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April 11, 2005

Antitrust settlements cost Microsoft over $700m

Settling various antitrust lawsuits will cost Microsoft over $700m in its next-reported quarter, the company revealed yesterday at the same time as it announced a $150m settlement with PC maker Gateway.

By CBR Staff Writer

The company, which has made paying off plaintiffs part of its corporate strategy over the last couple of years, said it will give Gateway $150m over four years in exchange for Gateway agreeing not to sue for Microsoft’s past conduct.

The settlement relates to the US government’s prosecution of Microsoft for illegally leveraging its operating system monopoly to squeeze Netscape out of the browser market in the mid-1990s.

Gateway, along with IBM, was specifically named as an injured party in Judge Thomas Penfield Jackson’s November 1999 findings of fact. The two PC makers ended up paying more for software because they were reluctant to toe Microsoft’s line.

Rather than have Gateway immediately sue, Microsoft agreed to waive its rights under the relevant statute of limitations, which would have seen its potential liability expire about two years ago, giving the two companies time to mediate a settlement.

Microsoft does not admit any liability under the deal, however, which is par for the course in these types of deals.

Gateway said the money will be used for, among other things, research, development and testing of new Gateway products that can run current Microsoft products and Microsoft’s next-generation operating system and productivity software, though it’s not clear whether that is a binding commitment.

Microsoft said it is setting aside $123m against its March quarter pre-tax profits to account for the Gateway settlement, as well as $41m for its previously announced settlement with Burst.com Inc.

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The company will also take a charge of $550m to reserve for certain anti-trust-related claims described in regulatory filings. Outstanding antitrust suits include those filed by a handful of US states, certain California counties, and RealNetworks.

The company is not updating previously announced earnings guidance, except for the charges related to these legal matters, Microsoft said. The firm expects to announce its first calendar quarter results on April 28.

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