Teaching Microsoft To Make Nice?

In late 2001, when Bradford L. Smith was bidding to become Microsoft Corp.'s (MSFT ) general counsel, he put together a PowerPoint presentation for senior execs that consisted of a single slide. The message was simple and potent: It's time to make peace. Microsoft's longtime legal deputy argued that the software giant should alter its legal tactics -- and business practices -- to improve its relationships with regulators and tech companies. Smith found a receptive audience in Chairman William H. Gates III and Chief Executive Steven A. Ballmer. The company was just then putting the finishing touches on a tentative settlement with the Justice Dept. that would finally end a bitter four-year antitrust battle, and they were willing to try something new. "I felt like I not only got the job, I got something of a mandate," Smith recalls.

In fact, Smith's appointment signaled a major shift for the tech industry's schoolyard bully. For most of its 29 years, Microsoft rarely shied away from a court fight. But in the past two years, the company has aggressively resolved litigation with governments and companies, settling nearly two dozen cases and shelling out $5 billion to plaintiffs in the process. In addition to the deal with the Justice Dept., Microsoft settled disputes with AOL Time Warner, Sun Microsystems (SUNW ), and smaller companies such as Be Inc. Outsiders say the mild-mannered, 45-year-old Midwesterner has been a key part of the change. "A big reason we were able to reach a settlement was because of the trust I had in Brad," says Paul T. Cappuccio, general counsel for Time Warner Inc. (TWX ), which received $750 million when it settled its antitrust suit against Microsoft in May, 2003.