Microsoft, Apple stand firm in court

For weeks, critics have battered the software titan for a controversial settlement that would give $1 billion in software, money, services and training to needy schools over the course of five years. Critics have charged that the settlement, which would dispatch more than 100 civil antitrust lawsuits against Microsoft, is anti-competitive.

But on Monday, Tom Burt, Microsoft's deputy general counsel, offered his defense to Judge J. Frederick Motz in the U.S. District Court for the District of Maryland in Baltimore.

Burt described the settlement proposal, which would establish an independent foundation to help needy schools, as "very fair and even generous."

Later in the day, however, Apple general counsel Nancy Heinen argued that competition in the education market is already "very robust," according to the Associated Press.

"Why would you let a monopolist get a better foothold?" she emphasized.

The hearing, which was scheduled to conclude Monday, will continue Tuesday to allow plaintiff attorneys another chance to make presentations to the court.

Apple, which has sharply criticized the proposed deal, said it would give Microsoft an unfair advantage in a market where Macs are more widely used than PCs.

In a Friday legal filing, Apple suggested that Microsoft give the $1 billion to the schools in cash. Under the current plan, Apple said, Microsoft would become the main beneficiary because schools would end up with an estimated $500 million in Microsoft software.

Heinen reiterated on Monday the idea of requiring Microsoft to simply hand over $1 billion to schools.

Motz asked Burt why this wouldn't be the best solution, as Microsoft would get to "compete for its own money back."

Burt said such action "would deny huge benefits to the schools." He pointed out that Microsoft had gone to great lengths to make the settlement as "platform neutral" as possible and that going any further would penalize schools.

Microsoft makes a number of Macintosh titles used by schools, such as Microsoft Office and Magic School Bus.

Tim Deal, an analyst with Technology Business Research, said Apple would obviously be against "forking over free software, which is going to grow the Wintel dominion in the schools."

Deal added that Apple's proposal "makes more sense to me because it's a real opportunity for Microsoft to be penalized because they hand over the cash. It also offers a real competitive landscape."

If Microsoft were to give $1 billion in cash, Apple could greatly benefit because schools that could not previously afford new computers would become potential Mac buyers.

Defending the deal
Microsoft and plaintiff attorneys cut the current deal last month. They agreed Microsoft would set up a private foundation and seed it with $150 million in cash, $100 million in matching funds, and another $160 million to be used by the foundation to aid needy schools. Microsoft also would provide Windows licenses for refurbished computers donated to the schools.

The donations would go to public elementary and secondary schools where 70 percent of students are eligible for federal meal assistance--or about 14 percent of the nation's schools--according to Microsoft.

Monday's hearing continued where a marathon, 10-hour proceeding on Nov. 27 left off. At that hearing, attorney Michael Hausfeld, a partner with Cohen, Milstein, Hausfeld & Toll in Washington, D.C., and leader for the plaintiffs, presented evidence and witnesses supporting the deal. But another group of plaintiff attorneys from California--led by Eugene Crew of Townsend, Townsend & Crew in San Francisco--rallied against the settlement proposal.

On Monday, Burt gave an overview of the settlement, including two changes filed with the court the same day as a way to address concerns that the deal didn't give schools enough choice or that the training component would be inadequate. He also addressed objections raised about the deal, such as concerns the software giveaway and refurbished computer portions were anti-competitive.

Microsoft also presented a number of letters endorsing the settlement proposal, including one from the National Education Association.

Also testifying in Microsoft's favor was Stanford economist Robert Hall, who quantified the damages, explained the valuation of the settlement, and, like Burt, addressed the competitive impact. Among other things, Hall said the proposed settlement made sense in light of the damages, if any, plaintiffs could have obtained by proceeding to trial.

"We're very pleased to offer our side and support for what we think is a very significant settlement offer," Microsoft spokesman Jim Desler said Monday.

Lawyers started filing the civil cases against Microsoft in February 1999, but the majority were filed last year. Many of the cases allege that Microsoft overcharged consumers as much as $40 per copy of Windows, exposing the company to potentially $7 billion in damages.

Motz is expected to make a decision on the proposed deal later this month. Besides deciding whether to accept, change or reject it, Motz must also decide the disposition of the California cases, which were filed in state and not federal court. Deciding to include them in this settlement could take care of the cases considered most dangerous to Microsoft because California laws make it easier than in many other states for consumers to sue companies in instances such as this.

In other legal news, the company will respond Wednesday to a remedy proposal filed Friday by nine states and the District of Columbia in relation to the settlement of the landmark antitrust case against Microsoft.

The states asked a federal judge to give other companies broad access to Microsoft source code, including that for Internet Explorer. Microsoft's response is expected to be more in line with the settlement worked out with the Justice Department and nine other states last month.

Also Wednesday, the Senate Judiciary Committee plans to convene a hearing titled "The Microsoft Settlement: A Look to the Future." Assistant Attorney General Charles James, Stanford law professor Lawrence Lessig and Red Hat CEO Matthew Szulik are among those scheduled to testify.

Reuters contributed to this report.