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Microsoft settles Minnesota antitrust case

update The software maker reaches a preliminary settlement to quell allegations that it overcharged for its software--yet another example of an antitrust or patent lawsuit laid to rest.

update Microsoft on Monday reached a preliminary settlement with consumers in Minnesota to end an antitrust suit that claimed the company had overcharged for its Windows operating system and its Office application software.

The settlement terms will remain confidential until they are finalized in early July, according to information posted to the Web site for the Fourth Judicial District Court of Minnesota. The court also said that the jury in the case has been discharged and that the trial process related to the claim has been completed.


What's new:
Microsoft reaches a preliminary settlement in an antitrust case in Minnesota that claimed the company had overcharged for its software.

Bottom line:
The details of the settlement won't be known until early July, according to the court. But the deal marks another instance of Microsoft putting an end to charges it had violated antitrust law or infringed on patents.

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Microsoft released a terse statement, saying that it has resolved all claims related to the litigation and that it was "pleased to end the case." The official settlement will be presented to the court for preliminary approval in early summer, the company said.

"It was a hard-fought battle," said the plaintiffs' lead attorney, Richard Hagstrom, of the Minneapolis-based law firm Zelle, Hofmann, Voelbel, Mason & Gette.

The suit originally sought damages of up to $425 million, and it was one of only a handful of state-based claims the company had yet to settle. Microsoft has reached deals in a number of antitrust claims filed in various states, including California, where it agreed last summer to pay $1.1 billion to settle a class-action lawsuit that claimed it had overcharged consumers for Windows.

In the past year, Microsoft has settled a long string of lawsuits involving charges that it had abused its monopoly position in operating system software or that it had infringed on various patents. The company has said it wants to settle antitrust cases if it can do so on what it sees as reasonable terms.

The numbers involved in the deals can be staggering--at least for those who don't have a cash reservoir of nearly $60 billion. Last month, for instance, Microsoft reached a broad agreement with longtime enemy Sun Microsystems that has since resulted in Sun receiving nearly $2 billion--even though the two companies say they will remain fierce competitors.

Special coverage

Microsoft reaches a deal that
will give Sun nearly
$2 billion. But the two companies
say they'll remain fierce rivals.

In addition, Microsoft has settled a number of high-profile patent infringement cases, including ones launched by InterTrust and AT&T. Meanwhile, the European Union has levied a landmark fine of more than $600 million against Microsoft for violating antitrust law and also ordered the unbundling of Media Player software from Windows.

In all the cases, and regardless of the outcomes, there's been little evidence that the power of the Redmond, Wash., software giant has been diminished or that the company's behavior has been greatly altered. Rivals and many legal experts have said that antitrust law itself has come out the worse for the encounters.

Although it remains unclear how Microsoft might avoid future lawsuits along the lines of the Minnesota claim, one legal observer said he believes that the company is actively trying to rid itself of ongoing litigation.

"It's sounding more and more like Microsoft is has made a conscious decision to put a lot of this legal activity behind them," said Richard Donovan, chairman of the antitrust unit at New York law firm Kelley Drye & Warren. "I doubt you'd see them settle any frivolous lawsuits, but it looks inevitable that there will be more suits based on the position of Windows in the market."

Donovan observed that the profits Microsoft has garnered via Windows over the years greatly outweigh any fines or settlements the company has been forced to pay as a result of its business practices, and he questioned what motivation the company would have to shift its strategy.

Other experts agreed. Matt Rosoff, an analyst with Kirkland, Wash.-based Directions on Microsoft, an independent research organization, said he was surprised that Microsoft didn't settle the Minnesota case sooner, as the company is known to be offering a template of its California settlement to other states where class-action suits have been filed.

"Microsoft knows that antitrust isn't going anywhere soon, that they have a very profitable monopoly and this is a cost of doing business," said Rosoff. "I'm not sure how this will ever effect future product development, but it gets them out of court and allows them to go compete, which they'd obviously prefer over all the legal battles."

A peek inside
Plaintiffs' attorney Hagstrom said he doesn't feel the settlement gives Microsoft the freedom to operate a monopoly, but he agreed that the software maker would continue to generate antitrust attention from consumers and legislators.

Related story

The company has lost or settled many
cases, but there's little evidence its
power has waned or its behavior
has been substantially changed.

"We felt that we had a lot of powerful evidence, with the e-mails that had not previously been aired publicly," said Hagstrom. "But there are always going to be times when it's easier to come to a resolution than to push for more in a ruling. You have to consider the interests of the (plaintiffs) more than sending some sort of message."

The Minnesota case had offered a unique view into internal operations at Microsoft, as numerous e-mails found their way into evidence during the trial, in front of Hennepin County District Court Judge Bruce Peterson. One such document was a 1997 e-mail note from Jeff Raikes, a Microsoft group vice president, asking billionaire Warren Buffett to consider investing in the Redmond, Wash.-based software company. Some observers have likened Microsoft's lucrative operating system dominance to a "toll bridge," Raikes wrote in the e-mail.

The court said that the trial exhibits will remain on its Web site until April 26.

During court proceedings, Microsoft argued that it never overcharged customers for software, denying allegations that it abused its operating system monopoly to increase prices. The company's lead counsel, David Tulchin, argued that Microsoft's high market share is the result of choices millions of people made, rather than monopolistic practices. Tulchin told the jurors that in the 1990s, the price of Windows stayed about the same, while the quality of the product went up.

The plaintiffs' lead attorney, Richard Hagstrom, said he would prove that Microsoft's prices were higher than what consumers would have paid in a competitive market. Hagstrom said Microsoft engaged in overpricing from 1994 through 2001 by charging more than necessary to make a fair profit, pricing its Windows, Word, Excel and Office products higher than similar, competitive products, and also failed to reduce prices on obsolete products and engaged in price discrimination among its customers.

In response to those arguments, Tulchin said most sales are not done through retailers but rather via hardware manufacturers, which make up 90 percent of Windows sales and 68 percent of Word and Excel sales.

One state-based antitrust case still going on in Nebraska alleges that Nebraskans who purchased Windows 98 were overcharged by Microsoft. An issue being debated in the case has been the matter of whether consumers who bought the operating system indirectly would be eligible to sue the software maker. Although a lower court had ruled that they could not; the Nebraska high court ruled otherwise.

CNET's Declan McCullagh contributed to this report.