Sun Settles With Microsoft, Cuts Jobs

Sun reaches a $1.6 billion settlement with Microsoft that calls for more cooperation between the two companies and at the same time announces it is cutting 3,300 jobs.

The second times a charm. Sun Microsystems Inc. and Microsoft Corp. resolved their legal issues in a $1.6 billion settlement announced Friday that calls for the two companies to work together over the next 10 years.

Sun, obviously not satisfied with the results of the settlement in its first lawsuit against Microsoft, filed suit again in 2002, this time leading to a settlement that will include Microsoft continuing to support its Java Virtual Machine and payments of $700 million to Sun by Microsoft to resolve pending antitrust issues and $900 million to resolve patent issues. Meanwhile, Sun and Microsoft have agreed to pay royalties for use of each others technology, with Microsoft making an upfront payment of $350 million and Sun making payments when this technology is incorporated into its server products

Under a Technical Collaboration Agreement, the companies will share access to each others server-based technology for use in building new server software products that will work better together, the companies said. The cooperation will initially center on Windows Server and Windows Client, but will eventually include other technology such as e-mail and database software.

In addition, Sun has agreed to license the Windows desktop operating system communications protocols under Microsofts Communications Protocol Program, which came as part of Microsofts consent decree and final judgment with the U.S. Department of Justice and 18 state attorneys general. And adding to the collaboration, the two companies announced that they will work together to improve the interaction between the Java and .Net platforms, and to seek cross-license agreements. The companies also announced Windows certification for Suns Xeon servers.

Sun, the creator of Java, sued Microsoft in 1997 for what Sun claimed was Microsofts improper use of Suns Java technology. Sun and Microsoft agreed to settle the suit in January 2001. Microsoft paid Sun $20 million and the two agreed to a plan for Microsoft to phase out products that included the older version of Microsoft Java that allegedly infringed on Suns Java copyrights and trademarks. Sun then sued Microsoft again in 2002, again claiming improper use of Java and seeking to have Microsoft include an up-to-date version of the Java runtime in every copy of Windows shipped.

"This agreement launches a new relationship between Sun and Microsoft—a significant step forward that allows for cooperation while preserving customer choice," said Scott McNealy, chairman and chief executive of Sun, in a statement.

"Our companies will continue to compete hard, but this agreement creates a new basis for cooperation that will benefit the customers of both companies," said Steve Ballmer, chief executive of Microsoft, also in a statement.

Next page: Will settlement affect EU actions?