Microsoft to pay Novell $536 million settlement

The software giant settles one legal claim with Novell over NetWare, but can't reach a deal over a second issue involving WordPerfect.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
6 min read
Microsoft on Monday reached important legal settlements with rival Novell and with a trade organization that had backed the European Union's legal action against the software giant.

The software giant said it has reached a $536 million settlement with rival Novell over legal claims between the two companies related to Novell's NetWare operating system.

As a result of the settlement, Novell said that it has agreed to withdraw from the EU's antitrust case against Microsoft.

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Joseph A. LaSala Jr., Novell's general counsel, said that while Novell feels it has played a "useful" role in those proceedings, the company is comfortable withdrawing from the case, now that it is under review. The EU's decision to punish Microsoft is currently under appeal.

In related news, Microsoft announced Monday that it has reached an agreement with the Computer & Communications Industry Association, a technology industry trade group, regarding antitrust issues between the two organizations.

While Microsoft and Novell settled one suit, they could not come to agreement over another issue. Also Monday, Novell announced plans to file an additional antitrust claim against Microsoft before the end of this week, seeking unspecified damages related to Novell?s WordPerfect software business.

As in the NetWare case, the WordPerfect suit will focus on Microsoft's business practices during the mid-1990s, which Novell has charged were anti-competitive. Novell said the WordPerfect suit will be filed in U.S. District Court in Utah.

Photo: McCullagh
Brad Smith, general
counsel, Microsoft
"We could not resolve claims related to WordPerfect in any manner we thought appropriate, and we are prepared to turn to the courts to resolve it," Microsoft's general counsel, Brad Smith, said in a statement.

Microsoft has settled two other major legal issues against it recently. In April, Microsoft signed a 10-year pact with Sun Microsystems that called for the software company to pay Sun $700 million to resolve antitrust issues and $900 million to resolve patent issues.

And in May 2003, the company paid $750 million to Time Warner, then called AOL Time Warner, as part of a wide-ranging settlement that also called for the companies to jointly cooperate on software distribution and digital media.

EU case in the crosshairs
With those earlier settlements, combined with Monday's agreements, Microsoft is hoping to pave the way toward a favorable ruling in its European Union antitrust case, which could have significant repercussions in the way the software giant conducts business.

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The European Court of First Instance is expected to issue a ruling, possibly as early as this month, on whether Microsoft will have to abide by the European Commission's sanctions, or remedies, immediately, or whether enforcement of the remedies can wait until the outcome of the trial.

European legal experts say it could take several years before the case goes to trial.

"In our minds, there were five entities that were involved in the EU case," said Smith, the Microsoft attorney, in a conference call Monday. "We have reached an agreement with four of them. Now, all that is left is RealNetworks, which means RealNetworks is standing alone in the litigation path in Europe and elsewhere."

Microsoft is hoping that by demonstrating it can reach agreements without the intervention of the government, or the courts, it can persuade the Court of First Instance and the European Commission that antitrust actions against the company are not needed, Smith said.

"Today's agreement shows we are prepared to meet anyone halfway to see if we can resolve our differences," Smith said.

The CCIA, Novell, RealNetworks, Sun and Time Warner have, in essence, complained that Microsoft uses its dominant position in the operating system market to give it an illegal advantage in other markets.

The settlements with Novell and CCIA may not only help to resolve Microsoft's antitrust issues in Europe, but also, in effect, conclude the last remaining antitrust headaches it faced in the United States, the company claims.

"This means the long-standing (antitrust) litigation in the U.S. is now over," Smith said. "We will comply with the consent degree, but the litigation is now over."

Meanwhile, cell phone giant Nokia has notified the CCIA of its intent to cease membership in the organization following the Microsoft settlement. CCIA president Ed Black declined to comment on any communications with member companies.

The settlements come almost exactly five years after U.S. District Judge Thomas Penfield Jackson branded the company a monopoly, setting in motion a lengthy antitrust battle.

In June, a federal appeals court unanimously approved a 2002 settlement reached between the U.S. Justice Department and Microsoft. But several states and organizations--including the CCIA--objected to that settlement.

Under terms of the CCIA deal, the organization said that it will no longer seek a Supreme Court review of Microsoft's antitrust settlement with the U.S. government, and pledged that it would not participate further as an intervenor on behalf of the EU in Microsoft?s appeal of the EU's ruling against it.

Microsoft said it will join the membership of CCIA, and will provide unspecified compensation to the CCIA for "certain legal-related expenditures" it has incurred over the past decade. The CCIA's membership includes many of Microsoft's rivals, such as Sun, database software maker Oracle and Linux distributor Red Hat.

Photo: McCullagh
Ed Black, president,
chief executive of
the CCIA
Despite the agreement, it's still possible that Microsoft and the CCIA could clash in the future, according to Ed Black, president and chief executive of the CCIA. Black has been an outspoken critic of the company in the past. "While there may be times when we and Microsoft will not agree on every issue, we are looking forward to developing a stronger relationship," Black said in a statement issued on Monday.

Microsoft said that the Novell settlement would result in a charge of $359 million, or 3 cents a share, in its previously reported fiscal first-quarter results. The company said its revised quarterly earnings were $2.53 billion, or 23 cents a share, down from $2.9 billion, or 27 cents a share.

With the latest settlements, Microsoft believes it has its arms around the potential legal liability it faces, Smith said. Overall, Microsoft said it could pay up to $950 million in additional antitrust claims, including up to $200 million above the amount mentioned in its most recent filing with the U.S. Securities and Exchange Commission.

Microsoft estimates it has paid roughly under $3 billion to settle antitrust cases with Time Warner, Sun and Novell and to set aside a reserve for litigation in various state antitrust actions.

"We have reached a point, for the first time, where we have identified possible exposure...from the remaining antitrust issues and claims," Smith said.

CNET News.com's Mike Ricciuti contributed to this report.