One Microsoft deal challenged

Dan Richman

Tuesday, Nov. 27, 2001 | 10:05 a.m.

SEATTLE -- Microsoft is a lawbreaker that, through outsized good fortune and vigorous bargaining, is flouting federal and state antitrust regulations.

Microsoft is an law-abiding competitor getting picked on because it's huge and tough and tends to gloat.

Take your choice.

Many onlookers are favoring the first view as two major antitrust matters wind down and a third, in Europe, may be starting to fade even as it gets under way.

Courtroom proceedings on one of the domestic antitrust matters are scheduled Tuesday in Baltimore, where a federal judge is expected to spend most of his time hearing why it's a good idea to let Microsoft settle hundreds of cases at five cents on the dollar.

Last month, the federal government and nine states agreed to settle the other antitrust case -- three-year-old litigation brought by the Justice Department and 18 states -- without the drastic break-up once ordered, without fines, and without stringent controls on its business behavior.

The European Union's antitrust investigation, independent from those here, may be softened after the terrorist events of Sept. 11 as that essentially political body thinks hard about the public-relations aspect of challenging a large American company, said Giga analyst Rob Enderle.

"Through a combination of luck and aggressive negotiation, in all the antitrust cases Microsoft has really come off as well as it could have hoped," said Dwight Davis, an analyst with Summit Strategies.

Enderle agreed.

"Fundamentally, Microsoft has been incredibly lucky," he said.

Today, in the Baltimore courtroom of U.S. District Judge Frederick Motz, Microsoft planned to try to further advance its luck.

The company and a core of plaintiffs' attorneys will explain why their proposed settlement of millions of consumer' antitrust cases is "not just fair and adequate but is in fact a stunning achievement for education in these economically challenged school districts," said Tom Burt, Microsoft's deputy chief counsel.

Last week, attorneys representing most of the plaintiffs accepted Microsoft's offer to give poor schools $1 billion in software and hardware to settle hundreds of private suits nationwide accusing the company of overcharging consumers.

The suits allege Microsoft demanded too much money for its Windows operating system, Word word-processing program and Excel spreadsheet from the late 1980s through the present day.

Attorneys and analysts opposing the proposal say it doesn't address Microsoft's alleged price-gouging, spares it paying up to $9.3 billion in actual damages, gives nothing to the actual plaintiffs, and most notably gives Microsoft a quick, easy edge over incumbent Apple Computer in schools -- a huge market it has yet to crack.

"What otherwise would have raised the ire of antitrust officials is now blessed by them,' Enderle said. "It might actually turn out to be revenue positive -- they could end up virtually owning education."

Even some educators object to the proposal, saying that though schools get computers and technology, they will not have enough money to run them properly.

"This settlement, I fear, will perpetuate and institutionalize the digital divide between our affluent schools and our poor schools," said Linda Roberts, who directed the Clinton administration's educational technology program and now works as a private consultant for companies including Apple.

Attorneys for the plaintiffs opposing the proposal -- software buyers in California, the District of Columbia, Minnesota, North Carolina, New Mexico and New York -- may also speak at the hearing, though Burt said they had an opportunity to do so earlier.

No decision is expected today on the proposal. But the judge may set out a timetable for when the plaintiffs must be notified of the proposal and how they can opt out of it to pursue separate penalties.

Burt defended the proposal as "fair and adequate," the standard that such proposals must meet to be legally acceptable and that Judge Motz will apply in today's hearings.

"The plaintiffs here were biting off a huge amount, and Microsoft has extremely strong defenses to those claims," he said. "The issue (determining whether to settle) is the likelihood one or the other party will win, the odds of recovering damages, the costs and risks of getting to that point. There are always plaintiffs' lawyers who say, 'Wait, we could have gotten more money' and then try to blow up the settlement for their own purposes."

In Microsoft's other cases, the nine states objecting to the federal litigation's settlement proposal are scheduled to present their alternate proposals on Dec. 19.

And the European Union's competition commissioner, Mario Monti, said Monday that his antitrust investigators will meet with Microsoft officials Dec. 20-21 in Brussels, Belgium, to discuss the company's alleged anti-competitive practices in Europe.

Analyst Davis said the EU's investigation "is certainly emerging as the backstop in some people's scenarios of someone throwing some barriers in Microsoft's way. That kind of severe penalty certainly hasn't emerged in the U.S. courts."