Microsoft settles Iowa antitrust case

Microsoft has agreed to settle a multimillion dollar lawsuit brought by thousands of Iowa consumers and businesses who say the company’s anticompetitive practices forced them to pay inflated prices for software including Microsoft’s Windows, Word and Excel.

The case made waves in the Mac community in December when the state of Iowa presented as evidence memos from James Allchin, Microsoft’s Windows development chief, who said that Microsoft had “lost sight” of customers’ needs and that if he were not a Microsoft employee, he’d buy a Mac. Allchin later said that he made the comment for effect, and suggested that it was being reported out of context.

Seven years after it was filed, the class-action suit finally began on Dec. 1 in a Des Moines, Iowa, courtroom. Microsoft agreed to settle before the jury reached a verdict. Neither the company nor the plaintiffs’ law firm announced the amount that Microsoft agreed to pay, but the suit had originally asked for $329 million in damages.

In a statement, Microsoft said the terms of the settlement would not be disclosed until judges approve the agreement during hearings in April and August. The case covers Iowa residents who bought certain OS and application software between May 18, 1994, and June 30, 2006.

Microsoft also agreed to pay half of any unclaimed proceeds to the Iowa Department of Education, to be used for bridging the digital and technical divide in Iowa schools through the purchase of computer hardware and software, according to a statement by Rich Wallis, associate general counsel for Microsoft.

Customers across the U.S. filed dozens of antitrust class-action suits against Microsoft, but this was only the second one to go to trial, according to a statement by the plaintiffs’ law firm, Zelle, Hofmann, Voelbel, Mason and Gette. Microsoft also agree to settle a Minnesota case for $182 million before it reached a verdict.

In 2001, Microsoft agreed to settle a lawsuit brought by the U.S. Department of Justice and the attorneys general for 19 states, the company said. Microsoft has also reached settlements with three more state governments. Whereas all those cases alleged that Microsoft harmed competition by including certain applications in its OS (thus essentially barring other software vendors from the market), the Iowa and Minnesota cases allege that Microsoft used its enormous market share to overcharge consumers. The only remaining private class-action lawsuit of that type is in Mississippi, according to Microsoft.

Microsoft has denied overcharging those customers.

“During our opening this week, we showed the real reasons for Microsoft’s success. We demonstrated that the plaintiffs’ core allegations in this case are decades old, long resolved and have no impact on the issues in this case,” Wallis said when the Iowa case opened in December.

“The majority of the plaintiffs’ claims predate the class period in this case. The allegations that came afterward were addressed by the government case eight years ago. Microsoft accepted responsibility, changed its practices, and to this day we continue to live and work under a consent decree.”

The Microsoft operating systems covered in this case include MS-DOS, Windows 95, Windows 98, Windows 98 Second Edition, Windows Millennium Edition, Windows for Workgroups, Windows NT Workstation, Windows 2000 and Windows XP. The applications include Word, Excel and Office versions designed for computers with the above MS-DOS or Windows operating systems.

Peter Cohen provided information used in this report.

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