Microsoft Settles Up

Vermont and Minnesota reach deals on class action suits.

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."

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