoff, a partner with law firm Thelen, Reid & Priest LLP in the Los Angeles.
Ballmer and Sun Chairman and CEO Scott McNealy played up the two companies plans to collaborate on making their server and client software more interoperable, initially focusing on Microsoft Windows but also to include e-mail and database software and identity management. Much of that cooperation will depend on avoiding future patent and intellectual-property disputes. While offering no details about specific patents in play, the companies said they reached an agreement to negotiate future patent cross-licensing.
“It was impossible to create a technical collaboration framework without having some framework in which both companies could be assured that theyve got the right protections looking back and forward with respect to each others intellectual property,” Ballmer said.
Microsoft also agreed to pay $350 million in upfront royalties for the use of technology from Santa Clara, Calif.-based Sun as part of the collaboration, and a Microsoft spokesman said Sun would also pay later as its incorporates Microsoft technology.
While it is common for a patent dispute to end in a settlement to pay royalties on past patent infringement, it is unusual for a patent dispute to lead to a technical cooperation arrangement as far-sweeping as the one announced between Sun and Microsoft, Aronoff said.
“Only time will tell whether or not this is simple PR spin on the part of companies to explain to shareholders, at least for Microsoft to explain to its shareholders, why money went out door, or if these are some genuine efforts to really collaborate,” Aronoff said.
The reason for the intellectual property focus of the settlement could be that in the course of litigation one or both parties began to “saber rattle” about their patent portfolios or that during the settlement both parties decided they wanted to clear away the possibility of future disputes, said Richard Horning, a partner with law firm Tomlinson Zisko LLP, in Palo Alto, Calif.
“We might trip across patents that you have, so while we establish peace in family why dont we settle up the peace with technology license agreements to use your patents and for you to use ours,” Horning said of the possible reasoning.
Microsoft as a company also has focused more closely on patents in the past six months, partly because it faces more than 20 patent-infringement cases, said Matt Rosoff, an analyst with Directions on Microsoft, in Kirkland, Wash. In December, the Redmond, Wash., company expanded intellectual property licensing for its file allocation table (FAT) file system and ClearType font-rendering technologies.
“Microsoft has really decided that patents could be a revenue source and that it needs its ducks in row to avoid any patent infringement claims,” Rosoff said.
Mary Jo Foley of Microsoft Watch contributed to this report.