Microsoft Class Actions Settlement Unfair and Should Be Rejected, AAI Writes to MDL Court

Nov 27 2001
Testimony and Interventions

Judge J. Frederick Motz U.S. District Court 101 W. Lombard Street Baltimore, MD 21201

By FAX: 410-962-2698

Re: Proposed MDL Microsoft Settlement

Dear Judge Motz:

We write on extremely short notice over the holiday weekend to express distress at the proposed settlement that comes before your Court on November 27. Were there more time, we would apply to speak as amicus curiae, but we hope you will take notice of our concerns, which are based on public reports. The American Antitrust Institute is an independent non-profit education, research, and advocacy organization dedicated to a vigorous role for antitrust in the national economy. We have commented frequently, as have many of our individual Advisory Board members, on matters relating to Microsoft's anticompetitive activities. It is with this perspective that we make the following points.

  • First, the proposed settlement does not appear to represent a fair and reasonable termination of the over one hundred private class action suits against Microsoft.
  • Second, even if the settlement is deemed fair with respect to consumers in non-repealer states, a national settlement would be grossly unfair to consumers in states where a right of recovery has clearly been brought into being and where the plaintiffs stand ready to go to trial and, indeed, are opposed to a national settlement that would preclude their right of trial.
  • Consumers in repealer states ought to have a right to their class actions being tried or settled on their own merits. As the Court of Appeals for the District of Columbia Circuit said, talking about how the judiciary should consider antitrust issues in the fast paced software market, even though the remedy in the federal litigation against Microsoft may be too late to do any good, "… the threat of private damage actions will remain to deter those firms inclined to test the limits of the law." 253 F3d 34, 49.
  • Given the large monetary damages to consumers that have been alleged in the various repealer states-in the billions of dollars, the proposed settlement is grossly out of proportion to what is at stake. Not only does it fail to provide any benefit directly to the consumer class, it also fails to achieve any of the benefits that the antitrust laws anticipate through their unique "private attorney general" function. Microsoft's illegal uses of its market power, which are alleged in these cases and which have credibility as a result of findings by the U.S. District Court, upheld by a unanimous Court of Appeals, will not be touched by this settlement. The money that Microsoft will pay under the settlement is a pittance for that company, having no deterrent value.
  • An order for Microsoft to place low-cost computers and free Microsoft software into the public schools, where future Microsoft customers can be trained, is the type of punishment that Brier Rabbit sought in the brier patch. To the extent that this influx of Microsoft products undermines Apple, one of Microsoft's few remaining competitors, whose base of strength happens to be in the public schools, the proposed settlement of these antitrust suits may actually be anticompetitive.
  • The proposed settlement must be viewed in the context of Microsoft taking advantage of a division between those states that have chosen to overturn the Illinois Brick rule and those that have not. Microsoft has cleverly engineered the fracture to the point where one group of lawyers (representing consumers in non-repealer states) who had lost their case and now have only the bargaining leverage of relinquishing their right of appeal, willingly enters a nationwide settlement that gives them (but not the class they represent) a little something including attorneys' fees, while appearing to sell out consumers in the repealer states, whose indirect purchaser claims have not yet been heard. As advocates of the antitrust mission, we worry that the public will view this settlement as an example of lawyers winning their fees while consumers get nothing of value, an outcome that can only diminish popular support for the antitrust laws themselves.

We urge the Court to reject the proposed settlement as unfair or, at the very least, to carve out from the settlement those states that provide for a right of recovery by indirect purchasers.


Albert A. Foer, President

Cc: The Honorable Stuart R. Pollak San Francisco County Superior Court 400 McAllister Street, Dept. 304 San Francisco, CA 94111