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Microsoft agrees to settle lawsuits

Firm offers $1 billion PC, software donation

Logo - Mercury NewsNov. 20, 2001 | San Jose Mercury News

By Kristi Heim

On the heels of its settlement with the federal government, Microsoft on Tuesday proposed settling more than 100 private antitrust cases by donating software, computers and training it valued at $1 billion to the nation’s poorest public schools.

The deal, which must be approved by a federal judge in Baltimore, would settle a group of lawsuits filed on behalf of consumers who claimed that Microsoft used its monopoly on personal computer operating systems to overcharge them for its products.

If approved by U.S. District Judge Frederick Motz, the settlement would apply to cases and schools nationwide. Roughly one out of seven schools would qualify for the free software and computers, according to Microsoft.

But attorneys representing California plaintiffs are urging the judge to reject the settlement, saying it doesn’t rein in Microsoft’s monopoly practices or return enough money to the state’s customers.

California Attorney General Bill Lockyer, who is leading a group of states fighting Microsoft’s settlement with the federal government, said Tuesday’s deal is like “a tobacco company found guilty of marketing its cigarettes to school kids, and the remedy once they’re caught is to volunteer to give them free cigarettes.”

“The problem with Microsoft’s behavior is they hook people into their bundle of products and services, so giving away free software is a way of expanding their monopoly dominance, not preventing it,” said Lockyer, who is urging Motz to consider other options.

Microsoft Chief Executive Steve Ballmer called the settlement “a fair and reasonable solution that will benefit consumers, the high-tech industry and the overall U.S. economy.”

“It avoids long and costly litigation for the company and at the same time it will really make a difference in the lives of schoolchildren in some of the most economically challenged places in the country,” Ballmer said.

Reconditioned PCs

Microsoft admitted no wrongdoing in agreeing to the settlement, which would require the company to provide reconditioned computers, software, technical support and computer training to more than 12,000 public schools serving 7 million students in low-income neighborhoods. Schools in which at least 70 percent of students qualify for government-subsidized lunch programs would be eligible.

The deal would include a $150 million grant to seed a national foundation, with $100 million more available to match donations from other sources.

Microsoft will also pay $160 million for technology-support programs, contribute $90 million for training of teachers and other personnel, and donate software it values at more than $500 million. The judge will determine the amount of the plaintiffs’ attorney fees to be paid by Microsoft in addition to the other payments in the settlement.

Microsoft must also offer at least 1 million reconditioned Pentium-class Windows PCs and Macintosh computers over five years to schools at a price of $50 each.

Separate from the private antitrust cases, the long-running government antitrust case against Microsoft is still proceeding on two legal tracks. U.S. District Judge Colleen Kollar-Kotelly has begun a review process to determine if the Justice Department settlement reached Nov. 2 is in the public interest. And she has scheduled hearings in March on the continuing effort by the states, including California, to impose a harsher remedy.

The unusual settlement was the idea of Washington plaintiffs’ attorney Michael Hausfeld of Cohen, Milstein, Hausfeld and Toll.

“Given all we know about the law, the number of people and minimal amounts of recovery, it was a gamble that made more sense to settle,” he said. After months of negotiation, he estimated each plaintiff would only get about $10, an amount that might not even cover the administrative costs of locating them and issuing checks, he said.

Microsoft’s choice

Lockyer said even though the specific amounts to individual plaintiffs in a traditional settlement might be small, there could be other, better ways to serve the public good. For example, he said, a settlement award could be divided among states and given to education departments to help schools modernize computer education in ways they, and not Microsoft, choose.

Terry Gross of Gross & Belsky in San Francisco, a lawyer involved in the California class-action, said the settlement is “no punishment to Microsoft. They are going to take a huge tax write-off for the full value of the software. They’re going to end up with hardly any detriment at all.”

Experts differed on the actual value of the deal, which Microsoft put at $1 billion, including a pretax charge of approximately $550 million this quarter.

“Does it actually address the issue of Microsoft’s power? No,” said Andrew Blau, a digital-divide expert in New York City. “Does it answer the question brought on by the lawsuit? No. Does it extract something of value? Yes.”

“I’m glad to see there is a significant training budget,” said Eric Roberts, Stanford University professor of computer science. “But when you do the math, the actual amount that will be appropriated to each of those schools will be too small.”

Others were more skeptical.

“Forced philanthropy” may not seem punitive enough, observed Stacy Palmer, editor of the Chronicle of Philanthropy. But, she added, “I’m not sure whether paying fines would do much for the world.”