Microsoft Offers $1B to Schools

Wednesday, November 21st 2001, 12:00 am
By: News On 6

SEATTLE (AP) _ More than 12,500 of the poorest schools in the nation would receive $1 billion in computers, software, training and cash in an unusual deal offered to settle most of Microsoft Corp.'s private antitrust lawsuits.

The proposed settlement was announced Tuesday, but lawyers for some of the plaintiffs warned they would oppose the plan, calling it ``pathetic and a sweetheart deal for Microsoft.''

The funding, to be disbursed over five years, would pay for teacher training, technical support, refurbished computers and copies of Microsoft's most popular software, such as Windows and Office, to about 14 percent of U.S. schools, company spokesman Matt Pilla said.

Microsoft admits no wrongdoing.

``The bottom line is that Microsoft saw an opportunity to avoid long and unnecessary litigation and at the same time make a difference among the nation's poorest schools,'' Pilla said.

The company said Tuesday it will take a pretax charge of about $550 million in the current quarter ending Dec. 31 to cover the proposed settlement. After taxes, the company expects to incur a charge of about $375 million, or between 6 cents and 7 cents per share.

The settlement could put to rest most of the private lawsuits alleging that Microsoft abused its monopoly power in the software market and overcharged millions of computer buyers. But it still faces some hurdles.

Daniel Furniss, lead counsel for the plaintiffs in California, said some lawyers from California and at least three other states were not involved in the settlement negotiations after Microsoft spurned their proposals.

Furniss said the proposed deal does not provide enough money to sustain the school programs and therefore would have no real long-term benefits. He also said it provide no real punishment for Microsoft, which has cash reserves of some $32 billion.

``It's pathetic and a sweetheart deal for Microsoft,'' he said.

Tom Burt, Microsoft's deputy general counsel, said the company did not realistically expect to appease all the plaintiffs and is confident the settlement will be approved.

U.S. District Judge J. Frederick Motz in Baltimore, who is overseeing the class-action suits, has scheduled a preliminary hearing Tuesday to discuss the settlement. Because Motz has the power to overrule the California objections, it was not clear whether opposition by those lawyers would stall the private settlement.

Microsoft was hit with dozens of private lawsuits claiming antitrust violations after the government filed its antitrust suit against the software company in 1998. Many states dismissed the suits because new computer buyers did not buy the Windows operating system directly. The remaining cases were consolidated under Motz.

Michael Hausfeld, representing a group of private plaintiffs in Washington, D.C., said he proposed this type of settlement after realizing that each of the 65 million computer buyers eligible under the class-action lawsuits would likely receive only about $10 if plaintiffs won the case or a settlement were reached.

Hausfeld said it's the government's job to find a way to curtail Microsoft's power, and that it is unrealistic to expect that a better deal could be reached for such a large class-action group.

``The people that we spoke with _ our clients _ felt that this was a tremendous social benefit,'' he said.

Microsoft has settled its antitrust case with the federal government and nine of the 18 states that sued the company. A judge will review the settlement in March.

The remaining nine states suing Microsoft are scheduled to tell a judge in December how the company should be punished for hurting competition.

Roger Kay, an analyst with IDC in Framingham, Mass., called the proposed settlement ``a huge victory'' for Microsoft. The settlement does nothing to curtail Microsoft's behavior, Kay said, while giving Microsoft an edge over competitors in the education arena.

``It derails other companies like Apple and Dell _ even its own customers like Dell,'' Kay said. ``It's amazing to me how favorable this is to Microsoft.''

Burt said the settlement would not harm competition since educators could ask to use their funds for Apple or other rival products. But he conceded that those using Microsoft-compatible computers would receive more free software than the others.

Denise Cardinal, spokeswoman for the National Education Association, applauded the proposal.

``There is a great need out there, and we're pleased to see a company that has such enormous resources willing to try and make a difference in America's classrooms,'' she said.

But Jeanne Allen, president of the Washington, D.C.-based Center for Education Reform, criticized the plan, saying five years of donations will do little to spur badly needed long-term educational change.

``The idea of helping schools with money is conventional wisdom. Certainly it has great positive PR value, but it doesn't have substantive value as much as one might think,'' she said.

She compared it unfavorably to the Bill and Melinda Gates Foundation's funding of programs that, she said, provide longer-lasting school reform.

The Gates Foundation, a private charity set up by Microsoft Chairman Bill Gates and his wife, Melinda, has given $337 million for school redesign, reform and leadership training for principals and administrators.

The foundation also has dedicated more than $1 billion in university scholarships for minorities and economically disadvantaged students.