Judge Rejects Proposed Microsoft Settlement in Class-Action Suit

BALTIMORE – A federal judge Friday rejected Microsoft's offer to donate computers and software to schools to settle a class-action lawsuit accusing it of overcharging for its products.

U.S. District Judge J. Frederick Motz said the settlement is "critically underfunded" and would have anticompetitive effects on the market, especially on Microsoft rival Apple Computer.

Microsoft had offered to give software, 200,000 refurbished computers and other resources the company valued at $1 billion to the nation's poorest public schools.

Apple argued in December that the agreement would give Microsoft an unfair advantage by encouraging schools to acquire Microsoft products.

"The agreement raises legitimate questions since it appears to provide a means for flooding a part of the kindergarten through high school market in which Microsoft has not traditionally been the strongest player (particularly in relation to Apple) with Microsoft software and refurbished PCs," Motz wrote in a 21-page opinion.

Motz also said the "widely divergent views" between estimates of the value of the claims being settled prevented him from granting approval.

Microsoft had argued that it could be responsible for as little as $200 million, while some economists for the plaintiffs estimated the company's liability to be upwards of $18.9 billion.

Microsoft and some of the plaintiffs' attorneys agreed to the settlement in November. But other attorneys and educators -- notably lawyers for California plaintiffs -- have opposed the deal, arguing it would increase Microsoft's share in the education market and not best serve the neediest schools.

Meetings with a mediator to discuss possible changes to the settlement did not produce any results because some litigants were "too far away from what we considered realistic," Microsoft lawyer David Tulchin said Friday.

The lawsuits, which began in 1999, are separate from antitrust suits brought by states and the federal government.

Microsoft lawyers argued the settlement would have helped close the "digital divide" between rich and poor students nationwide.

At a hearing last month, lawyers from California said the settlement did not reflect the needs and laws of different states. "There's too much diversity here," said Daniel Furniss, lead counsel for plaintiffs in California.

Calls Friday to Furniss' Palo Alto-based law firm -- Townsend, Townsend and Crew -- were not immediately returned.

Shares of Microsoft fell 68 cents to $68.60 on the Nasdaq Stock Market.