Microsoft reached a legal settlement with Gateway yesterday, nearly a decade after the struggling PC maker gave regulators key evidence...

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Microsoft reached a legal settlement with Gateway yesterday, nearly a decade after the struggling PC maker gave regulators key evidence in the landmark antitrust case against the software company.

Despite Gateway’s role in the case, the company is getting one of the smallest settlements Microsoft has reached with companies that suffered from its anti-competitive practices in the 1990s. Gateway will get $150 million over four years, which it will use to market and develop PCs likely based on Microsoft software.

Microsoft used the occasion to also announce it’s setting aside $550 million to cover additional potential antitrust claims, such as those brought by RealNetworks.

The set-aside, the Gateway payout and a $60 million settlement with in March will cost Microsoft a little more than 4 cents a share in the quarter ended March 31, according to a Goldman Sachs analysis. But Wall Street generally shrugs off one-time charges.

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Gateway welcomed the settlement. The Irvine, Calif.-based company has lost money the past four years, including $568 million lost on sales of $3.6 billion last year. Its sales are down by more than half since 2000.

“Gateway continues to enjoy a strong relationship with Microsoft, and we’re pleased to put these legacy legal issues behind us,” Chief Executive Wayne Inouye said in a prepared statement. “We look forward to even greater collaboration with Microsoft going forward as we work together towards the future of computing.”

Microsoft has reached settlements valued at more than $4 billion since it and attorneys from the U.S. Department of Justice and states settled the antitrust case in 2001. They range from $23 million paid to defunct operating systems maker Be Inc. to a settlement with Sun Microsystems valued at $1.6 billion.

Additionally, Microsoft was fined $612 million in a European Union case that it’s appealing.

Still pending is the $1 billion case filed by RealNetworks and a second suit filed by Novell, which settled another case with Microsoft in November for $536 million. Also pending are about five state consumer class-action cases; 15 have been settled.

“Our relationships with PC manufacturers have been 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,” Rodrigo Costa, a Microsoft vice president who handles relationships with PC makers, said in a statement.

“We are very pleased to be able to resolve our past differences in a constructive manner that will allow us to continue our focus on the interests of our mutual customers.”

Gateway was involved in the earliest regulatory actions against Microsoft in the early 1990s, when the Federal Trade Commission investigated Microsoft largely because of its heavy-handed dealings with PC makers.

Later, evidence from Gateway helped regulators build the 1998 antitrust case against Microsoft. Its executives testified Microsoft threatened to stop providing its software to Gateway after the PC maker bundled Netscape Communications’ browser on its machines.

U.S. District Judge Thomas Penfield Jackson, who ruled against Microsoft, cited damage to Gateway in his findings.

Jackson also cited IBM, saying the two PC makers paid higher prices for Microsoft software because they were less willing to play by Microsoft’s rules.

Based on the ruling, IBM could pursue a claim as well. A Microsoft spokeswoman would not comment, and an IBM spokesman was unable to say last night whether it is pursuing claims.

As part of its settlement with the Department of Justice, Microsoft pledged to follow antitrust laws and treat computer makers equitably.

Gateway’s evidence is partly why states joined the Justice Department in the case. When state and federal regulators met in early 1998 to discuss their investigations, Gateway was apparently more willing to share information with the states.

Ultimately, the states and Justice Department filed the case jointly in May 1998.

Gateway had until late 2003 to file claims against Microsoft based on the antitrust case findings, but the companies agreed to extend the deadline to reach a settlement.

Yesterday Gateway shares gained 8 cents to close at $4.16. Microsoft rose to $24.97, up 3 cents.

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Yahoo! executive lured to MSN

Microsoft said yesterday it has hired Gary William Flake, the head of Yahoo!’s research labs, as a Distinguished Engineer working out of its MSN division. It is the first time it has hired an outsider to that position, a prominent title held by fewer than a dozen people.

The move is a coup for MSN, which is taking on Yahoo! and Google in the ultracompetitive Web-search business.

Flake will start in June, reporting to Senior Vice President Yusuf Mehdi in the MSN division. He will eventually move to the Seattle area from his base in Silicon Valley.

Seattle Times reporter Kim Peterson

Next Xbox to debut May 12 on MTV

LOS ANGELES — Microsoft said yesterday it would unveil its next Xbox video-game console in a May 12 special on MTV.

The introduction on the music and entertainment cable channel will be a first; video-game companies usually take the wraps off their new consoles at exclusive industry events like the trade show E3, which will be the following week in Los Angeles.

Microsoft did not provide financial details of the marketing agreement with MTV.

The special will include footage of next-generation Xbox games and also online play, Microsoft said.

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Suits target resellers of bogus software

Microsoft said it filed eight lawsuits in seven U.S. states against software resellers and system builders for distributing counterfeit and unlicensed computer programs.

The lawsuits in federal courts stem from a test purchase program begun in 1997, the company said in a statement yesterday. Under that program, Microsoft bought software and computer systems as part of an effort to test their authenticity, the statement said.

The cases are in California, Florida, Texas, New Jersey, Alabama, Maryland and Rhode Island.

Bloomberg News