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Microsoft
donation plan rejected
Judge cites funding,
competition fears
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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