Apple Computer Inc. has urged a federal judge to reject a controversial proposal by rival Microsoft Corp. to settle more than 100 class-action lawsuits alleging its products are overpriced.

Under the proposed settlement, Microsoft would give more than $1 billion in cash, software, training, and computer hardware to thousands of the nation’s poorest schools during the next five years. But in a statement issued Dec. 6, Apple chief executive Steve Jobs said the settlement actually will cost Microsoft less than $1 million.

“The centerpiece of Microsoft’s proposed $1 billion civil antitrust settlement is their donation of Microsoft software, which they value at $830 million, to our schools. We think people should know that the actual costs to Microsoft for this donated software will likely be under $1 million,” Jobs 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.”

Microsoft’s proposal was submitted to the Federal District Court of Maryland Nov. 20. At press time, it was awaiting approval by U.S. District Judge J. Frederick Motz, who is overseeing the class-action suits. The suits stem from antitrust litigation originally filed by the U.S. Justice Department.

If accepted, the settlement would provide cash, refurbished computers, software, technical assistance, and training to all qualifying schools—those with 70 percent or more of their students receiving free or reduced-priced lunches, or about 16,000 schools in all, according to company estimates.

“It is a settlement that avoids long and costly litigation for the company and … really makes a difference in the lives of millions of school children in some of the most economically disadvantaged schools in the country,” said Microsoft’s chief executive officer, Steve Ballmer.

Microsoft was hit with a host of private lawsuits claiming antitrust violations after the government filed its antitrust suit against the software company in 1998. Many states dismissed the suits because new computer buyers did not buy the Windows operating system directly. The remaining cases were consolidated under Motz.

Michael Hausfeld, representing a group of private plaintiffs in Washington, D.C., said he originally thought of the unorthodox settlement idea about a year ago after realizing that each of the 65 million computer buyers eligible to gain from the settlement would likely receive only about $10 if they won the case or a settlement were reached.

But critics contend the proposal will only enhance Microsoft’s access to the education market, while providing inadequate funding to meet the poorest schools’ needs.

Jobs previously blasted the proposed settlement in a Nov. 27 statement, arguing the settlement would further Microsoft’s monopoly power—the concern that prompted the lawsuits in the first place.

“We’re baffled that a settlement imposed against Microsoft for breaking the law should allow, even encourage, them to unfairly make inroads into education—one of the few markets left where they don’t have monopoly power,” said Jobs.

Another counterproposal

Jobs isn’t alone in his criticism. Another Microsoft rival, Red Hat Inc., also issued a counterproposal that focuses on how much money Microsoft actually would have to spend if the courts were to accept its settlement offer.

In its counterproposal, Red Hat—which makes a version of the Linux open-source operating system—offered to give its software to every school district in the nation for free. As a result, the company said, Microsoft could focus on buying hardware, instead of software, for the estimated 16,000 eligible schools.

“While we applaud Microsoft for raising the idea of helping poorer schools as part of the penalty phase … for monopolistic practices, we do not think that the remedy should be a mechanism by which Microsoft can further extend its monopoly,” said Matthew Szulik, chief executive officer of Red Hat.

Red Hat said it would give its open-source Red Hat Linux operating system, office applications, and associated capabilities to any school system in the United States at no charge. Red Hat also will offer online support for the software through the Red Hat Network, which currently is a fee-based service.

Unlike the Microsoft settlement, which is guaranteed for five years, Red Hat’s offer has no time limit, the company said.

“Initially, I just found it humorous, since you can download Red Hat’s software for free already. However, since the offer includes Red Hat Network [support], this becomes a much more serious offer, as that service does involve some direct costs to Red Hat,” said Kyle Hutson, director of technology for the Rock Creek School District in Kansas.

Norris Dickard, senior associate of the Benton Foundation, which focuses on digital divide issues, said the counterproposals are “part of a ‘tit for tat’ among competitors.”

“Competitors … feel that Microsoft is using this deal to get out of numerous lawsuits and extend its monopolistic position by getting [schools] hooked on its software, while looking good in doing so,” Dickard said.

Terms of the proposed settlement

With $150 million in seed money, Microsoft said it would create the National eLearning Foundation to offer grants to underserved schools for purchasing computers and software. The foundation also would spend $100 million to establish sustainable programs to support technology in schools.

Eligible schools would be able to request a standard subscription to Microsoft’s TechNet technical support program, which includes Microsoft resource kits, service packs, training materials, and technical training CDs.

Microsoft also would give up to $90 million to train teachers, school administrators, and support personnel to integrate technology.

Furthermore, the company would give at least 200,000 software licenses to nonprofit computer refurbishing organizations so they can install Microsoft operating systems on refurbished personal computers. Eligible schools could apply for grants that would reduce the price of these refurbished machines to $50 each.

During the five-year period, eligible schools would be able to request a wide range of educational and productivity software at special prices for both PCs and Macs, including Office XP, Office 2000, Office 2001 for the Mac, Windows XP Professional, any Scholastic Magic School Bus title, any My Personal Tutor title, one Windows 2000 server and client access license, and one Encarta Class Server and access license.

Educators’ reactions to the proposal were mixed. While some believe it will help poor schools acquire software and train teachers to integrate technology into the classroom, others say it still doesn’t address Microsoft’s high prices.

“Nothing in the decision addresses Microsoft’s pricing schemes that are outrageous at best,” said Ken Eastwood, assistant superintendent for instruction and technology at New York’s Oswego City School District. “The suggested solution is not really a solution, but a political attempt to sweep the issue under the rug.”

According to Eastwood, Microsoft’s new educational licensing prices are so high that his district, which was featured in Microsoft case studies, is no longer able to afford Microsoft products and is turning to free alternatives like Star Office and Linux as potential solutions.

As for donated computers to schools, Eastwood said, “That is just passing on problems to the schools.”

Others worry that the program’s eligibility requirements aren’t a true indicator of need.

“Using free and reduced lunch as a qualifier does not mean that all the poor schools in the country will get the help that will be provided by this settlement,” said Dennis Dempsey, superintendent of Crook Deschutes Education Service District in Oregon.

“There are many small schools, especially one-room schools, in the western United States that do not operate free and reduced lunch programs because it is not cost-effective to do so. Thus, a very poor small school would not qualify for the help provided by the settlement, which would be unfortunate.”

Apple Computer Inc.


Red Hat Inc.