Microsoft agrees to $1.1 billion class settlement

PC World - Hundreds of thousands of California consumers and schoolchildren could benefit from an estimated $1.1 billion settlement by Microsoft Corp. in a class-action antitrust suit announced late yesterday.

The deal calls for Microsoft to offer vouchers, ranging from $4 to $29, to California customers who purchased Microsoft software between Feb. 18, 1995, and Dec. 15, 2001. Two-thirds of the amount not claimed by individuals will be donated to 4,700 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 law firm that brought the suit nearly four years ago.

The vouchers vary in amount depending on which Microsoft product the customer purchased. Consumers and businesses can redeem the vouchers for rebates 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 products. Unlike under a previous proposal, the schools may even purchase 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 said.

Yesterday's settlement was structured specifically to address some of the objections raised a year ago, said Tom Burt, Microsoft's deputy general counsel for law and corporate affairs, at a hastily called news conference. "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," said plaintiff attorney Crew, who described the firm as "ecstatic" about the settlement.

Crew said he expects most of the claims to come from businesses, which keep detailed records of equipment purchases, but he added that the claim process should be simple enough to encourage consumers. No documentation will be required for small consumer claims, he said.

"We're going to distribute claim forms everywhere," Crew said. Information and claim forms will become available through electronic notices, including the Townsend 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 Crew's goal of 80% of the $1.1 billion in vouchers is claimed by class members, that leaves close to $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 represents the lion's share of the private antitrust cases pending against Microsoft in the wake of the federal action, said attorneys for the software maker. The settlement affects all 27 class actions in California, which Microsoft estimates as 4% 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 has 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 trial in the case was scheduled to begin in San Francisco before California Superior Court Judge Paul H. Alvarado next month. The imminent court schedule helped prompt Microsoft to settle, Crew said. The parties employed a professional mediator to help them reach a deal.

The settlement must still be presented to the judge, 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 estimate will happen by early fall, the class members get about four months to submit claims.

Also, Microsoft said the complete financial repercussions on the company are undetermined. Although the company estimates 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 will address any estimates of additional financial impact at a scheduled earnings call next week, he said.