Microsoft Agrees to Settlement for Schools
Microsoft Corp. said Tuesday that it would give $1 billion worth of software and related goods and services to needy schools in order to settle more than a hundred class-action antitrust lawsuits filed on behalf of millions of consumers.
Microsoft struck the tentative deal, which encountered immediate criticism, in talks with plaintiffs’ lawyers whose cases had been consolidated in federal court in Baltimore. The cases argue that Microsoft’s monopoly practices forced consumers to pay more than they should have for Windows and other computer programs.
At a hearing next week, the world’s biggest software company will ask District Judge Frederick Motz to create a national class of affected consumers and then move toward approving the deal.
“It is a settlement that avoids long and costly litigation for the company, and at the same time I think will really make a difference in the lives of millions of school children,” said Microsoft Chief Executive Steve Ballmer.
Some educators hailed the proposed five-year settlement, which would help the 14% of U.S. schools where 70% or more of the student body is eligible for meal assistance.
Yet consumers would get nothing under the accord. Microsoft would pay the class-action lawyers an additional amount set by Motz. Microsoft said it would take a $550-million charge before taxes in the current quarter to cover spending under the settlement.
Microsoft earns more than $2billion per quarter in profit. The company’s shares fell $1.14 on Tuesday to close at $65.40 on Nasdaq.
The settlement is another major step toward getting Microsoft out from under the cloud of litigation, Ballmer said.
The company recently reached a separate tentative arrangement to resolve antitrust suits filed by the Justice Department and nine states. The remaining piece of that case, pursued by California and eight other states, is considered the biggest continued legal threat to the firm.
The proposed class-action settlement will encounter fierce resistance by the court-appointed lawyers representing California consumers. It isn’t clear whether lawyers for California consumers will be allowed to independently pursue the case.
Those lawyers already have won class-action status in a San Francisco court and were proceeding separately from the claims consolidated in Baltimore. They say they were excluded from the negotiations because they were taking a harder line.
“The whole thing is so ludicrous,” said Richard Grossman of San Francisco’s Townsend & Townsend & Crew, the lead firm for 13 million California consumers. “We have been litigating the longest and most vigorously.”
Because the Baltimore cases were gutted, and many of them dismissed, in Motz’s earlier rulings, Grossman and some of the other California plaintiffs’ attorneys said Microsoft is trying to settle the weakest lawsuits and extend that settlement across the country.
They also complain that Californians will get no extra benefit from consumer laws that allow people here and in 16 other states to sue even though they bought software from companies other than Microsoft, typically computer makers.
Microsoft acknowledged that it faces a battle in Baltimore, where Townsend lawyers argued in a closed-door conference with Motz earlier this month that Californians alone could recover $3 billion to $9 billion at trial.
“Any time you have a high-profile class-action settlement like this, you’re always in for a fight,” said Seattle attorney Steve Berman, one of the company’s negotiators.
Microsoft will be aided by judges’ general desire to settle rather than oversee complex trials, by the favorable publicity generated by a deal that aids schools, and by the support of plaintiffs’ lawyers including Robert Lieff, a San Francisco attorney who had been helping manage the California consumer cases under the Townsend firm’s leadership.
Lieff and others involved in the talks said the objections of Townsend partner Eugene Crew already had prompted Microsoft to sweeten its offer by more than $300 million, mostly in the form of technical support for schools and in newer computers.
Among the deal’s early opponents is California Atty. Gen. Bill Lockyer, who is leading the remaining states fighting Microsoft.
Lockyer said he wanted to learn more about the plan, but giving schools more Microsoft products “just locks more people into their monopolistic system.”
“It’s a little like Big Tobacco being found guilty of selling cigarettes to minors, and the remedy is for them to agree to give them free cigarettes,” Lockyer said.
Lockyer said he plans to tell Motz his views. Federal judges often give deference to elected consumer-protection officials in such cases , but they are not bound to follow their recommendations.
Although the states’ lawsuits aim to change Microsoft’s business practices, it was left to private lawyers to seek disgorgement of improper profits, Lockyer said.
“That aspect of the alleged injury was left to the private class actions. That makes it frustrating when the result extends the Microsoft hegemony,” he said.
As in other class actions, the settlement would be advertised nationally and would allow individuals to object in court or “opt out,” that is, decline to be included. They could then sue on their own. But class-action lawyers such as Crew have been barred in the past from opting out mass numbers of people, such as all California customers, because that would make the settlement process unworkable.
Crew said he wants Motz to act on his own to exempt Californians.
Asked if such a move would kill the deal, Microsoft deputy general counsel Thomas Burt said the settlement has to be national. He declined to say how many people could opt out before Microsoft walked away.
Lawyers for both sides noted that it would be harder politically for big companies that purchase large amounts of Microsoft software to opt out and fight for more if doing so would jeopardize gifts to schoolchildren.
Under the settlement plan, Microsoft would give $150 million and provide as much as an additional $100 million to match others’ contributions to a new foundation, which in turn would give local grants to schools.
Among other things, the foundation will make 200,000 refurbished computers available each year for five years at a cost of $50 each. It also will offer to pay for one-third of the cost of other machines.
Microsoft will pay $160 million for a separate technical-support plan and $90 million to train educators over five years. And it will donate as much as $500 million worth of software for machines already owned by the schools.
Although the settlement plan provides some support for Apple Computer Corp. Macintosh machines and software, Crew said it would on balance help Microsoft in the education market, where Apple has enjoyed a nearly 50% share.
