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October 1, 1991

IBM IN NEW DISAGREEMENTS WITH MICROSOFT OVER ROYALTIES TO BE PAID FOR OS/2 LICENCES

By CBR Staff Writer

An embarrassing new row has blown up between IBM Corp and Microsoft Corp in which Microsoft is suggesting that IBM has been hyping the number of copies of OS/2 sold by paying Microsoft for phantom licences, and IBM is trying to persuade Microsoft to accept less than the price of a full Windows licence for the Windows code that IBM has included in OS/2 2.0. According to the Wall Street Journal, when it comes to OS/2 2.0, IBM wants to pay only a tiny fraction of the $35 it normally pays Microsoft for each Windows licence it sells, and Microsoft is holding out for a whole lot more. IBM needs the Windows code to meet its claim that the new release will run Windows applications better than Windows – but if it has to pay Microsoft too much on each copy, its plan to popularise OS/2 2.0 with low pricing will be jeopardised – according to the general manager of IBM Belgium, Tony Mayer, existing OS/2 users will get free upgrades to 2.0. On the OS/2 licence issue, the paper reports that earlier this year, IBM paid Microsoft more than $5m in overdue royalties on OS/2 sales after an IBM internal audit showed that it had substantially undercounted the number of copies it had sold worldwide. At the end of last year, the figure given for OS/2 sales was 300,000 but in April, IBM started talking about there being 600,000 copies out, and now Microsoft’s Bill Gates is reportedly charging that IBM may have inflated the numbers simply to excite interest in the moribund operating system: he insists that IBM made the royalty payment only after Microsoft threatened to to contradict IBM’s claim of 600,000 copies publicly. Microsoft effectively told IBM to pay up for those bragging rights, Gates told the Journal. IBM hotly retorts that Mr Gates’s claim is absolutely inaccurate: IBM has fully honoured the terms of its agreement with Microsoft. We haven’t paid a royalty to Microsoft for any licences we haven’t sold, IBM said.

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