News

Microsoft Reaches Settlement in 100 Class Action Lawsuits

• By Scott Bekker
• November 20, 2001

The agreement, signed on Monday, was to be filed with the Federal District Court of Maryland Tuesday afternoon, and a public hearing on the settlement is set for next Tuesday. The five-year plan called for Microsoft to spend $1 billion in cash, computer hardware, training, support and software for 12,500 schools and 400,000 teachers.

The settlement follows quickly on the heels of Microsoft's settlement of the antitrust case with the U.S. Department of Justice and nine state attorneys general. Nine other states and the District of Columbia have not settled.

Microsoft CEO Steve Ballmer called the settlement, which Microsoft says will result in a $550 million charge to earnings in the current quarter, fair and reasonable.

"We are pleased to reach a solution that will benefit millions of America's most economically disadvantaged children and thousands of public schools with the greatest needs, and also will enable everyone to move beyond costly and unnecessary litigation," Ballmer said in a statement.

Attorneys for the nationwide settlement class said the deal results in some public good rather than minuscule checks or future purchase rebates for consumers.

"This is an innovative and visionary settlement that resolves these complex lawsuits by providing great benefits to public schools," Michael Hausfeld of Cohen, Milstein, Hausfeld & Toll said in a statement.

But critics of the deal argue the settlement relies too much on equipment purchases and not enough on training, raising the possibility that millions of dollars of computer equipment will collect dust in schools.

Others have noted that the settlement represents a blow to Apple, which has a strong education business. Apple had no public statements on Tuesday, but Linux distributor Red Hat potentially blunted the PR value of the settlement for Microsoft with an offer to provide Red Hat's distribution of the Linux operating system and other open source software to extend the scope of the systems for public schools.

"While we applaud Microsoft for raising the idea of helping poorer schools as part of the penalty phase of their conviction for monopolistic practices, we do not think that the remedy should be a mechanism by which Microsoft can further extend its monopoly," said Matthew Szulik, CEO of Red Hat.

Red Hat's alternative proposal calls for Microsoft to redirect the value of their proposed software donation to the purchase of additional hardware for the school districts. By Red Hat's math, that would increase the number of computers available under the original proposal from 200,000 to more than 1 million. Red Hat would then provide an open source operating system, office applications and other software for the systems.

Microsoft estimates the value of its software, including applications for Apple Macintoshes, could exceed $500 million over the five-year agreement depending on what school districts request. That estimate is based on Microsoft's academic licensing prices.

Other parts of the settlement agreement would have Microsoft: