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Microsoft to pay $1bn for private antitrust settlement

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CIOL Bureau
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Peter Kaplan

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WASHINGTON: Microsoft Corp. said on Tuesday it had reached a deal to settle a

raft of private antitrust cases that would require the company to spend over a

$1 billion to put software and computers into some of the poorest US schools.

If approved, the deal would close another chapter in the software giant's

legal saga, while aiding Microsoft make further inroads into the nation's

schools, which once were dominated rival Apple Computer Inc.

"It is a settlement that avoids long and costly litigation for the

company and at the same time ... really makes a difference in the lives of

millions of school children in some of the most economically disadvantaged

schools in the country," Microsoft Chief Executive Officer Steve Ballmer

told reporters on a conference call.

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The five-year program would settle class action claims that Microsoft abused

its monopoly over personal computer operating systems and overcharged millions

of people for software. Microsoft said it would file the settlement agreement in

federal court in Baltimore later on Tuesday and take a $550 million charge

before taxes against earnings in the current fiscal quarter if the pact is

approved by the court.

The software giant, which agreed earlier this month to settle its separate

3-year-old case with the Justice Department, would assist over 12,500 schools

serving nearly seven million children under the settlement of the private suits.

But some class action attorneys in California are opposing the deal, arguing it

does not adequately reimburse consumers in that state, according to sources.

Also, the legal cloud hanging over Microsoft will not evaporate completely

since nine states are still pursuing tougher sanctions against the company for

past antitrust violations and there is the specter of new legal challenges based

on the new Windows XP operating system. Microsoft shares closed down $1.14, or

1.7 per cent, to $65.40 on Nasdaq. Its 52-week trading range has been a high of

$76.15 and a low of $40.25.

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More computers in schools



As part of the settlement, Microsoft said it would establish a foundation
with $150 million in seed money to make grants to local community organizations

and foundations to buy computers and software, regardless of the manufacturer.

It also said it would match up to another $100 million in donations. Another

$160 million will be made available for technology support programs and $90

million over five years for training to integrate technology into school

curriculum.

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Red Hat Inc., the maker of the Linux operating system that competes against

Microsoft, proposed on its own offering every school district in the country its

own open- source software free of charge, while encouraging Microsoft to spend

its money on buying more hardware for the schools.

"We do not think that the remedy should be a mechanism by which

Microsoft can further extend its monopoly," Matthew Szulik, chief executive

of Red Hat said in a statement. "By providing schools with a software

choice, Red Hat will enable Microsoft to provide many more computers to these

schools."

One source said the proposed settlement came from one of the lead plaintiffs'

lawyers in the case, who concluded that each of the 65 million computer buyers

represented would receive as little as $10 in a settlement or court victory.

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"This is an innovative and visionary settlement that resolves these

complex lawsuits by providing great benefits to public schools," said

Michael Hausfeld of Cohen, Milstein, Hausfeld & Toll, one of the lead

plaintiffs' lawyers.

Public relations boost



Still, the deal gives Microsoft a big public relations boost while helping to
promote its software in primary and secondary schools that have been dominated

by Apple. Apple could not be reached immediately for comment.

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Asked if Microsoft would use the settlement to capture a greater share of the

educational software market from Apple, Microsoft's Ballmer noted the money can

be used to buy any kind of software, not just Microsoft's. "So I don't view

it as some big thing about market share," Ballmer said.

The giveaways would go to any school with at least 70 per cent of its

children on subsidized school lunch programs, roughly 14 per cent of the

nation's schools. Microsoft said it would provide additional detail on the

financial impact of the proposal later in the week. If the deal is approved by

US District Court Judge J. Frederick Motz, about 100 private antitrust class

action claims will be dropped.

Even more importantly, settlement of the private claims could increase

pressure on the remaining state attorneys general who are still pursuing

Microsoft in the government case to settle as well, another source said. On Nov.

2 the company reached a settlement with the US Justice Department designed to

restore competition in the personal computer software market. Nine of the 18

states involved in the case joined that pact within days.

A federal appeals court in June upheld a lower court ruling that the company

used illegal tactics to maintain its Windows personal computer operating system

monopoly. With the private settlement, Microsoft can now portray the remaining

states in the government case as isolated hold-outs, one source said.

(C) Reuters Limited.

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