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Microsoft to amend schools settlement plan

The software giant and lawyers representing more than 100 private class-action lawsuits plan to amend their controversial settlement agreement on Monday.

5 min read
Microsoft and lawyers representing more than 100 private class-action lawsuits plan to amend their controversial settlement agreement on Monday.

Attorneys for Microsoft and the plaintiffs cut the deal last month in the antitrust cases, agreeing to set up a private foundation to aid needy schools and donate an estimated $1 billion in money, software, services and training over five years. Microsoft also would provide Windows licenses for refurbished computers donated to the schools.

The changes set for Monday are intended to respond to some of the most sharply criticized aspects of the deal: How much choice is afforded the schools and how funds are to be used for training.

"These are refinements based on extensive review and constructive suggestions we believe, both in court on Nov. 27, as well as afterward, and our extensive outreach to educators," said Microsoft spokesman Jim Dessler. "The changes were adopted to clarify and ensure the independence and impartiality of the foundation."

Microsoft and plaintiff attorneys will present the changes during Monday's continuation of a Nov. 27 hearing before U.S. District Judge J. Frederick Motz at the U.S. District Court for the District of Maryland in Baltimore.

Under the refined terms, Motz would determine the members of the foundation's five-person board based on nominations made by plaintiff attorneys, Microsoft and five educational associations. The original agreement largely left the decision on board members to Microsoft and plaintiff attorneys.

Another change would give the foundation, rather than Microsoft, complete control over the training component of the settlement.

Detractors have sharply criticized the training aspect of the settlement proposal as being largely inadequate. Microsoft plans to seed the foundation with $150 million, with $100 million in matching funds and another $160 million to be used by the foundation to aid needy schools. Microsoft also would donate software valued, according to preliminary estimates, at $500 million, as well as Windows licenses for 1 million refurbished computers.

The value of training
But the training component is set at $90 million--a paltry sum, critics charge.

"Usually, you can figure spending about $3 in training for every dollar on software," said Gartner analyst Michael Silver.

By that reckoning, funds for training should be at least $1.5 billion, or three times the value of the software.

"I've been on a school board out here (in California) for eight years, so I know what it takes to do technology in schools," said Dan Furniss, an attorney with Townsend, Townsend & Crew in San Francisco, which leads a California group of plaintiff lawyers opposing the deal.

"The problem is they've got tons and tons of software and hardware, but very little support money," he said. "A lot of the educators I've talked to believe the benefits won't really be given out. If you're doing any kind of expansion, all the experts, including Microsoft, agree--for every dollar of hardware and software, you need three to implement it."

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

Furniss and other critics are concerned that eligible school districts will pass on the offer because they won't have the necessary budget to effectively install and support the giveaways, as well as effectively train teachers.

Still, Microsoft's giving complete control of the training money--about $18 million a year--would make it easier to pull funds so they could be distributed to match the needs of individual school districts.

Critics also charge that the use of refurbished computers could hinder rather than help needy schools.

In a letter to the District Court, Barbara Reeves, director of information technology for the Maryland Department of Education, said that since the minimum requirements for refurbished systems likely "will be below the standard set in our state, schools that choose to participate may be disadvantaged, thus increasing rather than decreasing the Digital Divide."

But Dessler said that Microsoft on Monday would introduce other educator letters supporting the settlement agreement, including one from the National Education Association.

Many school districts draw up districtwide technology plans that could be undermined by the giveaway, Apple Computer argued in a legal filing Friday. Apple's computers are more widely used than any others in schools, although Dell Computer is the reigning sales leader.

"Analysis of data now available from plaintiffs, Microsoft and other sources demonstrates that the settlement will constitute a massive subsidy for the adoption of Microsoft technology, not only in the eligible schools, but throughout school districts and states," Apple's brief said.

"We think a far better settlement is for Microsoft to give their proposed $1 billion--in cash--to an independent foundation, which will provide our most needy schools with the computer technology of their choice," Apple CEO Steve Jobs said in a statement Thursday.

Defending the deal
One of the issues Microsoft will address during Monday's court hearing is the value of the settlement, when the company presents Stanford economist Robert Hall to explain why the deal is a fair one.

Lawyers started filing civil cases against Microsoft in February 1999, but the majority were brought 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.

Andy Gavil, an antitrust professor with Howard University School of Law, warned that figuring potential damages is no easy math.

"Here you're dealing with a situation where Microsoft was found to have illegally maintained a monopoly--not of obtaining one," he said. In fact, it would be conceivable for a trial to "find there were in fact no damages."

A plaintiff economist introduced two different figures during last month's court hearing: $2.1 billion and $5.15 billion. But the economist for the group of California plaintiff attorneys opposing the settlement put damages between $3 billion and $9 billion.

"Typically you try to settle for about one-third of what you think the actual damages are," said Bob Lande, an antitrust professor with University of Baltimore Law School.

Microsoft will have to convince Motz that the value of the settlement is legitimate. Michael Hausfeld, a partner with Cohen Milstein Hausfeld and Toll in Washington, D.C., made his case for the deal's validity during the earlier hearing.

The company also is expected to show why the deal is not anti-competitive, as some critics charge, and would largely benefit need schools.