Updated from 4:56 p.m. EST
had another of its many days in court Friday, and this was a bad one.
U.S. District Court Judge J. Frederick Motz ruled against a controversial settlement to more than 100 private lawsuits against the software maker. Motz said the "thinly funded" proposed settlement might still result in a competitive advantage to Microsoft.
Back in November, Microsoft suggested a settlement in which it would provide $1 billion in software, hardware and technical support to 14,000 of the nation's poorest schools over the next five years. The software giant's legal and industry adversaries said the settlement was an attempt by Microsoft to gain competitive advantage in the schools, a market in which old-time rival
still holds considerable strength. And, they said, the deal didn't offer enough to the students.
Motz's ruling appeared to be in substantial agreement with those of the settlement's critics; he wrote that "the charitable foundation contemplated by the agreement is not sufficiently funded" to fulfill the proposed purposes or to assure that the agreement "would not have anti-competitive effects," because it doesn't provide enough money for schools to have their choice of software, effectively steering them towards Microsoft products.
Several states attorneys objected to the plan and complained that it would not punish Microsoft's behavior. Among them were attorneys representing California plaintiffs, who praised Motz's decision Friday.
"I'm delighted by it. I'm not surprised by the fact that
Judge Motz minced no words that the settlement was woefully inadequate," said Eugene Crew of Townsend and Townsend and Crew, which is representing California's claims against Microsoft.
Microsoft Deputy General Counsel Tom Burt said that he was disappointed with the judge's ruling against a settlement Microsoft thought "was creative, solved the litigation, and would bring benefits to the neediest schoolchildren in the country."
Microsoft asserted that it had changed its original settlement to ensure schools would have a choice of platforms and software. Taking a positive tack, Burt added that he was encouraged that the judge agreed in principle to Microsoft's attempt to settle the jumble of individual suits in a nationwide settlement in a federal court. Microsoft's stock held steady after the announcement, falling 43 cents, or 0.6% to $68.88, in afternoon trading.
The private suits arose after the U.S. government filed an antitrust suit against Microsoft in 1998 for abusing its monopoly status in the software market. Some suits were dismissed, because consumers were found not to have standing, having only gotten the software when they bought a PC.
The remaining suits were consolidated under Judge Motz in Baltimore, who has the power to include all of them in the settlement. Microsoft stirred controversy in November when it unveiled the proposed settlement. Lawyers representing Californians who were suing the company said the settlement was developed behind their backs without their input, while other attorneys pitched the settlement as a win-win way to settle the case.
The proponents expressed their dismay at the judge's denial. "Of course we're disappointed. We believe we put together a good settlement that would've done a lot of good for the most disadvantaged students in the country," said Dan Small, a partner at Cohen Milstein Hausfeld and Toll, Washington, D.C.
Judge Motz's opinion, released after 3 p.m. EST, broke down the settlement and his concerns. He was not inherently opposed to the settlement's creation of an independent foundation that would distribute money and technology to schools, but he wrote that the $1 billion in product, software and services was not enough to get the job done.
The judge went into detail about the typical cost of technology and support, and came to the conclusion that the $1 billion figure could influence elementary and high schools to choose refurbished PCs and free Microsoft software, despite the fact that Microsoft has not dominated those markets.
Apparently if Microsoft provided more backing for the project, it could have been acceptable to the judge. As is, however, Judge Motz said, "to put it bluntly, in the words of the opponents of the proposed settlement, the donation of free software could be viewed as constituting 'court approved predatory pricing.' "
"His concern is not with the idea of the settlement or with one that provides benefits to education rather than individual consumers. It's rather with the amount of the settlement," explains Ernest Gellhorn, a law professor at George Mason University. Gellhorn thinks it will be tricky to come up with a more fitting dollar value, because the Department of Justice case against Microsoft didn't give any guidance about monetary damage from Microsoft's actions.
"The government brought a case for an injunctive relief, for an injunction, not for money. One can say it has been established concretely that Microsoft violated Section 2 of the Sherman Act, but there's no evidence in the government case that there's been any injury in regards to a specific dollar value."
Microsoft's Burt hinted that the software maker may also be debating that question. "The judge's opinion does say that in his view the settlement structure was underfunded. There's isn't any place in the opinion that suggests the total amount of money in the settlement is insufficient to be a reasonable settlement," he emphasized. Burt would not comment on whether Microsoft would restructure its settlement or increase funding to the proposed educational foundation.
The Department of Justice's proposed settlement of its antitrust case calls for Microsoft to open up parts of the source code for Windows to enable competitors to more easily write software to run with it, as well as the appointment of a three-member oversight panel to make sure the company complies.