Microsoft reveals a softer side

Microsoft's decision to pay Sun Microsystems $1.95 billion to settle antitrust and patent issues underscores a change in attitude that has been building through a series of rancorous legal disputes.

Though the sometimes fiery rhetoric of senior management on both sides--especially Sun's Scott McNealy and Microsoft's Steve Ballmer--has made for colorful headlines, Microsoft's actions in recent years demonstrate a pragmatism strikingly at odds with the company's public image.

"This does reflect an evolution of Microsoft, no question about it," said one antitrust attorney who formerly worked with the Justice Department. "It's a different approach than they took in the mid to late '90s. It certainly indicates they don't want to spend all their time fighting with partners and the government."

The settlement could be the latest indication of a newfound maturity. Indeed, a few days before agreeing, early Friday morning, to end the battle with Sun, Ballmer mused aloud that Microsoft had finally outgrown its prolonged period of corporate adolescence.

Part of the reason could be the accumulated weight of all the litigation it has faced. Even Microsoft gets tired of being portrayed publicly as a bullying monopolist, and so it's willing to settle--in deals greased by its huge wad of cash--and move on.

"Microsoft seems to breed a lot of rhetoric from companies that it litigates against," said Mike McNeely, an antitrust attorney with Gray Cary Ware & Freidenrich. "But strategic considerations may lead both Microsoft and its opponents to say this is silly and maybe it's something we can fix with money."

In its 1997 settlement with Apple Computer, Microsoft invested $150 million in the struggling company and pledged to continue developing future versions of Office, Internet Explorer and various development tools for the Mac. That ended a long-standing tiff over whether Windows had infringed on any of Apple's patents. It also helped keep alive one of the few rivals to the Windows operating system, giving Microsoft a counterargument to monopoly charges in its antitrust cases.

"We have to let go of the notion that for Apple to win, Microsoft has to lose," Apple CEO Steve Jobs said after the announcement, which came during Apple's annual Macworld Expo trade show. The agreement stunned the audience of Mac fanatics, many of whom booed Microsoft Chief Bill Gates when he appeared via satellite link.

Last year, on May 29, Microsoft settled with AOL Time Warner (now Time Warner), paying the one-time browser rival $750 million and promising to cooperate on software distribution and digital media. Time Warner's Netscape Communications unit had filed the antitrust complaint in January 2002 alleging that by bundling its own browser into Windows, Microsoft used its dominance in the OS market to crush Netscape's browser business.

The settlement was enabled when former AOL CEO Steve Case announced his resignation as chairman of AOL Time Warner earlier that year. Like McNealy, Case had been an outspoken critic of Microsoft. Once he was out of the picture, Gates phoned AOL Time Warner's CEO Richard Parsons to start discussions about a possible resolution, which got clinched about two months later.

"It seemed like an opportunity to do something smart for both companies," Parsons said when the deal became public. Added Gates: "It puts any past issues behind us."

Whether this also is a harbinger of a settlement with RealNetworks is unclear. RealNetworks sued Microsoft for $1 billion on antitrust grounds late last year, alleging that the software giant has made it impossible to compete fairly in the PC media player market.

"My impression is that Microsoft doesn't believe it has any technology reason to settle with Real," said Frank Gillett, a principal analyst with Forrester Research. On the other hand, he said, the public relations value "of not having to fight in the courts about whether it's a monopoly" could be an inducement for the company.

But Real's case was bolstered by the recent European Commission decision, which held that Microsoft had been unfairly bundling Media Player--a competitor to Real--with Windows. The EC decision, which Microsoft said it would appeal, ordered the software giant to provide a version of Windows without Media Player. "Will Real now be willing to settle?" asked Gillett. Given its strong hand, that's not likely, he said. "They believe the playing field won't be leveled until Microsoft agrees to unbundle Media Player." Since that's a giant sticking point for Microsoft, "my hunch is (the Real case) will be difficult to settle."

CNET News.com's Dawn Kawamoto contributed to this report.