Microsoft Bids to Settle State Antitrust Cases

Times Staff Writer

Microsoft Corp. will pay as much as $1.1 billion to California businesses and consumers, under an agreement announced late Friday, to settle the strongest class-action antitrust cases against the software giant.

But the deal has strings: Cash will be disbursed only to those who buy more technology products and then submit a receipt.

If approved in court, the settlement with San Francisco plaintiffs’ attorneys would cover some 50 million purchases of Microsoft’s Windows, Office, Excel and Word programs from Feb. 18, 1995, and to 15, 2001.


The amount due to each Microsoft customer would vary.

The California accord is larger than a previously abandoned $1-billion national settlement. Lawyers argued that U.S. consumers were overcharged because Redmond, Wash.-based Microsoft stifled competition to its Windows operating system.

The earlier deal, which would have benefited only public schools, was thrown out as potentially inadequate by a Baltimore federal judge. Friday’s agreement leaves class-action cases pending in 16 states and the District of Columbia.

It takes Microsoft about six weeks to earn $1.1 billion.

The actual cost to the company would be less than that, because many of the reimbursements will be for Microsoft products and will reflect retail prices. Last year, Microsoft estimated that the $1-billion federal resolution would cost it roughly $660 million.

Of the money that goes unclaimed by California purchasers, two-thirds would go to cover technology purchases by the state’s poorer public schools. Microsoft would keep the rest.

Unlike the schools that would have been covered by the aborted nationwide settlement, California individuals, companies and schools would be reimbursed equally for buying products made by the software company’s rivals.

“California consumers and schools ... now will benefit from having greater choice on the computer software and hardware being given under this settlement,” said California Atty. Gen. Bill Lockyer, who had joined the San Francisco class-action lawyers in objecting to the Baltimore settlement.


San Francisco law firm Townsend & Townsend & Crew, had been preparing for a trial scheduled to start next month. Partner Richard Grossman said the amount of money available comes to more than 28% of what Californians spent on Microsoft products during the seven years at issue.

“This is among the highest settlements that have occurred under antitrust and consumer laws in California,” Grossman said.

Microsoft general counsel Brad Smith noted that the California case covered a large number of the national consumer claims that haven’t been dismissed.

He said the company would continue to seek other settlements in the remaining states.

“We’re very pleased with the progress we’ve been making,” Smith said.

Microsoft last year settled the government antitrust lawsuits of all but two states. With the biggest class-action suit now possibly out of the way, its top legal worries are an investigation by the European Union and private suits brought by AOL Time Warner Inc. and Sun Microsystems Inc. Federal judges have held that Microsoft improperly used its monopoly power to go after AOL’s Netscape Web browser and Sun’s Java programming language.

Figuring out the logistics of the reimbursement program may be only somewhat easier than understanding a new operating system.

The amount due to each California buyer depends on what they purchased from Microsoft. Each copy of an operating system would bring a $16 rebate. Each copy of Microsoft Office would be worth $29. Microsoft Excel would get $26 back and Word would fetch $5.


There would be no limit to the number of rebates per customer, and 80% of the money or more is expected to go to companies.

Assuming the deal is approved, advertisements, e-mail and letters should reach most buyers with the news. They would have four months from notification to obtain applications from Microsoft or a claims office, by mail or online.

Consumers with five or fewer software purchases could swear to their ownership, Grossman said. Any more would require a form of proof, which could reside inside the computers.

Once the claims office corroborated the claim and sent a voucher, the buyers would have four years in which to make a new computer or software purchase. They then would have to mail in the proof of that purchase along with the voucher to get reimbursed.

Similar settlement plans in other cases have left the vast majority of rebates unclaimed.

Grossman said that in most of those suits, the amounts at stake were smaller. But he conceded that when Townsend & Townsend asks the court to award its legal fees from Microsoft, the firm will seek cash, not coupons.