A federal judge has 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 on Jan. 11 that 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. In his ruling, Motz agreed with Apple’s assessment.

“The [offer] 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 … 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.

An Apple spokesperson said the company declined to comment on the ruling.

Microsoft and some of the plaintiffs’ attorneys agreed to the settlement in November. But other attorneys and educators—notably lawyers for California plaintiffs—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.

Tulchin said it is too early to know whether the parties could negotiate another settlement that would meet Motz’s standards.

“We are willing to litigate, and we have done well so far,” Tulchin said.

Cincinnati lawyer Stan Chesley, a national co-chairman for the plaintiffs, said he was disappointed with Motz’s order, but that his clients still hoped to reach an agreement.

“We will work diligently with Microsoft and fix the settlement before we [would] go to litigation,” he said.

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

Microsoft was hit with a host of private suits 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.

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

At a hearing in December, lawyers from California said the offer 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.

Many educators also opposed the settlement, although they said they would welcome some sort of plan to settle the case by giving schools badly needed technology resources.

“I believe Microsoft’s intent was positive, and [company executives] truly believed they had a solution that would be acceptable and useful to schools,” said Bill Fiske, the instructional technology coordinator for the Rhode Island Department of Education.

“Sadly, you mix in a little bit of corporate arrogance and a misunderstanding of the educational environment, and you end up with a solution that horrifies everyone.”

The proposal would have provided schools with money they could spend on other companies’ software, but a foundation set up by Microsoft and plaintiffs’ attorneys would have had to approve their decisions.

Educators and minority-rights groups also took issue with Microsoft’s plan to provide schools with refurbished, previously used computers.

Related links
Microsoft Corp.

Judge Motz’s decision