Subject: Re: How the mighty can fall

The need for an operating system: In 1980, IBM needed an operating system for its upcoming personal computer. They initially approached Digital Research Inc. (DRI), a company that was the leading vendor of operating systems for personal computers with their CP/M system.

A deal falls through: Negotiations between IBM and DRI for a licensing agreement failed over financial terms. IBM wanted a one-time purchase, while DRI wanted a per-copy royalty fee.

Microsoft's opportunity: In the meantime, Bill Gates of Microsoft learned about 86-DOS, a CP/M-compatible operating system created by Tim Paterson at Seattle Computer Products. Paterson had written 86-DOS based on the publicly available CP/M technical documentation.

MS-DOS is born: Microsoft purchased the rights to 86-DOS for $50,000 with an agreement to provide, cost-free, any "updated" code to . They then licensed this system to IBM as the "IBM PC DOS" for a one-time fee of $50,000, while retaining the right to license it to others as MS-DOS.

Gary Kildall's reaction: When Gary Kildall found out about the deal, he threatened IBM with a lawsuit, claiming that MS-DOS was a copy of CP/M.

IBM released the PC with CP/M initially, which gave Bill Gates the time to re-write section of code that were in question. Then PC-Dos was released
The outcome: IBM responded by agreeing to make CP/M-86 available for the PC as well. However, they priced CP/M-86 at $240 and MS-DOS at $40, ensuring most customers chose the cheaper option. CP/M-86 was too late and too expensive to gain market share.

The controversy
CP/M influence: Critics, including Kildall and some forensic experts, argued that 86-DOS and MS-DOS were so similar to CP/M that it was a form of copyright infringement, though 86-DOS was technically a different product.

Paterson's stance: Tim Paterson insisted that he did not copy the CP/M code but instead created his OS based on the CP/M manual's specifications.
Legal and forensic evidence: While DRI's lawyers claimed there was evidence of infringement, a 2012 analysis of the code by a software expert found no evidence of direct copying from CP/M into 86-DOS or MS-DOS.

Seattle Computer Products (SCP) sued Microsoft in 1986, with the trial beginning that year and an out-of-court settlement reached in December. The lawsuit stemmed from a 1981 agreement regarding the licensing of the 86-DOS operating system, which SCP claimed Microsoft had misrepresented.

The conflict: The lawsuit arose from a 1981 agreement for the operating system SCP had developed, which Microsoft had bought the full rights to. SCP sued, alleging fraud and unfair competition, claiming Microsoft had not been truthful about IBM being a licensee, and that the original agreement was not meant to be exclusive. They claimed Microsoft owed them license to sell the re-write from PC/MS-DOS to version 2.0 and Microsoft said that, since it was not the same code, it was not covered by the agreement.

The trial and settlement: The trial started in late 1986. While the jury was deliberating, Microsoft and SCP reached an out-of-court settlement. Microsoft paid SCP $925,000 to end the litigation and to buy back all existing license agreements which gave SCP enough money to pay off their attorneys.

Seattle Computer Products (SCP) went out of business in the late 1980s, with a factory fire in 1984 contributing to its closure. The company struggled to compete as the market shifted to PC-compatible computers after Microsoft's acquisition of its operating system, 86-DOS and as they had lost the ability to sell a perpetual license to MS-DOS to another vendor due to the outcome of the lawsuit.

Jeff