Wednesday, November 21, 2001

SEATTLE (AP) Microsoft Corp. said yesterday it will give some of the nation’s poorest schools more than $1 billion in computers, software, training and cash to settle most of the private antitrust lawsuits filed against the huge software company.

But lawyers for some of the plaintiffs warned they would oppose the plan, calling it “pathetic and a sweetheart deal for Microsoft.”

The proposed settlement, to be disbursed over five years, would pay for teacher training, technical support, refurbished computers and copies of Microsoft’s most popular software, such as Windows and Office, at more than 12,500 schools, company spokesman Matt Pilla said.

“It is a settlement that avoids long and costly litigation for the company, and at the same time, I think it will really make a difference in the lives of some of the most disadvantaged students in the country,” Microsoft Chief Executive Steve Ballmer said in a conference call with journalists.

Microsoft admits no wrongdoing.

The settlement could put to rest most of the private lawsuits contending Microsoft abused its monopoly power in the software market and overcharged millions of computer buyers. But it still faces some hurdles.

Daniel Furniss, lead counsel for the plaintiffs in California, said some lawyers from California and at least three other states were not involved in the settlement negotiations after Microsoft spurned their more stringent proposals.

Mr. Furniss said the proposed deal does not provide enough money to sustain the school programs and, therefore, would have no real long-term benefits. He also said it provide no real punishment for Microsoft, which has cash reserves of some $32 billion.

“It’s pathetic and a sweetheart deal for Microsoft,” he said.

Tom Burt, Microsoft’s deputy general counsel, said the company did not realistically expect to appease all the plaintiffs and is confident the settlement will be approved.

U.S. District Judge J. Frederick Motz in Baltimore is overseeing the class-action suits. Because Judge Motz has the power to overrule the California objections, it was not clear whether those lawyers’ opposition would stall the private settlement.

Microsoft was hit with dozens of private lawsuits claiming antitrust violations after the government filed its antitrust suit against the software company in 1998. Many states dismissed the suits because new computer buyers did not buy the Windows operating system directly. The remaining cases were consolidated under Judge Motz.

Michael Hausfeld, representing a group of private plaintiffs in Washington, D.C., said he proposed this type of settlement after realizing that each of the 65 million computer buyers eligible under the class-action lawsuits would likely receive only about $10 if they won the case or a settlement were reached.

Mr. Hausfeld said it’s the government’s job to find a way to curtail Microsoft’s power, and that it is unrealistic to expect that a better deal could be reached for such a large class-action group.

“The people that we spoke with our clients felt that this was a tremendous social benefit,” he said.

Microsoft has settled its antitrust case with the federal government and nine of the 18 states that sued the company. A judge will review the settlement in March.

The remaining nine states suing Microsoft are scheduled to tell a judge in December how the company should be punished for hurting competition.

Roger Kay, an analyst with IDC in Framingham, Mass., called the settlement “a huge victory” for Microsoft.

The settlement does nothing to curtail Microsoft’s behavior, Mr. Kay said, while giving Microsoft an edge over competitors in the education arena.

“It derails other companies like Apple and Dell even its own customers like Dell,” Mr. Kay said. “It’s amazing to me how favorable this is to Microsoft.”

Mr. Burt said the settlement would not harm competition since educators could ask to use their funds for Apple or other rival products.

But he conceded that those using Microsoft-compatible computers would receive more free software than the others.

Denise Cardinal, spokeswoman for the National Education Association, applauded the settlement.

“There is a great need out there, and we’re pleased to see a company that has such enormous resources willing to try and make a difference in America’s classrooms,” she said.

But Jeanne Allen, president of the Washington, D.C.-based Center for Education Reform, criticized the plan, saying five years of donations will do little to spur badly needed long-term educational change.

“The idea of helping schools with money is conventional wisdom. Certainly, it has great, positive PR value, but it doesn’t have substantive value as much as one might think,” she said.

Shares of Microsoft were down $1.14 to close at $65.40 yesterday on the Nasdaq Stock Market.

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