Judge scuttles Microsoft private suit settlement

Peter Kaplan

BALTIMORE: A federal judge on Friday scuttled Microsoft Corp.'s proposal to

donate hundreds of millions of dollars worth of computers and software to

schools to settle the scores of class-action antitrust suits filed against the

software giant.

The settlement proposal was "thinly funded" and could have given

Microsoft an edge over its rivals in the market for school computers, US

District Judge J. Frederick Motz said in a 19-page ruling.

The settlement "raises legitimate questions since it appears to provide

a means for flooding a part of the kindergarten through high school market, in

which Microsoft has not traditionally been the strongest player (particularly in

relation to Apple), with Microsoft software and refurbished software," the

judge said in written opinion.

Apple Computer Inc. is a major supplier of computers to schools. Motz said he

agreed with critics of the deal who argued that the donation of free Microsoft

software in the settlement agreement "could be viewed as constituting

court-approved predatory pricing."

The ruling means Microsoft now will have to renegotiate the settlement or

fight the scores of suits in court.

The settlement would have resolved more than 100 class- action antitrust

cases pending against Microsoft. Class-action attorneys from California have

argued the money should be reimbursed directly to customers who were overcharged

for Microsoft software.

Microsoft's deputy general counsel Tom Burt said after the ruling that while

the company was disappointed with the judge's decision, it would not appeal. He

said company officials have not yet decided whether it will make any further

efforts to settle the case.

Burt said the Bellevue, Wash.-based company was confident it will prevail in

the lawsuits. The first of the class action trials are scheduled to begin this

summer in Mississippi and California, but Burt predicted the cases would be

pushed back. Microsoft shares closed down 67 cents, or nearly 1 percent, to

$68.61 on Nasdaq.

Under terms of the proposed settlement Microsoft would have contributed at

least $400 million to a foundation designed to get computers into schools in

impoverished neighborhoods. Microsoft would have contributed more money to match

funds raised by the foundation and would have donated free software.

Mediation failed



Motz's decision came a day after Microsoft and the dissenting class action
attorneys ended talks with a court-appointed mediator that were aimed at

reaching a compromise.

Motz said the proposal might have been acceptable if Microsoft had agreed to

fund the settlement entirely with its own cash to buy computers and software for

schools rather than relying largely on donations and its own free software.

"Having donated the money to create the fund, Microsoft could then

compete with other software manufacturers to sell licenses for its products to

the eligible schools through the grants program," the judge said.

In his ruling, Motz also suggested Microsoft could make the deal more

palatable by contributing more money for the purchase of non-Microsoft software,

or more money for the purchase of new computers.

Burt said the ruling "offers a number of different approaches (to amend

the settlement) that we can think about," Burt added. "We're

considering all of those and remain open to resolving the case if we can do so

in a way that's fair and reasonable to Microsoft and our customers."

The private suits are separate from the landmark antitrust case being heard

in Washington. Microsoft agreed last month to settle that case with the US

Justice Department and nine of the states that had joined in the suit.

Nine other states have said that settlement is inadequate and proposed their

own remedies in a filing with US District Court Judge Colleen Kollar-Kotelly.

Judge Motz in the Baltimore court had expressed reservations about the private

suit settlement during three days of hearings on the matter last month. On Dec.

10 he ordered the two sides into mediation in a last-ditch effort to try to find

a compromise.

The settling attorneys told Motz the deal is better for consumers than trying

to divvy up money among individuals. Consumers would get as little at $10 apiece

if Microsoft had agreed to reimburse them directly, they said. But the

California attorneys criticized it as a legal ruse that will further the

company's dominant position in the computer business and give it a leg up over

Apple Computer Inc. in the school market.

The California class-action lawyers had complained that the nationwide

settlement was negotiated without their input, even though consumers in the

state have a strong case against the company.

(C) Reuters Limited.