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Microsoft in US$1.1 billion class settlement

Microsoft in US$1.1 billion class settlement

Hundreds of thousands of Californians and California schoolchildren could benefit from an estimated US$1.1 billion settlement by Microsoft in a class-action antitrust suit.

The deal calls for Microsoft to offer vouchers, ranging in amount from $US4 to $US29, to California customers who purchased Microsoft software between February 18, 1995, and December 15, 2001. Two-thirds of the amount not claimed by individuals would be donated to 4700 of California's neediest schools, according to Brad Smith, Microsoft general counsel, and Eugene Crew, lead counsel for Townsend and Townsend and Crew LLP, the San Francisco firm that brought the suit nearly four years ago.

The vouchers vary in amount depending on which Microsoft product the customer bought. Consumers and businesses who get them can redeem the vouchers for a rebate on the purchase of additional technology products, and not just Microsoft products.

Likewise, the schools can use their share of the settlement toward the purchase of any technology products and professional training for teachers. Half of that award, through the California State Department of Education, will be in Microsoft software - including Macintosh software often used by schools - and half in vouchers that can be used for the purchase of various technology. Unlike a previous proposal, the schools may even buy equipment produced by Microsoft competitors.

In fact, an earlier proposed settlement in a consolidation of similar class action antitrust cases stalled almost exactly a year ago when a U.S. district court judge in Baltimore rejected the deal after some competitors and consumers complained. That abandoned deal would have let Microsoft settle the suit by donating its own software to schools, and establishing a charitable foundation to distribute technology. It also would have prevented this deal, the California attorneys note.

Microsoft's deputy general counsel for law and corporate affairs, Tom Burt, said that the settlement was structured specifically to address some of the objections raised a year ago.

"We believe this settlement to be platform-neutral, because the award can be used for non-Microsoft operating system purchases," Burt said.

"This (agreement) is a world of difference," Crew said, describing the firm as "ecstatic" about the settlement.

He expected most of the claims to come from businesses, which keep detailed records of equipment purchases, but said the claim process would be simple enough to encourage consumers. No documentation would be required for small consumer claims.

"We're going to distribute claim forms everywhere," Crew said. Information and claim forms would become available through electronic notices, including the Townsend and Townsend and Crew Web site. "We're trying to make the claim rate as high as possible, to make the vouchers as valuable as we can."

Under terms of the deal, one-third of the value of the unclaimed vouchers reverts to Microsoft, which maintains no admission of fault or any violation of the law in the matter. Microsoft's attorneys pointed out that in many class action cases, all unclaimed damages revert to the defendant.

But even if 80 per cent of the $US1.1 billion in vouchers is claimed by class members - Crew's goal - that leaves nearly US$66 million for California schools. "That's still a lot of money for tech education," Crew said.

The case, like others by governments and corporations in 34 other states, was bolstered after Microsoft was declared to have abused its monopoly status in the federal antitrust case. A settlement in the federal case, initially brought by the U.S. Department of Justice and 18 states, was approved last fall. Presiding U.S. District Judge Colleen Kollar-Kotelly recently disapproved the tougher penalties sought by some of the states, and two remaining states are appealing the federal settlement.

The settlement represented the lion's share of the private antitrust cases pending against Microsoft in the wake of the federal action, said attorneys for the software giant. It settled all 27 class actions in California, which Microsoft estimated was 40 per cent of the potential total of the suits, Smith said.

"It took a huge amount of work on both sides, but we believe this agreement marks a significant step forward in our work to resolve our antitrust legal issues," Smith said. "We feel very good we've put these cases behind us in California."

With this action, the company had reduced the actions pending in 35 states to 16, Burt said. Microsoft won some cases and settled others.

The action, with its potential benefit to public schools, also comes at an opportune time for California, which is facing a $35 billion budget shortfall.

The settlement still must be presented to California Superior Court Judge Paul H. Alvarado, and potential class members must be given the option to not participate - leaving open an individual's choice to appeal. After the Superior Court gives final approval, which Microsoft's attorneys estimated would happen by early fall, the class members get about four months to submit claims.

Microsoft said the complete financial repercussions on the company were undetermined. While the company estimated the value of this settlement at $1.1 billion, it took a financial charge of $660 million in the last fiscal year "as the best estimate of what it would cost us to settle all outstanding cases at the time," Smith said. The company would address any estimates of additional financial impact at a scheduled earnings call in the near future.


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