Less than three weeks after reaching a deal in its antitrust battle against the U.S. Department of Justice and nine states, Microsoft Corp. said Tuesday that it signed an agreement for a nationwide settlement of the host of private suits that allege that the company overcharged for its software.
In what analysts are already calling a public relations victory rather than a punishment, Microsoft hammered out a deal whereby it would supply computers and software to more than 14,000 of the U.S.'s poorest schools over the next five years in order to settle over 100 of the private suits that remain against it.
Plaintiffs in the private antitrust lawsuits claim that Microsoft used a desktop operating system monopoly to force users to pay inflated prices for the company's software. The proposed deal would settle a majority of the private antitrust suits, leaving just those centered around the company's new Windows XP operating system still up in the air.
The settlement was signed by the parties Monday but still has to be approved by the U.S. Federal District Court of Maryland which is overseeing the class action suits. A hearing on the matter is scheduled for next Tuesday.
"I'm pleased to announce that we have reached a settlement in over 100 private class action suits that avoids long and costly litigation for the company," Microsoft Chief Executive Officer Steve Ballmer said in a conference call Tuesday.
The school-software proposal was introduced by the plaintiffs' lead attorney, Michael D. Hausfeld of Washington D.C.-based Cohen, Milstein, Hausfeld and Toll P.L.L.C., when it was determined that the sheer number of individual members of the plaintiffs' cases -- at least 65 million -- could reduce a successful settlement bid to some US$10 a piece.
Under the deal, Microsoft would provide software to all elementary, secondary and high schools where at least 70 percent of the students qualify for the federal free or reduced lunch programs, which are estimated to comprise about 14 percent of the nation's schools. The software maker will also provide upon request an array of educational and productivity software for all desktop and laptop PCs either already owned by eligible schools or purchased during the five-year settlement period, which Microsoft estimated will begin next year if the court approves the settlement. Microsoft said that although the total value of these software donations would depend upon how much the schools request, it's estimated that the value would far exceed $500 million.
Microsoft also agreed to supply some 200,000 "Pentium-class" PCs and Macintosh computers to eligible schools each year during the five-year settlement period.
In addition, the software maker would be responsible for providing $90 million in teacher training over the five-year period.
Finally, Microsoft would be responsible for creating a national foundation that gives grants to local and community organizations for purchasing computers and software. The foundation's charter would be to provide long-term funding for undeserved schools. Microsoft is responsible for making a $150 million grant to the foundation while setting aside another $100 million to match other contributions. In addition, the software maker has to shell out another $160 million for a separate fund overseen by the foundation to give technology support to participating schools.
A conservative estimate pegs Microsoft's total cost for the agreement at $1.1 billion, a representative for Cohen, Milstein, Hausfeld and Toll said Tuesday.
Microsoft said that more than 12,500 schools, 7 million students and 400,000 educators stand to benefit from the computer and software donations resulting from the settlement.
While the agreement could bring an end to years of legal wrangling for Microsoft, few saw the deal as real punishment for the software behemoth which will be given unprecedented access to millions of new computer users.
"Clearly it's a publicity coup for Microsoft," said Jupiter Media Metrix Inc. Research Director Ross Rubin. "It doesn't smack of any punishment."
In an interview Tuesday, Hausfeld refuted the notion that the settlement resulted in a PR move for the company.
"I find it cheeky that someone could say that a single company paying out over a billion dollars is just public relations," said Hausfeld.
The attorney added that the billion-dollar figure is just the "bare bones" expense Microsoft would have to pay. He estimated that the total cost of the settlement to the software maker was closer to $2 billion.
"This is no PR deal," Hausfeld reiterated. "(The settlement) has the support of some of the nation's best educators ... and benefits the schools."