Microsoft Offers Settlement Changes

Microsoft offers to change the makeup of an education foundation and giving up control of a $90 million fund.

Microsoft Corp. on Monday presented the Federal District Court of Maryland with two changes to the proposed $1 billion settlement of more than 100 private antitrust cases the company faces.

The software maker offered two revisions to the settlement it had offered last month saying it would change the method for appointing members to an independent education foundation and give up control of a $90 million fund for training educators.

The private antitrust cases were brought against Microsoft last year following the ruling by U.S. District Court Judge Thomas Penfield Jackson that the Redmond, Wash., company had violated two sections of the Sherman Antitrust Act.

The original settlement of the cases, if accepted by the Federal District Court of Maryland, would see Microsoft donate more than $1 billion in reconditioned computers, services, software and training to some 14 percent of all U.S. schools.

The deal also mandated the establishment of an independent national education foundation to make grants to local foundations and community organizations for purchasing computers and software.

Microsoft competitors and some educators raised concerns that Microsoft was simply using the settlement to penetrate the education market, where it has only limited success.

In a broad presentation to District Judge J. Frederick Motz in Baltimore on Monday Microsoft Deputy General Counsel Tom Burt tried to answer some of those concerns and objections. He said that under the refined terms of the agreement the five board members for the education foundation would be selected by the judge from a pool of some 12 nominees.

Three of these nominees would be proposed by the plaintiffs attorneys, three by Microsoft, five by individual educational organizations and one by the court. Microsoft had originally proposed that it select two members, plaintiffs counsel select two, and that these four members then select the fifth member.

The second change affected the $90 million training component of the education package, which originally would have been administered by Microsoft, Burt said. This component would now fall under the auspices of the foundation, which would survey eligible schools to determine their need for training and professional development, he told the court.

Microsoft spokesman Jim Desler told eWeek that the changes were designed to "ensure the independence and impartiality of the education foundation and is based on constructive suggestions we have received over the past few weeks on the settlement as well as our own outreach to educators at all levels."

The Court on Monday also heard presentations from three other parties on the benefits and merits of its proposed settlement. Educator Dr. Roberta Schorr from Rutgers University in New Jersey told the court that technology in the classroom offered tremendous benefits to students and that the proposed settlement would help bridge the digital divide.

Mark East, Microsofts worldwide general manager for education solutions, discussed some of the models Microsoft had used to ensure the foundation was effective and how the proposal created a multiplier effect to achieve the overall goal of one computer per student.

Also addressing the court was Professor Robert Hall, a senior fellow at the Hoover Institution and a professor in the economics department at Stanford University in California. Hall quantified the damages, valued the settlement and examined the competitive impact of the settlement.

Desler said Microsoft expected the judge to announce his decision later this month on whether or not to give preliminary approval for the proposed settlement.

The controversial settlement has come under attack from many fronts, with Apple Computer Corp. leading the pack. Notably, Apple CEO Steve Jobs last week said that Microsoft should give $1 billion in cash -- instead of that amount in software and money as proposed in the original settlement. Desler said the changes Microsoft had made to the settlement agreement addressed these concerns.

"The provisions of this settlement are expressly platform neutral and non-discriminatory. This settlement offers benefits for Apple as well," Desler said. "The half a billion dollars offered under the settlement will go to schools who will buy [Apple] Macs among other PCs.

"Of course, Apple would want us to spend more money on this, its only natural as it would be better for them. Remember, Microsoft will also be giving away a lot of copies of the Microsoft Office for the Mac software," Desler added.

An Apple spokesman could not be immediately reached for comment. But Jobs last week maintained that while the centerpiece of the proposed settlement was its donation of Microsoft software to schools, the actual costs to Microsoft for this donated software would likely be under $1 million – compared to the $830 million value that Microsoft was touting.

"We think people should know that. 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," Jobs said.

Apple last month also filed a 30-page brief opposing the proposed agreement and on Friday filed a supplemental legal brief further contesting the legitimacy of the proposed settlement of the suits.

Apples 17-page supplemental brief called on the Court not to grant preliminary approval to the proposed settlement. It said the proposed settlements anticompetitive impact would not be limited to eligible schools but would extend "via a multiplier effect throughout school districts and states. The ultimate result will increase Microsofts monopoly power by dramatically expanding its installed base," it said.

The massive subsidies of Microsoft technology would further bind schools to Windows-based platforms and Microsoft equipment, limit schools choices and lead schools to purchase products that do not best serve the needs of students, the brief said.

It goes on to say that only five to six percent of the "value" contributed by Microsoft would be funds schools could use to acquire non-Microsoft technology. As such, the settlement would merely "extend Microsofts monopoly and distort purchasing decisions and channel resources away from products that would better server students, in particular," the brief said.

The settlements emphasis on used, refurbished computers would also only serve to keep the newest technologies – such as high-speed and wireless technologies – out of the disadvantaged schools that might need these technologies the most, Apple said.

Microsoft also faces further legal battles this week. On Wednesday the U.S. Senates Judiciary Committee is scheduled to examine the credibility of the proposed antitrust settlement between Microsoft and the federal government. It will hear testimony from the Justice Department, attorneys general in favor and opposed to the settlement and from a Microsoft executive or lawyer.

Also on Wednesday, Microsoft will file its response to the proposals suggested last week by the nine states and the District of Columbia who refused to sign the settlement between the federal government and Microsoft.