I.B.M. and Microsoft Settle Operating-System Feud

By John Markoff
The New York Times

June 28, 1992

The world's largest computer maker, I.B.M., and the most influential software company, Microsoft, have settled a noisy rift by agreeing to pursue divergent paths without legal and financial squabbling.

Both people who write software and people who buy it, for their own use or for their companies, have been afraid of committing themselves to either I.B.M.'s or Microsoft's new generations of operating systems. Many industry executives believe that the fear has slowed sales for several years as customers put off choosing a system that could be endangered if the legal wrangling continued.

"Now the industry can get on with creating new technology," said Richard Shaffer, a computer industry analyst and publisher of the Technologic newsletter. "It's like divorce, you may not like the terms, but it's over and you can get on with your life."

Lee Reiswig, I.B.M.'s assistant general manager for programming, said yesterday, "I.B.M. and Microsoft can now provide leadership based on different business strategies. We will continue to carry forward our separate strategies, and we will be able to work together where it makes sense. But we're not joined at the hip."

Marty Taucher, a Microsoft spokesman, said yesterday, "We've agreed to disagree on OS/2 and Windows. But the agreement certainly gives us the opportunity to continue working together in other areas where there is mutual agreeement for our customers."

In the last three months, each company has shipped a revised version of its operating system -- Windows 3.1 and OS/2 2.0, each developed at a cost of hundreds of millions of dollars.

The settlement has broad ramifications. By promising to exchange software codes that will allow their operating systems to remain compatible, the two competitors have cleared the way for rapid advance in the development of sophisticated programs that have the ability to combine text, graphics, sound messages and video images, industry analysts say.

The two companies said they would stop exchanging new software after September 1993, but that each will be free to incorporate the other's specifications in order to maintain compatibility. Under the agreement, I.B.M. would be permitted to continue to incorporate Windows in its OS/2, which it may choose to do if Windows continues to dominate the software market.

Operating systems are the programs that control a computer's most basic functions, like starting and stopping programs, creating and copying files and sending signals from the computer to peripherals, like monitors and disk drives.

Two-Year Feud

In September 1990, Microsoft broke with I.B.M. over the role of Microsoft's increasingly popular Windows program, which allows a user to control a personal computer with a mouse pointing device and run several programs simultaneously. I.B.M. preferred to develop OS/2, an operating system designed to take advantage of the new more powerful generations of computers. Windows requires using MS-DOS, an operating system that dates to the early 1980's and was designed for the first generation of IBM-PCs. Since the split, the two companies have been in a race to determine which approach would become the standard for future personal computer systems.

The agreement, which was reached last Sunday, by no means suggests a new alliance between the companies, which had once been fast partners.

A First for I.B.M.

The agreement with Microsoft also includes a broad sharing of patents, I.B.M.'s first with a leading software publisher. It also permits each company to use the operating systems that have already been developed by the other or will be developed through September 1993. By that time, Microsoft is expected to have completed its Windows NT, which, like I.B.M.'s OS/2, will be a complete operating system that will not require MS-DOS.

As one part of the patent agreement, Microsoft will pay I.B.M. a large, but undisclosed amount of money.

Mr. Reiswig said that while details of the agreement would not be disclosed, the companies also reached an undisclosed agreement over royalties under which each will pay the other for using its operating system.

As part of the overall agreement, I.B.M. decided not to use its rights to Microsoft's Windows NT operating system. That program, which the Redmond, Wash., software publisher is now completing, was originally begun under a joint development program, and Microsoft is now readying it for introduction next year. It has many of the same features as I.B.M.'s OS/2.

Since the summer of 1991, Microsoft has been moving the computer industry toward a single software and hardware standard based on Windows. The graphics-control technology used by both Windows and OS/2 was pioneered in the 1970's at Xerox's Palo Alto Research Center in California. It was first adopted commercially by Apple Computer for its Macintosh line in 1984, but the technology has come into widespread business use only in the past two years. Microsoft has sold more than 10 million copies of Windows.

I.B.M. has received positive technical reviews for OS/2 since it was introduced and said yesterday that it had shipped more than 700,000 copies, a number that is higher than what had generally been reported.