Microsoft Deal Response Weak
When Microsoft Corp. agreed last year to settle a massive class-action lawsuit by California customers who accused the company of overcharging them for its software, it pledged to pay them as much as $1.1 billion.
It turns out the company probably will shell out $165 million or less to customers. The reason: Most consumers either don’t know about the deal or are too lazy to fill out the forms.
With time running out for an estimated 14 million individuals, companies and others eligible to apply for their share of the money, only about 600,000 -- 4.2% -- have done so, according to settlement administrator Richard Redfern. The deadline for submitting claims could come as soon as mid-June.
The lawyers who fought the case on the consumers’ behalf could easily wind up with more money in their pockets than their clients. So could California public schools, which are entitled to collect technology discounts worth two-thirds of every unclaimed dollar.
Even assuming that businesses, which have the most money at stake, are seeking refunds at a much higher rate than individual personal computer owners, Microsoft probably will pay out less than $165 million to customers and perhaps $625 million to schools, experts involved in the case said last week.
The Redmond, Wash.-based software maker is on the hook for the costs of publicizing and administering the refund process, estimated to be about $25 million.
The plaintiffs in the case accused Microsoft of abusing its monopoly in the market for PC software to overcharge customers. The settlement covers those who purchased Windows, Office and other programs between Feb. 18, 1995, and Dec. 15, 2001.
Under the terms of the deal worked out last year, customers who apply for refunds will receive vouchers that can be used to buy computer-related merchandise during the next four years. Schools will also receive their windfall in the form of vouchers. A state judge in San Francisco could give the deal final approval as soon as next week.
The plaintiffs’ lawyers say that the 4.2% participation rate could be higher. They have asked the judge to extend the deadline for several more years.
Claims “are pouring in from across the state by the thousands every single day,” said Richard Grossman, an attorney with Townsend & Townsend & Crew in San Francisco. “They have not abated.”
But neither side says the low participation rate is a sign that the settlement is inherently flawed. They speculate that at least some customers who are entitled to refunds are forgoing them so that needy schools will get them instead.
Microsoft lawyers also say that many customers may not want to collect because they don’t feel they were overcharged.
“We see this as a kind of referendum” on Microsoft’s pricing practices, said Robert Rosenfeld, an attorney with Heller Ehrman White & McAuliffe in San Francisco who represents the company.
At $1.1 billion, the California class-action settlement is much richer than similar deals reached on behalf of consumers in eight other states and the District of Columbia. Those pacts have a combined value of $442 million. The terms of the most recent deal, reached last month in Minnesota, haven’t been revealed.
Class actions are still pending in six states. Lawsuits in many other states were thrown out because their laws didn’t allow consumers to recover antitrust damages when they buy software from third parties, such as computer manufacturers.
The dollar value of the settlement here is higher than in other states because California is home to many more computer users, and because each of then is entitled to a much bigger refund because a better deal was negotiated for the state.
For example, Californians can get $29 for each copy of Microsoft Office they purchased, while buyers in other states can claim only $5. All told, California purchasers can recoup 22% of what they spent on the relevant Microsoft goods, including $16 for each copy of Windows, $26 for each copy of the Excel spreadsheet program and $5 for each copy of Microsoft Word.
The court approved a $270,000 campaign to publicize and implement the settlement, including a website, www.microsoftcalsettlement.com, to distribute claim forms. No receipts are necessary for customers who purchased five or fewer items and seek less than $100 in reimbursement.
Even at 4.2%, the California participation rate is better than elsewhere. In Montana, only 1.8% of those eligible for refunds applied before the claims period ended, according to court documents. In Florida, where the second-largest settlement put $202 million up for grabs, just 1.9% had turned in claims as of a month ago.
If Microsoft customers on the whole haven’t invested the time to submit their claim forms, the lawyers representing them have shown no such lack of diligence.
The 35 law firms that spent as much as five years fighting the case have asked the court to award them $270 million in fees and expenses. They say they took a big financial risk by agreeing to go up against one of the world’s most powerful companies. And, they point out, they did a good job: In addition to negotiating more generous reimbursement amounts, their deal requires Microsoft to redirect two-thirds of unclaimed vouchers to schools instead of only one-half, as was called for in other settlements.
The lawyers turned in billing records for 209,000 hours they say they logged in the case. Altogether, the lawyers say their hourly rates add up to $51 million, and they have asked San Francisco Superior Court Judge Paul Alvarado to multiply that amount by 5.05 to account for the risk that they could have lost the case and received nothing. That would result in reimbursement at rates as high as $3,019 an hour -- or as much as $36,658 for one lawyer’s 12-hour day.
Microsoft -- which is on the hook for the fees in addition to the $1.1 billion due to consumers -- says that’s too much. It argues that the plaintiffs’ lawyers did nearly all of their work after a federal judge in Washington, D.C., issued extensive findings laying out Microsoft’s misconduct, and that document practically assured the plaintiffs would be able to extract a settlement, according to Mitchell Polinsky, a Stanford law and economics professor who testified on Microsoft’s behalf.
“More than a hundred other private class actions were filed nationwide shortly after the government’s initial success, which strongly suggests that these lawyers expected to be paid,” Polinsky told the San Francisco court.
Microsoft wants to limit the fees for the plaintiffs’ lawyers to $75 million, a figure the company believes is more in line with the amount of risk the lawyers took on. They point out that a $270-million fee would be the largest ever awarded in an antitrust class action and could trump the amount of money going back into customers’ pockets.
“I would tend to think that even class members who thought this was an important effort would be quite stunned by it,” said Microsoft attorney Rosenfeld.
Alvarado has praised the plaintiffs’ legal team, but he hasn’t indicated what fees he will award. A hearing on the fee issue is scheduled for today.
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Settlements
Here are the maximum amounts that could be paid in the class-action lawsuits brought by states and the District of Columbia against Microsoft.
*--* Amount Entity (in millions) California $1,100 Florida $202 North Carolina $89 Tennessee $64 Kansas $32 West Virginia $18 Montana $12.3 South Dakota $9.3 North Dakota $9 Washington, D.C. $6.2 Minnesota $Undisclosed
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Cases are pending in Arizona, Iowa, Massachusetts, Nebraska, New Mexico and Vermont.
Dollar figures represent the maximum amount, in vouchers and rebates, that can be claimed by buyers of Microsoft products. Except in California, the unclaimed amounts will be split evenly between Microsoft and needy schools. In California, two-thirds of the amount unclaimed will go to the schools, with the remainder going to Microsoft.
Source: Microsoft
