Judge Rejects Microsoft Class-Action Settlement

On Friday, US District Judge J. Frederick Motz rejected Microsoft's proposed settlement of more than 100 class-action lawsuits, citing the unfair advantage such a settlement would give the company over Apple in the education market. The class-action lawsuits--launched in the days after the court found Microsoft guilty of sweeping antitrust violations--accuse the company of overcharging consumers for Windows. Under terms of the rejected deal (which Microsoft proposed last November), Microsoft would have contributed $1 billion worth of software, refurbished computers, and training to thousands of the poorest schools in the United States. But Apple and other companies complained that the deal simply gave Microsoft a state-sponsored opening in the educational market, one of the few remaining markets not yet dominated by the software giant. Judge Motz agreed with this assessment.

"In the words of the opponents of the proposed settlement, the donation of free software could be viewed as constituting 'court-approved predatory pricing'," Motz wrote in his ruling. "Although eligible schools would be free to apply for grants for non-Microsoft software and although the Foundation [that would be set up under terms of the settlement] would be bound by its charter not to discriminate against schools making such grant requests, it would be a fact ... that, under the agreement, Microsoft software would be genuinely free, whereas the purchase of non-Microsoft software through the foundation would decrease the amount of funds available for other purposes."

The judge also seems open to Apple and Linux-maker Red Hat Software settlement proposals, which suggest that the court require Microsoft to provide the entire $1 billion settlement in cash. This compromise would let the schools choose the software and hardware they want. If Microsoft competed successfully in such a case, the judge wrote, the company "would recoup a substantial portion of its donation." Judge Motz also suggested that if Microsoft simply increased the amount of cash it planned to donate and provided free software that wouldn't be counted toward the total value of the deal, he'd be more open to approving the settlement.

Throughout his 21-page decision, Judge Motz made it clear that the proposed settlement isn't too far off from a successful resolution, and that he'd approve a similar plan. He brushed aside arguments that he should reject the settlement because the class that brought the charges--primarily consumers who got Windows with new PCs--didn't benefit from the punishment, citing legal precedent. Microsoft will likely continue settlement talks with the plaintiffs and arrive at a second agreement, one that would be more amenable to Judge Motz.