Microsoft in Antitrust Deal With Gateway

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Microsoft agreed to pay Gateway $150 million over the next four years,
stemming from the finding that the software giant’s practices had hurt the
computer maker’s business.

Microsoft said it will take pre-tax charges of $123 million in the quarter
for its settlement with Gateway, $41 million for its settlement
with Burst.com, as well as charges previously taken for these claims.

The company also will take a pre-tax charge of $550 million to reserve for
certain antitrust-related claims described in the 10-Q periodic report from
the previous quarter. More details about the third-quarter results will be
provided with the Redmond, Wash., company’s earnings announcement on April
28.

The settlement resolves another aspect of the United States vs. Microsoft
antitrust case from the mid-1990s, according to a Microsoft statement.
Gateway was identified in U.S. District Judge Thomas Penfield Jackson’s
findings of fact as one of the myriad companies whose business was harmed by
practices on which he ruled against Microsoft.

The time period for Gateway to bring claims against Microsoft based on these
findings of fact officially expired in late 2003. But Microsoft and Gateway
entered into an agreement before that time to extend this period to explore
a settlement that would work best for both their businesses and customers.

The settlement represents the resolution of Microsoft’s obligations to
Gateway. Microsoft will pay the $150 million without admitting liability,
while Gateway will release all antitrust claims against Microsoft.

Gateway will use the funds for advertising, sales training and consulting
initiatives. The Irvine, Calif., company will put some of the money toward
the development and testing of new Gateway products that can run existing
Microsoft products, as well as Microsoft’s forthcoming Longhorn operating
system and Office productivity software.

“Our relationships with PC manufacturers are integral to our success, and we
look forward to working even more closely with Gateway to communicate the
benefits of its products and our software to consumers,” said Rodrigo Costa,
OEM corporate vice president at Microsoft, in the statement.

The Gateway resolution is the latest in a string of major legal settlements
for Microsoft, which has been trying to own up to its behavior by paying up.

Last month, the software maker settled
with Burst.com, creator of video and audio delivery software for IP
networks.

Burst.com had claimed Microsoft stole technology and trade secrets acquired
during two years of negotiations. It brought suit against Microsoft in June
2002, charging anti-competitive behavior and the violation of state and
federal antitrust laws.

In April 2004, Microsoft agreed to pay Sun Microsystems $1.95 billion to
quash patent and antitrust suits. The companies are working on helping their products interoperate.

For all of the money Microsoft is shelling out to make peace with rivals and
other vendors in the U.S., the company remains on the hot seat with the
European Union. The EU is scrutinizing the company’s software bundling practices
overseas.

The EU levied a
record fine of $613 million in March 2004 and imposed other penalties
against Microsoft. The software giant is facing possible fines of up to $5
million a day until it fully complies with the rulings.