Microsoft Corp agreed to spend at least US$1 billion to provide a million computers and related services for schools in poor neighborhoods to settle class-action lawsuits accusing it of overcharging consumers.
The company said the settlement, if approved by the courts, will reduce earnings by US$375 million, or US$0.06 to US$0.07 a share, in the quarter ending Dec. 31. Investors welcomed the plan, announced less than three weeks after the largest software company reached a tentative settlement of a three-year-old government antitrust case. They called it a small price to pay to dispose of the private lawsuits.
"Anything that keeps Microsoft from the death of a thousand cuts is a good thing," said Richard Babson, the head of Babson-United Inc, which manages US$1.5 billion in investments and owns 329,429 shares of Microsoft.
Microsoft shares fell US$1.14, or 1.7 percent, to US$65.40. The company said it will provide a million reconditioned computers plus software, technical support and computer training in 12,000 to 14,000 public schools that serve 7 million students in low-income neighborhoods.
"It is a settlement that avoids long and costly litigation and at the same time will really make a difference in the lives of school children," said Microsoft Chief Executive Steve Ballmer.
"It's a win-win," said Doug Altabef, managing director at Matrix Asset Advisors Inc, which doesn't own any Microsoft shares.
"It keeps them out of courts. It makes them look like good guys." The government's antitrust case, which is separate from the private suits, may be far from over. While the US Justice Department and nine states signed the proposed settlement, nine other states are pressing for tougher remedies to limit Microsoft's dominance. Its Windows operating system runs 95 percent of the world's personal computers.
The private suit settlement will help bridge the country's "huge digital divide between affluent and poor neighborhoods," said plaintiffs' lawyers Stanley Chesley, a veteran class-action lawyer in Cincinnati who has helped negotiate numerous product liability settlements.
Microsoft will donate US$150 million to set up a private foundation to administer the program, provide US$100 million for matching grants and an additional US$250 million for technical support and training, the company said.
The agreement, reported yesterday by the Wall Street Journal, would dispose of as many as 150 class-action lawsuits brought by consumers who claim Microsoft took advantage of its monopoly on PC operating systems to overcharge them, Chesley said. The suits seek damages for the alleged overcharges.
Most of the cases were consolidated before US District Judge J. Frederick Motz in Baltimore.
Motz is scheduled to consider the proposal next week at a hearing. He also will set fees for plaintiffs' lawyers, an amount not included in the settlement, Chesley said.
San Francisco lawyer Gene Crew, who filed a 1999 class-action lawsuit against Microsoft in California state court, said he will oppose the settlement because it "is woefully inadequate and perpetuates Microsoft's monopoly in the education market." Crew said California plaintiffs will resist Microsoft's attempt to negotiate a settlement with plaintiffs in the weakest cases and have it imposed on litigants with stronger claims.
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