January 12, 2002


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Microsoft donation plan rejected
Judge cites funding, competition fears

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By Rob Kaiser, Tribune staff reporter. Tribune news services contributed to this report
Published January 12, 2002

Microsoft Corp.'s proposal to donate computers and software to public schools was rejected Friday by a federal judge, who said the settlement agreement to a class-action lawsuit was "critically underfunded" and could give the software giant a competitive edge in the school computer market.

The lawsuit accuses Microsoft of using its monopoly power to overcharge consumers for its products. The class-action suit, which began in 1999, is unrelated to the landmark antitrust case brought by the federal government and states against Microsoft.

Attorneys for Microsoft and some of the plaintiffs agreed last month to the donation settlement, which Microsoft valued at $1 billion. It was immediately opposed by rival Apple Computer Inc., and some education officials voiced concerns.

"The agreement 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 PCs," U.S. District Judge J. Frederick Motz wrote in his opinion.

Attorneys for both sides said they're prepared to return to court if another settlement can't be reached and approved by the judge.

Dan Small, a plaintiffs' attorney who helped craft the rejected settlement, said he was "disappointed" in Motz's decision.

"We worked hard to put together a settlement that we believed would have done a lot of good for poor students in this country," Small said. "We are prepared now to litigate aggressively against Microsoft."

Microsoft lawyer David Tulchin said, "We are willing to litigate, and we have done well so far."

Nicholas Economides, an economics professor at New York University's Stern School of Business, said Friday's ruling should not have an impact on the antitrust case.

"This is purely a monetary issue," he said. "As far as how the company is run, this case doesn't make any difference."

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.

Motz said he agreed with critics who argued that the donation of free Microsoft software in the settlement agreement "could be viewed as constituting court-approved predatory pricing."

The proposal might have been acceptable, Motz said, if Microsoft had agreed to fund the settlement entirely with 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.

The settling attorneys told Motz the deal is better for consumers than trying to divvy up money among individuals. Consumers would get about $10 each if Microsoft had agreed to direct reimbursement, 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 in the school market. Apple contends that it maintains nearly half the precollege education market.

Last month, Microsoft reached a settlement in the landmark antitrust case with the federal government and nine states. Nine other states, though, oppose the deal that calls for Microsoft to free computer-makers to feature rival software on their machines.

The states in opposition support a stricter penalty, such as breaking up Microsoft.

Copyright 2002, Chicago Tribune

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