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. Last Updated: 07/27/2016

Sun, Microsoft in Unlikely Peace

SAN FRANCISCO -- It was not that long ago that Scott McNealy, the chairman of Sun Microsystems, referred to his bitter rival, Bill Gates, as Darth Vader and Gates' company, Microsoft, as the Evil Empire.

But with the settlement on Friday of the seemingly intractable feud that has long defined the sometimes adolescent relationship between the entrepreneurial culture of Silicon Valley and Microsoft, the powerful company from Redmond, Washington, that dominates the software business, it appears that the computer industry is finally coming to terms with Microsoft.

And after two decades of inflamed criticism, many here in the technology sector have come to accept the slowly acquired reality that the legal system can do little to resolve their quarrel with Microsoft.

"Did Microsoft do wrong?" Paul Saffo, a computer industry consultant who is a director at the Institute for the Future in Menlo Park, California, asked rhetorically. "Of course. But the wheels of the legal system grind too slow to solve problems in the technology space."

To be sure, even after hearing McNealy describe his deal with Steven Ballmer, Microsoft's chief executive, as putting "peace on the table in a big way," many of Silicon Valley's engineers and executives still consider Microsoft an imitator and a predator that has freely borrowed the Valley's best ideas and added them to its products.

But almost three decades after a solitary computer hacker ignited the war by stealing a copy of an early version of Microsoft's BASIC programming language and ensuring that more than 70 copies were shared at a meeting of the Homebrew Computer Club, the passions that have fueled the technology industry's most intense rivalry are ebbing.

"As you look at the industry today you have to distinguish between the new technology generation and the old one," said Randy Komisar, a veteran Silicon Valley executive. "It's like the old Europe and the new Europe: The basis for the wars has changed."

On Friday, a subdued McNealy, whose company also announced it would take a $475 million charge for the quarter and lay off 3,300 employees, would say only that his customers were demanding the burying of the hatchet.

"Maybe they've grown up," McNealy said. "Maybe we've grown up."

Such a reconciliation has seemed all but impossible ever since Sun led the campaign among a handful of Silicon Valley companies that helped instigate the Justice Department's 1997 antitrust lawsuit against Microsoft.

The armistice is seen by many Silicon Valley executives as Sun largely suing for peace. It calls for the two companies to cooperate to make their competing software products work together and for Microsoft to pay Sun more than $1.95 billion to settle the lawsuits and patent disputes between them. Sun's private antitrust suit filed in 2001 charged Microsoft with illegally monopolizing the operating system market and undermining the compatibility of Sun's Java programming language.

Many of the Valley's leaders acknowledged that Sun's stunning rapprochement with its longtime rival was a simple acknowledgment of the reality of Microsoft's overwhelming power and its deep pockets.

"Certainly we felt shock, yes," said Stewart Alsop, a venture capitalist and former industry conference impresario. "But awe as well. After all, $1.9 billion is just a drop in the bucket when you're facing a company with more than $60 billion in the bank."

But that did not diminish the surprise of seeing McNealy and Ballmer on stage together here on Friday morning shaking hands and joking about playing golf.

"I was sitting at my computer when the news flashed on my screen," Alsop said. "All I could think was, 'Oh my God!"'

Many executives in the Valley have not dropped their skepticism toward Microsoft's motives, of course. Some say that Microsoft finally moved only because it was under pressure to settle its outstanding legal issues so it can turn its attention to more fundamental competitive challenges from Linux and other sources of cheap, freely available software.

"This is like the marriage of two porcupines," said Regis McKenna, a computer industry investor who was one of the Valley's best known publicists. "They will have to go about it very carefully."

Still, Silicon Valley executives give Microsoft credit for reaching out to them and trying to change what they see as its overly aggressive business style. Many attribute that to the work of Dan'l Lewin, who now runs Microsoft's Silicon Valley campus after stints at Apple Computer and two once-promising Valley start-ups that failed, Next and Go.

Since arriving at Microsoft three years ago Lewin has systematically tried to break down the animosity by acting as a business diplomat between his company and Silicon Valley.

"It's been a troubled relationship, but it's better than it ever has been," said William R. Hearst III, a partner at the venture firm of Kleiner Perkins Caufield & Byers and a former Sun board member.

From the point of view of both Microsoft and Sun executives. the new alliance was the natural consequence of new Internet technology that forced them together. The war over differing standards for operating computers no longer makes sense, they said.

"Whether it's household plumbing or the railroads, at some point you have to standardize the connections," Lewin said.