Feeds

IBM's audit: fear and loathing in the MS relationship

As the count progressed, a 'kiss and pay up' policy emerged...

  • alert
  • submit to reddit

The Essential Guide to IT Transformation

MS on Trial One of the big surprises from the evidence of Garry Norris has concerned the issue of IBM having underpaid royalties to Microsoft. Microsoft decided to link the negotiation of a Windows 95 licence to agreement about the audit of royalties due, realising this would speed matters up, since IBM's need for the final Windows 95 code was very great. It was therefore not possible for IBM to suppress the information that came to light. It was revealed by Richard Pepperman, counsel for Microsoft, that it was Jim Miller, a contract manager in IBM's procurement division, who had first threatened to suspend negotiations of the Windows 95 agreement until the audit was resolved. An internal IBM email noted that "Microsoft estimates $50-$100 million in underpayments based upon past experience with IBM." Norris responded: "Counsellor, that may have been Microsoft's position, but it certainly wasn't IBM's". Pepperman tried the old trick of pointing out that Miller left IBM a year later - as though there was a connection - without actually saying so, but his innuendo was ineffective. Miller's successor, Jerry Casler, revealed in an internal IBM email after a meeting with the OEM controller and the OEM director of operations from Microsoft, that "Restating what everyone knows, Microsoft is extremely upset with us and, in my judgment, with good reason. There is an unacceptable level of emotion and distrust. The root of this is a lack of communication and sharing of information across the board. This has been exacerbated by late and inaccurate payments (most frequently under-payments) the length of time the audit is taking and the fact that, in their view, we have so tightly locked the auditors with the confidential disclosure agreement that Microsoft won't have reasonable ability to validate it has been paid accurately." Jerry York, IBM's CFO, called Mike Brown, then Microsoft's CFO, presumably to apologise, and the email indicates that the call was "well-received". The audit was not finally agreed until the day of Windows 95 release. IBM had been doing an internal accounting review and found that there had been underpayment of royalties to the tune of $16.7 million - more than 20 percent of the amount due for LAN Manager and OS/2. A further $14 million was agreed, and the audit was settled. ® Complete Register trial coverage

Boost IT visibility and business value

More from The Register

next story
iPad? More like iFAD: We reveal why Apple fell into IBM's arms
But never fear fanbois, you're still lapping up iPhones, Macs
Sonos AXES support for Apple's iOS4 and 5
Want to use your iThing? You can't - it's too old
Amazon says Hachette should lower ebook prices, pay authors more
Oh yeah ... and a 30% cut for Amazon to seal the deal
Philip K Dick 'Nazi alternate reality' story to be made into TV series
Amazon Studios, Ridley Scott firm to produce The Man in the High Castle
Too many IT conferences to cover? MICROSOFT to the RESCUE!
Yet more word of cuts emerges from Redmond
Joe Average isn't worth $10 a year to Mark Zuckerberg
The Social Network deflates the PC resurgence with mobile-only usage prediction
Chips are down at Broadcom: Thousands of workers laid off
Cellphone baseband device biz shuttered
Feel free to BONK on the TUBE, says Transport for London
Plus: Almost NOBODY uses pay-by-bonk on buses - Visa
Twitch rich as Google flicks $1bn hitch switch, claims snitch
Gameplay streaming biz and search king refuse to deny fresh gobble rumors
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
Backing up Big Data
Solving backup challenges and “protect everything from everywhere,” as we move into the era of big data management and the adoption of BYOD.
Boost IT visibility and business value
How building a great service catalog relieves pressure points and demonstrates the value of IT service management.
Why and how to choose the right cloud vendor
The benefits of cloud-based storage in your processes. Eliminate onsite, disk-based backup and archiving in favor of cloud-based data protection.