Error shakes Microsoft hearing

Apple's Steve Jobs assails proposal to settle private suits

November 28, 2001|By Stacey Hirsh and Andrew Ratner | Stacey Hirsh and Andrew Ratner,SUN STAFF

A federal judge in Baltimore heard a long day of arguments yesterday on a controversial $1 billion-plus proposed settlement of private class action lawsuits claiming that Microsoft Corp. overcharged its customers.

And some drama erupted in the courtroom late in the day when an economist representing Microsoft said a mathematical error caused him to gravely underestimate the amount of a potential trial award.

Under the terms of the proposed settlement, the software giant would pay for computers, software and computer training and support in more than 15,000 schools for underprivileged students.

FOR THE RECORD - In yesterday's Business section, The Sun incorrectly reported that Keith Leffler, a professor of economics at the University of Washington, represented Microsoft Corp. when he testified at a federal court hearing on a proposed settlement of a class action suit against the software maker. Leffler testified for the plaintiffs in favor of the proposed settlement. The Sun regrets the error.

Keith Leffler, a professor of economics at the University of Washington who had been hired by the class action lawyers, said he had drastically underestimated the amount of the potential claim that could be won at trial.

He initially estimated that plaintiffs could have won damages of $5 billion, but later corrected the number to $12.5 billion. The mistake occurred because an assistant had omitted part of a formula, Leffler said.

The error prompted concerned questions from Chief U.S. District Judge J. Frederick Motz about the proposed settlement.

"I've just been told that there was a negotiation based on a dramatically incorrect figure," he said. "It seems to me you've got to go back to square one before you get to square five, or wherever we are today."

But Motz appeared to accept the explanations of Leffler and settlement attorneys that the incorrect figure had not been used during settlement negotiations.

Motz said he would make a decision on the settlement offer in mid-December. The preliminary hearing is to resume Dec. 10.

Critics say the proposed settlement, if approved, would only add to Microsoft's monopoly in the operating system and desktop applications.

In a statement released yesterday, Steven P. "Steve" Jobs, chief executive officer of Apple Computer Inc., a Microsoft competitor, said that about half of the computers in schools are made by Apple. Apple is the nation's second-largest supplier of computers overall and the largest supplier of portable computers for schools, he said.

"Given this, 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," Jobs said.

Arguments in the preliminary hearing began yesterday morning and ran past 8 p.m.

Lawyers for plaintiffs from several states did not have a chance to argue against the settlement until after 5 p.m.

The Judicial Panel on Multi-District Litigation in Washington, which assigns cases that cross district lines, sent the lawsuits to Motz last year.

The panel assigned the matter to Motz because of his experience in multi-jurisdictional litigation.

The case is separate from a proposed antitrust settlement involving the federal government and 18 states and the District of Columbia.

Throughout the day, lawyers, professors and school officials from around the country testified about the merits of the deal, saying it would help bridge the "digital divide" that puts poorer students at a disadvantage because of limited access to technology.

Glen L. Bull, a professor of education at the University of Virginia's Curry School of Education, offered a demonstration of how technology can help students in schools, giving the courtroom a peek through a digital microscope.

Bull said that in the past 25 years he has never come across anything with the potential to make an impact the way the proposed settlement could.

Leffler, the economics professor, detailed the values of various parts of the proposed $1.6 billion settlement. He said the software Microsoft would donate is valued at $839.5 million. The computer-refurbishing the company would provide is valued at $169 million and the training is valued at $90 million. Microsoft also would give schools $16.8 million in subscriptions to its technical support program, TechNet.

In addition, Microsoft would put $530 million into a foundation that would give grants for schools to buy technology - either Microsoft's or other brands.

Later, Leffler came before the judge a second time to admit the mathematical error in calculations he had presented earlier.

Outside the court, Microsoft deputy general counsel Tom Burt said the incorrect damages figure was never discussed during negotiations.

Nevertheless, Jeffery K. Mackie-Mason, a professor of economics at the University of Michigan who testified against the proposed settlement, said the math mistake was one of the reasons the proposed settlement shouldn't pass muster.

Mackie-Mason said the settlement is worth $700,000, not the $1.6 billion figure that Leffler and Microsoft had said it is worth. Free software assumes schools would have the budgets to add other necessities to go with it, such as computer rooms and teacher training, Mackie-Mason said.

Also, about one-third of the value of the software comes from Magic School Bus software, which is geared toward younger students. The settlement assumes that every school would have that software, but schools could never realistically use all of it, he said.

Bloomberg News contributed to this article.

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