Judge throws out MS school deal
Published: 14 Jan 2002 09:40 GMT
A federal judge in Baltimore on Friday rejected a controversial settlement that would have ended more than 100 private class-action lawsuits against Microsoft.
In his 21-page ruling, US District Judge J. Fredrick Motz agreed with opponents that the proposed deal in the antitrust cases would be itself be anti-competitive. He also said that the private cases had not been developed far enough to determine the extent of damages that could have been obtained through litigation.
Under terms of the proposal, Microsoft would have given $1bn (£700m) in money, software, services and training to about 12,500 underprivileged public schools. The company also would have given about 1 million Windows licenses for refurbished PCs donated to the schools.
The judge concluded that the level of funding for the schools and for a private foundation to administer the donations was insufficient, a shortfall that was "more acutely problematic when viewed in the context of the proposed settlement's potential adverse impact on competition".
Opponents of the settlement proposal, including Apple Computer, had argued the proposal was anti-competitive, as it would help Microsoft make software gains in the education market.
Microsoft expressed dissatisfaction with the ruling, and optimism that it would eventually carry the day in the court proceedings. "While we are confident we will ultimately prevail in these lawsuits, we are disappointed that competitors and trial lawyers have blocked a real opportunity with very real, significant social benefits," company spokesman Jim Desler said.
On the surface, Motz wrote, the proposal would appear to be "platform neutral... However, the agreement raises legitimate questions since it appears to provide a means for flooding 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 PCs."
Motz noted that refurbished computers donated to schools largely come from governmental agencies, "and 95 percent of them use PCs rather than Macs". He concluded that this factor would lead to an "increase in the number of PCs, both absolutely and in comparison to Macs, being used by eligible schools". The likely outcome would be a decline in the development of software designed for use in the Apple computers, further reducing the attractiveness of Apple products over time, he said.
Giving away software to schools also raises antitrust concerns, Motz concluded. He agreed with opponents who argued that the software giveaway could be viewed as "court approved predatory pricing".
"Good for the judge," said Bob Lande, an antitrust professor with University of Baltimore Law School. "The judge is protecting the public from getting ripped off by Microsoft and the coalition of greedy plaintiff attorneys."
Apple could not yet be reached for comment.
Motz also rejected the deal because he concluded that the court record had not been developed enough to reasonably assess what damages the plaintiffs might have obtained in court. He added that the $1bn value did not fall into "the range of possible approval".
"In other words, it is too low," Lande said.
A string of setbacks
Rich Gray, a Silicon Valley-based attorney closely following the matter, said that Motz's conclusion--that the cases developed sufficiently for the judge to be comfortable with a billion-dollar settlement--bodes ill for the software maker.
"(That) is potentially ominous news for Microsoft," he said. "It does not guarantee that the ultimate number for a new settlement will be significantly higher, but it certainly suggests that as a possibility."
Motz's rejection of the settlement is the second court setback for Microsoft this week, and a possible foreshadowing of more trouble ahead. In a separate antitrust case, US District Judge Colleen Kollar-Kotelly on Monday rejected a request that would have delayed a remedy hearing by four months.
In November, the Justice Department and nine of 18 states settled Microsoft's nearly 4-year- old case. Nine other states and the District of Columbia decided to continue litigating the case, which would lead to a March remedy hearing.
In court on Monday, Kollar-Kotelly indicated that she would not necessarily separate the Justice Department's proposed settlement from a harsher proposed remedy put forth by the nine states that have continued the litigation. Options would include a single remedy or new round of settlement talks.
"One has to start wondering if the positive momentum Microsoft had with its two settlements at the end of 2001 has not been severely set back by this ruling (in the class-action lawsuits), combined with the ruling in the government case earlier this week," Gray said.
The latest developments suggest, Gray said, that the remedies sought by the dissenting states, not the Justice Department settlement, "will define the outer limits of the injunction ultimately entered against Microsoft in the government lawsuit".
Microsoft wasn't the only party dismayed by Motz's ruling on Thursday. So were a number of the plaintiffs.
"We're disappointed, of course, in the outcome," said Dan Small, an attorney with Washington, DC-based Cohen Milstein Hausfeld and Toll. The firm represented the largest group of the cases, those that had been consolidated in federal court.
"We worked hard to put together a settlement that we believe would have done a lot of good for the most disadvantaged schoolchildren in this country," Small said. "But we respect and understand the court's decision, and we are not prepared to aggressively litigate the case against Microsoft."
Another group of attorneys, led by Eugene Crew of Townsend, Townsend & Crew in San Francisco, led a California coalition of plaintiff attorneys who opposed the deal.
Small took a dim view of the possibility that the settlement would be revived. "The court gave a pretty clear roadmap what we would need to do to fix the problems," he said. "But, of course, it depends on whether Microsoft wants to proceed down that path."
First and foremost, Microsoft would have to cough up more money to fund the foundation. The software maker would have contributed about $400m to that organisation.
"The judge made it clear that without more money, he doesn't think the foundation can accomplish its purposes without avoiding any anti-competitive effect," Small said.
Think it's all over? The antitrust case against Microsoft can still go back the to Court of Appeals, and then there's the European Commission's investigation... See ZDNet UK's DoJ/Microsoft News Section for the latest headlines.
For a round-up of the latest tech business coverage, see the Business News Section.
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