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Microsoft settles Minnesota class-action lawsuit
by Jeff Horwich, Minnesota Public Radio
April 19, 2004

Bill Gates will not be coming to Minnesota after all -- at least not to testify on his company's behalf. Lawyers for Microsoft and for Minnesota consumers announced a settlement Monday in the class action suit against the company. The settlement prematurely ends the first trial ever to result from a class action suit against the software maker.

Minneapolis, Minn. — Both sides are withholding the amount and terms of the settlement until a final version comes before the judge in the case. That should happen in the early summer. According to a plaintiffs' lawyer, the two sides have not settled every detail. They have agreed to resolve these remaining issues by arbitration, which the lawyer says could take a day or less.

The lawsuit accused Microsoft of using an illegal monopoly in Windows and other software to overcharge an estimated one million Minnesota consumers. It sought $425 million in damages. In a plaintiffs' victory, that award would have been tripled as required by antitrust law.

Microsoft -- so eager to communicate with the press and the public during the case -- had very little to say about the deal. A company spokeswoman said only that a settlement had been reached and that Microsoft would discuss it in more detail once it is finalized.

Lead plaintiffs' attorney Richard Hagstrom was also short on specifics, but says he's confident Minnesota consumers will be pleased with the outcome.

"It has been a hard-fought battle, and both sides were putting forth their best efforts," Hagstron says. "We're very pleased with the resolution on behalf of Minnesota class members."

What typically happens is the attorneys that file the suit want to make sure that their fees are covered. Very often the folks who are being represented in the suit don't get a whole heck of a lot. - Rob Enderle, technology analyst

Speculation varies on the size of the Minnesota settlement. One source with a class action clearinghouse, who is close to one of the firms in the case, guesses it will be $300 million to $400 million. This would be far less than the $1.3 billion plaintiffs might have won in court, but still the second-largest of the 11 such settlements Microsoft has reached around the country.

Rob Enderle, a technology analyst who follows the company, estimates the settlement would be somewhat lower than that. And he says what's left for consumers is lower still.

"What typically happens is the attorneys that file the suit want to make sure that their fees are covered. Very often the folks who are being represented in the suit don't get a whole heck of a lot, which would be the expectation of a discount on future Microsoft products," says Enderle.

It's up to consumers to claim those discounts, and many do not. In California, the last state where Microsoft settled, only 4 percent of eligible consumers have filed the required paperwork.

Neither side offered any hint of why a settlement materialized over the weekend. Last week, both sides told MPR they planned to see the case through to the end. That's no surprise, says David McGowan, professor of antitrust law at the University of Minnesota.

"You settle a case by saying, 'I'm confident we're going to win, it's a no-brainer, we're going to prevail,' and you say that right up until the ink is dry," McGowan says.

It's possible Microsoft felt an urge to settle before announcing its third quarter earnings later this week, which some analysts expect to be lackluster.

Analyst Gene Munster with Piper Jaffray says there is simply a more settlement-friendly attitude at the software giant these days. In March, Microsoft settled a bitter, decade-old legal battle with competitor Sun Microsystems.

"In the past two months, we think there has been an attitude change," Munster says. "To put it in perspective, typically in a year, Microsoft would settle one of these major litigations -- and there have been four in the last month and a half."

Munster says whatever the amount, the settlement means relatively little to Microsoft -- just one more in a series of "baby steps" that help make investors more confident.

The impact of the Minnesota trial on future cases will depend upon the settlement document. If it is like most antitrust settlements, it will admit no fault on the part of the company, and thus contribute little precedent to future Microsoft litigation.

But the plaintiffs' lead attorney says his side learned a great deal by actually taking Microsoft to court. It's knowledge he says may yet inspire and inform the cases that will continue to dog the world's biggest software company.

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