Microsoft Settles Up

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Microsoft reached settlements with the States of Vermont and Minnesota, ending a long line of consumer class action
suits alleging it used its market dominance to jack up prices.

The basis of these and other consumer class action suits against
Microsoft is that, because a court found the company engaged in anticompetitive practices,
other vendors were forced out of business. Then, as the dominant vendor,
Microsoft overcharged for its products.

The Vermont settlement followed the model of other state agreements. Eligible consumers will be issued vouchers good for software and hardware
from any vendor. The total amount of vouchers issued will depend on the
number of consumers claiming them, with the maximum value of the vouchers
set at $9.7 million. Vermont’s public schools will get vouchers worth half
of the difference between $9.7 million and the actual value of vouchers
issued.

Under the terms of the Minnesota settlement, Microsoft will offer up to
$174.5 million worth of coupons; if the amount of consumer vouchers doesn’t
reach that amount, Microsoft will keep 50 percent of the difference between
the actual value of coupons proffered and the $174.5 million, and give
vouchers totaling the remainder to Minnesota’s public schools.

But the State of Minnesota got Microsoft to part with hard cash. In the
only consumer class action suit that went to trial, Microsoft will give
$2.5 million cash and $2.5 million in general purpose vouchers to the
University of Minnesota’s Institute of Technology. The Minnesota Legal Aid
Society will get an additional $2.5 million in cash.

The case settled in its seventh week of trial.

“This settlement delivers substantial benefits for Minnesotans. The major
beneficiaries of this agreement are consumers and Minnesota public schools,”
lead trial counsel Richard Hagstrom of the law firm Zelle, Hofmann, Voelbel,
Mason & Gette said in a statement.

While settling suits with coupons is a growing trend, actual redemption
of the coupons tends to be low, said Sonia Arrison, director of technology
studies for Pacific Research Institute, a public policy think tank. “It’s a
battle between Microsoft and its competitors. I don’t think consumers are
all that aware of what’s been going on. If consumers aren’t cashing in their
coupons, I think that’s why.”

Microsoft spokesperson Stacy Drake said that settlements with the states
of Montana, Florida, Kansas, Tennessee and West Virginia were recently
approved by the courts, and the process of sending out coupons would just be
getting started. She had no information on how many people had applied to
receive them.

The deadline for Californians to apply for the rebate coupons resulting from that state’s $1.1 billion class action settlement has been extended until at least September 14, 2004. Townsend and Townsend and Crew, the law firm administering the coupon program, did not return calls, and it hasn’t
released information about how many have actually sent in their forms. A
customer service representative handling consumer inquiries about the
program said that the court is expected to approve the settlement within the
next 30 days. Microsoft would have 60 days to appeal the settlement; when
that deadline passes, the coupons will go out.

It’s been a busy few months for Brad Smith, Microsoft’s general
counsel — and a winning one. He has overseen settlements of all outstanding state consumer class action suits. On Wednesday, the U.S. Court of Appeals upheld
its settlement of the antitrust action brought by the U.S. Department of Justice. And the company won at least a preliminary stay on
the European Commission’s order to sever Media Player from Windows.

Andy Martin, a law professor and founder of the Committee to Fight
Microsoft, said he’s girding for round two. “I suspect that Microsoft will
try a new anticompetitive move to wipe out Google, by putting a search
engine in Longhorn, and that will trigger a new round of antitrust
litigation.”

Microsoft reportedly is working on a new file system, called WinFS,
for Longhorn, the next-generation operating system expected in 2006. WinFS
supposedly will let users search across applications and data types. “Once
we see beta copies of Longhorn,” Martin said, “the antitrust police will
probably have to ride to the rescue again.”