Update: Sun, Microsoft settle suit in billion-dollar pact

IDG News Service - Sun Microsystems Inc. said today that it has entered into a "broad cooperation agreement" with Microsoft Corp. and has settled all outstanding litigation. Microsoft will pay Sun $700 million to resolve all pending antitrust issues and $900 million to resolve all patent issues, Sun said in an announcement.
Both companies also agreed to pay royalties for each other's technologies. Microsoft is making an upfront payment of $350 million, and Sun will make payments whenever it uses Microsoft's technology in its server products.
In a telephone press conference to discuss the deal this morning, Sun Chairman and CEO Scott McNealy said that Microsoft could end up paying an additional $450 million as part of the agreement, "depending on the level of collaboration."
Sun also said today that it expects to post a net loss in the quarter that ended March 28 and expects to lay off 3,300 workers worldwide. And it announced that its software head, Jonathan Schwartz, has been promoted to president and chief operating officer.
In a teleconference held after the initial announcement, McNealy and Microsoft CEO Steve Ballmer, who have known each other since high school, said the deal came after about a year of talks between the two companies that began with McNealy inviting Ballmer to play a round of golf and talk.
"About a year ago, customers told us they wanted Sun to go interoperable, stop the noise and start the collaboration," McNealy said. Ballmer said the discussions took about a year because "we needed to rebuild between the companies ... a level of trust. The agreement is all about helping our customers who own both of our stuff ... put that together in a really unique way."
Asked how he can steer his company to work more closely with Microsoft after years of comments critical of its tactics and monopoly status, McNealy said, "I'm going to do my best to be good." Since the talks for this deal began, he said, "the relationship has had a high level of professionalism, respect ... and integrity. Maybe we've grown up. Maybe they've grown up. Or maybe the customers are in charge and their desire [for increased interoperability] fuels it."
Ballmer said the deal was complicated and required discussion with people at many levels, including Microsoft founder Bill Gates and teams of staffers. "There was a lot of creativity required," Ballmer said. "How do you interoperate without giving away the crown jewels?"
Today's announcement, however, doesn't mark the first time the two companies have worked together, McNealy said.