Another Settlement That Suits Microsoft

Facing a nearly impossible uphill battle, lawyers in a mass of class actions are settling for, well, not much

Things certainly are coming up roses for Microsoft. First it settled with the Bush Administration on very lenient terms. Now it has resolved more than 100 antitrust class-actions on terms that read like a company press release. Microsoft will provide software and reconditioned computers to 14,000 low-income schools -- hardly a bad deal for a company with image problems. In all, the Colossus of Redmond will contribute $1.1 billion in goods and services, hardly a stretch for a company sitting on $26 billion in spare cash. And most of it will be in-kind.

The deal shows one thing clearly -- private litigation won't fill the void left when Justice decided to go easy on Microsoft. The software giant still faces a suit being pursued by nine state attorneys general. But the private suits were settled for one simple reason: They faced an almost impossible uphill battle. While the government had to show only that Microsoft was an unlawful monopolist, the private litigants have to demonstrate consumers paid x-dollars and x-cents more for each copy of Windows than they would have had Microsoft not stifled the competition.

The original strategy for winning the suits was to round up a lot of very smart economists. With their economic models, computer programs, and post-graduate degrees, they would divine the number. The problem is, who would have believed them? The calculation would have involved wading through a torrent of hypotheticals. How tough of a competitor would Netscape really have been had it not been unfairly beaten back in the browser wars? What other companies would have risen to challenge Microsoft?


  The answer is, of course: Who knows? The difficulty of proving the amount of damages explains not only why the cases were settled but also why they were settled so cheaply. Microsoft would have to be convinced it was in real jeopardy before paying out serious settlement bucks.

Lead plaintiffs' attorney Michael Hausfeld figured the amount of cash he could squeeze from Microsoft in a settlement wouldn't cover the cost of finding and reimbursing the millions of Microsoft customers. So he opted for what he terms a "socialistic" solution. "Everyone benefits from this settlement because Microsoft's alleged behavior was so widespread that it had a social impact," he explains.

So Microsoft doesn't have to change the way it does anything, and nobody gets reimbursed. Hmmm. When trial lawyers have to fall back on helping humanity, you know they're not walking away with much. Hausfeld and his colleagues aren't even taking a contingency fee. They're allowing Judge J. Frederick Motz of federal court in Baltimore to determine their fees.


  It's not assured Motz will accept the deal. As a general rule, settlements in multistate class-actions aren't supposed to effect social policy or spur charitable giving. Rather, they're meant to provide for the "class" -- the multitudes who ostensibly brought the case. A handful of lawyers around the country have refused to sign onto the deal, in part because it doesn't provide for the plaintiffs. "These people get zippo," says Eugene Crew, a California attorney who vociferously opposes the settlement.

Crew and his fellow dissenters have other gripes as well. The amount is laughably small, they argue, and hardly likely to affect Microsoft in any meaningful way. They also point out that it affords Microsoft the opportunity to make inroads in the schools, one of the few markets for desktop software where there is actual competition. California Attorney General Bill Lockyer may oppose the deal as well. He has asked for the right to formally submit his views.

Microsoft defended the deal, both in a press release and a conference call with analysts on Nov. 20. CEO Steve Ballmer said it would "benefit millions of America's most economically disadvantaged children and thousands of public schools with the greatest needs." Investors weren't too impressed. The stock fell 2%, to $65.10 a share, that day.

Even so, the smart money says the deal will be approved. It's the best these attorneys are likely to get out of Microsoft, given the uphill sledding the cases faced. They are what might be called "piggyback" suits, or nuisance suits to those less inclined to the euphemisms of trial lawyers. They were filed in a deluge when the government case showed Microsoft had indeed broken the law. With Justice's suit receding into the background, these are likely to go away as well.

By Dan Carney in Washington

Edited by Beth Belton

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