Microsoft will pay IBM $775 million and give it another $75 million in credit under an antitrust settlement announced by the two companies last week.

The settlement resolves all discriminatory pricing and overcharging claims stemming from the US government's mid-90s antitrust case against Microsoft, the companies said. The settlement also resolves most other IBM antitrust claims, including those related to its OS/2 operating system and SmartSuite products. IBM's claims of harm to its server hardware and server software businesses are not covered by the settlement, however.

Friday's settlement, of private antitrust claims by IBM, focused only on the desktop-related antitrust issues addressed in the US government's antitrust case against Microsoft, said Scott Brooks, an IBM spokesman.

The settlement resolves claims arising from the government's antitrust case against Microsoft, in which District Judge Thomas Penfield Jackson found that IBM was hurt by Microsoft antitrust practices.

Both companies said they were pleased by the settlement. With the agreement, the two companies "move ahead, at times cooperatively and at times competitively," Brad Smith, Microsoft's general counsel and senior vice president, said in a statement.

Microsoft can afford to make the agreed upon payment, which isn't exorbitant, and IBM can use the money, so the settlement seems favorable to both parties, said Rob Enderle, principal analyst at Enderle Group in San Jose, California.

Server settlement remains in balance

The one sticking point for Microsoft is the exclusion of IBM's harm claims regarding its server hardware and server software, Enderle said. By not settling those in this agreement, IBM leaves itself the option of taking additional legal actions against Microsoft with regard to server damage, especially in Europe, where the EU's antitrust litigation is still ongoing, Enderle said.

"Clearly Microsoft would like to put a cap on those claims, but IBM was successful in leaving that unsettled, which is wise pending the outcome of the European litigation," Enderle said.

Last year, the European Commission - the EU's executive branch, with antitrust powers - ruled against Microsoft in an antitrust case, in a decision that the company is appealing. The Commission determined the software maker had abused its dominance in desktop operating systems to gain an unfair advantage in related markets, including servers. The Commission fined Microsoft €497 million and ordered the company to open up interfaces for its workgroup server software.

In the case with IBM, Enderle said, the provision for $75 million worth of Microsoft software is also interesting, considering IBM competes head-to-head against Microsoft on a lot of infrastructure software segments, such as messaging and collaboration.

IBM will most likely procure Microsoft PC software, such as operating systems and office productivity applications, with that credit, Enderle said.

Including Friday's settlement, Microsoft has paid out about $4.5 billion in antitrust claims following the government case. Pending antitrust lawsuits include ones brought by RealNetworks, Novell and Go.

Novell settled antitrust claims related to its NetWare network operating system in November 2004, with Microsoft paying the company $536 million, but Novell has other outstanding claims related to the WordPerfect word processing software. Jerrold Kaplan, the founder of defunct handheld maker Go, filed an antitrust case against Microsoft this week, saying the company drove him out of business. Microsoft disputed those claims.

Microsoft also has class action lawsuits against it pending in six states, said company spokeswoman Stacy Drake. The company has settled 13 class action lawsuits.

As part of the settlement, Microsoft will extend $75 million in credit toward deployment of Microsoft software at IBM. IBM will not make claims for server monetary damages for two years and will not try to recover damages on server claims made before June 30, 2002.

The two companies are not releasing further details of the settlement, Brooks said.