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Microsoft Proposes Deal to Settle Private Cases

The deal would require Microsoft to donate over $1 billion in computers, software, and services to 12,500 of the nation’s poorest public schools over a five-year period.

If U.S. District Judge J. Frederick Motz in Baltimore, who is overseeing many of the class-action suits, approves the deal next week, Microsoft could resolve many of its private suits and avoid lengthy litigation.

The class-action suits, most of which are consolidated under Motz, were filed after the federal government and eighteen states sued the company in 1998 for alleged anti-competitive practices.

The settlement requires Microsoft to donate one million refurbished laptops and desktop computers valued between $500 and $600 each and $90 million for teacher training. The company would also provide computer software programs, including $900 million worth of Microsoft’s new office program.

Microsoft must also establish a foundation to provide as much as $250 million in student grants, the deal says. The company does not admit to any wrongdoing against consumers or the software industry in the settlement.

Industry experts cannot accurately project the actual costs to Microsoft of donating its own software. Usually, production of software is relatively inexpensive compared to the money companies allot for software research and development. Moreover, such donations are tax-deductible for companies like Microsoft.

Lawyers for plaintiffs in California balked at Microsoft’s offer, saying their clients could collect over $3 billion from the software giant if their suits go forward.

“This is a very clever marketing device,” said Gene Crew, an antitrust lawyer representing California plaintiffs. “Microsoft can use its software to further entrench itself in the education market, which is the one market where Apple really competes.”

Crew said he and others would file objections to Microsoft’s proposal with Motz at a public hearing on Nov. 27 in Baltimore.

Microsoft CEO Steven Ballmer said the settlement could “make a difference in the lives of school children in some of the most economically disadvantaged schools in the country.”

Ballmer dismissed accusations Microsoft agreed to this settlement because it would improve its market share by donating Microsoft products and services.

“The benefits we provide can be used for personal computers or Macintoshes,” he said. “Certainly the money can be used for non-Microsoft software. I don’t view it as some big thing about market share.”

The company announced it would take an after-tax charge of $375 million this quarter to cover the costs of the settlement, reducing its expected profit by some six or seven cents a share. The charge before taxes totals $550 million.

The company’s shares dropped $1.55 to $63.78 per share following the announcement.

Earlier this month, Microsoft settled its antitrust case with the Justice Department and nine of the eighteen states that sued the company in 1998.

Despite Microsoft’s progress in settling state and private cases in the United States, the company is scheduled to meet with European Union antitrust investigators Dec. 20 and 21 over its alleged anti-competitive practices in the European Union.

The European Union Competition Commission expects to issue a ruling whether Microsoft violated antitrust regulations early next year.

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