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Microsoft, Seattle Computer Settle Suit

December 16, 1986

SEATTLE (AP) _ The computer software giant Microsoft Corp. and a company that accused Microsoft of fraud have settled a lawsuit out of court after nearly three weeks of testimony, Microsoft announced.

Seattle Computer Products Inc. claimed in its $60 million lawsuit that a 1981 agreement with Microsoft gave it the right to produce and sell the software system MS-DOS as part of personal computers made by Seattle Computer.

Under the settlement announced late Monday, Microsoft will purchase back all its license agreements with Seattle Computer for $925,000, said Microsoft spokesman Marty Taucher. Microsoft had seven license agreements with Seattle Computer, he said.

Taucher refused to elaborate and said Microsoft executives would not comment. Seattle Computer Products officials and attorneys were not immediately available for comment.

If Seattle Computer’s claim to MS-DOS had been upheld in the courts, it could have threatened Microsoft’s exclusive hold on the market for operating systems for International Business Machines Corp. personal computers and compatible models.

Royalties from MS-DOS are Microsoft’s largest single source of revenue, accounting for about $75 million of the company’s sales and about half its operating profits last year.

MS-DOS, or Microsoft Disk Operating System, is a software system that dictates how a computer stores, organizes and moves information. It has become the standard operating system for PCs.

MS-DOS is a modified version of a system invented by a Seattle Computer programmer in 1980. Microsoft purchased that system in 1981.

Seattle Computer of Kent filed suit against Redmond-based Microsoft in King County Superior Court.

The trial centered on a disputed part of the 1981 contract that gave Seattle Computer the right to use and sell all future versions of MS-DOS.

Seattle Computer claimed the contract gave it rights to several modified versions of MS-DOS designed to operate with microprocessors invented after the contract was signed.

However, Judge Gerard Shellan in November ruled the rights only applied to computers based on a microchip used in 1981. Most PCs today are based on more modern chips.

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