Microsoft To Pay $536 Million To Settle Novell Suit

Microsoft has agreed to pay Novell US$536 million to settle a long-simmer private antitrust claim over its NetWare operating system, a deal that also calls for Novell to withdraw from the European antitrust proceedings against Microsoft.

Microsoft said the deal, which came about after lengthy private mediation, does not require it to license any Novell technology and that it is not admitting to any wrongdoing.

Still to be resolved are similar claims against Microsoft from Novell for its WordPerfect software. Under the agreement announced today, Novell retained the right to pursue those claims, which stem from a two-year period starting in 1994.

Separately, Microsoft said it had reached an accord with the Computer and Communications Industry Association (CCIA) that calls for that group to bow out of the European Union antitrust proceedings.

For Microsoft, the deals mark more progress in a long-range effort to whittle down the amount of outstanding litigation against it, which poses a threat to the health of its business and hangs over the company’s head as an uncertainty in all of its forecasts and projects.

“They have done a great job of reducing their exposure and the risk involved with having these cases go to trial,” Enderle Group principal analyst Rob Enderle said. “But each time they settle a case, it’s also a reminder of how many more are still out there.”

Recent settlements include a $750 million deal with AOL to settle claims over the Netscape browser, and a sweeping $2 billion deal with Sun Microsystems to settle disputes over Java and other technology. Still, new actions crop up from time to time, the most recent being a suit on behalf of California municipalities.

Whittling Away

Microsoft likely feels the exposure associated with the WordPerfect case is not significant enough to warrant a sizeable settlement, analysts said.

In fact, Microsoft said settling with Novell enables it to project how much outstanding liability it has remaining.

Releasing that figure is likely a signal to investors and others that Microsoft feels that, despite the outstanding issues in Europe and private cases by RealNetworks and others, it has turned the corner on its legal road.

“Over the past two years, we have made a sustained effort to build more constructive relationships with our industry partners and competitors,” Microsoft general counsel Brad Smith said in a statement. While the companies attempted to resolve the WordPerfect dispute, no agreement could be reached, he added. “We are prepared to turn to the courts to resolve it.”

Microsoft restated first-quarter earnings as a result of the settlement, reducing earnings by 3 cents per share, bringing quarterly earnings to 23 cents per share. Microsoft shares dipped slightly on the settlement, while Novell stock was up as much as 10 percent in morning trading today.

Trade Group Hug

The deal with the CCIA helps Microsoft mainly because it reduces the number of foes pushing the European Union to level heavy fines and other penalties on Microsoft in Europe. The CCIA also agreed not to petition the U.S. Supreme Court to take up still-lingering appeals of the settlement between the Justice Department and Microsoft.

While most observers believe the U.S. case will not be revived, the case in Europe is still very much active. Microsoft has appealed a ruling that it pay massive fines and make available in Europe versions of its platform that have the Media Player removed.

In exchange, the CCIA gains Microsoft as a member and presumably hefty membership fees as well that will help the group boost its lobbying efforts in the U.S. and elsewhere.

CCIA President Ed Black said the deal highlights the fact that Microsoft and the trade group have common ground to stand on and said the association felt some of those issues are more important than continuing to pursue the lingering antitrust issues. Issues the group will address with Microsoft’s backing include expanding Internet access to more consumers and protecting and expanding tax credits for research and development expenditures.

“Life is a constant reordering of priorities, and for important and pragmatic reasons, we are choosing to move on with regard to this matter,” Black said. “While there may be times when we and Microsoft will not agree on every issue, we are looking forward to developing a stronger relationship.”

Forrester Research analyst Paul Jackson said few of the cases worried Microsoft from a financial standpoint and that only the U.S. and EU actions have the power to affect its competitiveness in the long run. Instead, he sees Microsoft working to change its image by working with trade groups and former competitors, which in turn reflects the reality of the marketplace today.

“Now, they’re side-to-side with some of their competitors and a lot of potential partners,” Jackson said. “It really signals a new approach to doing business.”