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

Sun Microsystems said Friday that it has entered into a "broad cooperation agreement" with Microsoft and settled all outstanding litigation. Microsoft will pay Sun $700 million to resolve all pending antitrust issues and $900 million to resolve all patent issues, the Santa Clara, California, company said in a release.

Both companies have also agreed to pay royalties for each other's technologies with Microsoft making an up-front payment of $350 million and Sun making payments whenever it uses Microsoft's technology in its server products, it said.

In a telephone press conference to discuss the deal Friday, Sun chairman and Chief Executive Officer (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."

After years of legal wrangling, Microsoft and Sun agreed not to sue each other regarding any past patent infringement claims and to begin negotiations for a patent cross-license agreement. Sun will also be less vocal and visible in opposing Microsoft as it fights the recent European Commission's ruling against it, a Sun executive said.

Declaring a new relationship between itself and Microsoft, Sun also said that the companies have agreed to enable their products to better work together and have entered agreements on patents and other issues.

The agreement includes technical collaboration, giving access to each other's server technology, as well as Sun's licensing of Microsoft's communications protocols and Microsoft support of some Sun products.

The two companies will initially cooperate on Windows Server and Windows Client, but could expand to include cooperation on e-mail and database software. For example, engineers from both companies might work together on problems such as user identity management, allowing information to be more easily shared between Microsoft's Active Directory and Sun's Java System Identity Server identity management products.

Also under the agreement, Microsoft and Sun will work together to improve collaboration between the Java and .NET technologies, while Microsoft will be allowed to continue to provide product support for the Microsoft Java Virtual Machine in its products. Microsoft was set to end support later this year, raising compatibility and security questions for users.

Microsoft and Sun provided little detail on when customers might see better product interoperability as a result of the new-found love between the companies. "It will be an evolution, not just one product," McNealy said at a news conference in San Francisco where he was joined by Microsoft CEO Steve Ballmer.

"It is not one sort of seminal product release, it is a set of things we go after and work on that are very customer driven and based on their input," Ballmer said. "I think there is nothing in this that will do anything other than delight customers."

Technical brains at both companies, Microsoft Chief Software Architect Bill Gates and Sun Executive Vice President and Chief Technology Officer Greg Papadopoulos have already met several times, McNealy said Sun will announce interoperability progress as part of its quarterly product announcements, he said

Customers will have a big say in where Sun and Microsoft focus their interoperability work, McNealy said.