Microsoft agreed to pay Gateway $150 million over the next four years, stemming from the finding that the software giant's practices had hurt the computer maker's business.
Microsoft said it will take pre-tax charges of $123 million in the quarter for its settlement with Gateway, $41 million for its settlement with Burst.com, as well as charges previously taken for these claims.
The company also will take a pre-tax charge of $550 million to reserve for certain antitrust-related claims described in the 10-Q periodic report from the previous quarter. More details about the third-quarter results will be provided with the Redmond, Wash., company's earnings announcement on April 28.
The settlement resolves another aspect of the United States vs. Microsoft antitrust case from the mid-1990s, according to a Microsoft statement. Gateway was identified in U.S. District Judge Thomas Penfield Jackson's findings of fact as one of the myriad companies whose business was harmed by practices on which he ruled against Microsoft.
The time period for Gateway to bring claims against Microsoft based on these findings of fact officially expired in late 2003. But Microsoft and Gateway entered into an agreement before that time to extend this period to explore a settlement that would work best for both their businesses and customers.
The settlement represents the resolution of Microsoft's obligations to Gateway. Microsoft will pay the $150 million without admitting liability, while Gateway will release all antitrust claims against Microsoft.
Gateway will use the funds for advertising, sales training and consulting initiatives. The Irvine, Calif., company will put some of the money toward the development and testing of new Gateway products that can run existing Microsoft products, as well as Microsoft's forthcoming Longhorn operating system and Office productivity software.
"Our relationships with PC manufacturers are integral to our success, and we look forward to working even more closely with Gateway to communicate the benefits of its products and our software to consumers," said Rodrigo Costa, OEM corporate vice president at Microsoft, in the statement.
The Gateway resolution is the latest in a string of major legal settlements for Microsoft, which has been trying to own up to its behavior by paying up.
Last month, the software maker settled with Burst.com, creator of video and audio delivery software for IP networks.
Burst.com had claimed Microsoft stole technology and trade secrets acquired during two years of negotiations. It brought suit against Microsoft in June 2002, charging anti-competitive behavior and the violation of state and federal antitrust laws.
In April 2004, Microsoft agreed to pay Sun Microsystems $1.95 billion to quash patent and antitrust suits. The companies are working on helping their products interoperate.
For all of the money Microsoft is shelling out to make peace with rivals and other vendors in the U.S., the company remains on the hot seat with the European Union. The EU is scrutinizing the company's software bundling practices overseas.
The EU levied a record fine of $613 million in March 2004 and imposed other penalties against Microsoft. The software giant is facing possible fines of up to $5 million a day until it fully complies with the rulings.