Is That Settlement for Here or to Go?

Three months into an Iowa class-action lawsuit that seemed destined for jury verdict, Microsoft attorney Rick Wallis and plaintiff counsel Roxanne Conlin, of Zelle Hofmann Voelbel Mason & Gette, met Sunday at a Perkins to carve a settlement.

Yesterday, Microsoft and the law firm announced the agreement, which is subject to court approval. A hearing is scheduled for mid-April, when a judge is expected to deliver preliminary approval.

The Perkins settlement puts Microsoft one case away from dispatching about 200 private lawsuits stemming from the company's adverse U.S. antitrust ruling. The whittling down of cases also brings to near close a personal crusade by Microsoft's general counsel, Brad Smith.

When Smith assumed his role in early 2002, he inherited a mess from his predecessor, William Neukom. Following a November 2001 settlement with the U.S. Justice Department and nine states, court proceedings continued with nine other states. Meanwhile, private lawsuits mounted up across the country.

Smith embarked on an aggressive strategy of reconciliation, with the goal of putting the past in the past. After all, many of Microsoft's legal problems started during the leadership of earlier management, with Bill Gates as CEO and Neukom. Gates led Microsoft in a time of fierce competition, when the company fought to win, seemingly at any cost.

Steve Ballmer, who took the chief executive's seat in early 2000, had a different style and led the company during a time of less market change. His management team, under Smith's legal counsel, sought to dispatch the baggage from the older regime. The old legal problems hampered the effort to establish a new legacy and created problems with partners and customers at a time when Ballmer and Co. needed to develop workable strategies for selling to mature markets rather than those undergoing rapid growth.

Microsoft wanted to get on with the future, while ongoing antitrust lawsuits continued to drudge up the past. Consolidation reduced the number of cases, with the largest group being 108. Over half the total number of cases were dismissed, while about another half were settled. By states: Cases were settled in 17, were dismissed in 16, were denied class certification in two others. Two preliminary settlements are pending, with Iowa making a third.

Cases in Iowa and Minnesota went to trial, brought by the same law firm. A final case, in Mississippi, is scheduled for trial. Microsoft will ask for dismissal during a hearing scheduled for late this month.

Settlements typically provide the greatest benefit to the filing attorneys, who supposedly brought the cases for the benefit of consumers. The Minnesota settlement was around $179 million, with lawyers fees in additional to the amount.

Settlement of class-action suits like the ones brought against Microsoft typically dispense no real money, outside of the filing attorneys' cut. The defendant typically offers vouchers exchangeable for goods. Voucher claim rates are rarely higher than 50 percent. Microsoft settlements typically allocate some portion of the unclaimed vouchers for schools. Free software, particularly for schools, can create lots of goodwill, which is Microsoft's benefit from the settlements. In Minnesota, Microsoft distributed $55 million in vouchers to 468 schools.

In Iowa, the same attorneys as Minnesota sought $330 million. Based on the Minnesota case and others, settlement will likely be about half that amount, mostly vouchers, with an additional sum going to plaintiff attorneys. About half of unclaimed vouchers are expected to be distributed to Iowa schools.

The Iowa case proved to be problematic for Microsoft, as the lead attorney appeared determined to put the matter before a jury. The case also dug up the past and stuff from the fairly recent past. While the Iowa case mostly unearthed old documents from the U.S. antitrust case, a few choice e-mails also were filed and made public—two from Jim Allchin. He recently retired from Microsoft. Taken out of context in news reports, the e-mails—"I would buy a Mac" and "Apple is just so far ahead"—created for Microsoft more unnecessary PR woes.

With Iowa behind, Microsoft must now look ahead to Mississippi. If there are any settlement discussions, though, lawyers will have to go to Arkansas to find a Perkins.

Personal aside: Next time my wife and I have a dispute, we're driving to Perkins. Maybe we can settle our differences over lunch.