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Commentary and opinion on current civic, political, and religious events and issues.

Past Issue
16 August 2004

Northern City Journal
(ISSN 1528-9575)
Vol. 5, No. 34

Minneapolis, Minnesota

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Microsoft Minnesota Settlement Transfers Millions to Lawyers

by Jerome F. Winzig

A couple of weeks ago we received three large envelopes with this return address: "Minnesota District Court Claims Administrator: Microsoft - Minnesota Settlement." Contained in each were four pages entitled "Microsoft Minnesota Standard Claim Form Instructions," eight pages entitled "Consumers and Businesses May Claim Microsoft Settlement Benefits," and a three-page "Microsoft Minnesota Standard Claim Form."

What was this all about? The enclosed paperwork provided this answer: "Lawsuits filed in Minnesota claim that Microsoft violated Minnesota's antitrust and unfair competition laws and thereby overcharged consumers for certain of its operating system, word processing and spreadsheet software. Microsoft does not admit that it did anything wrong and contends that it developed and sold high quality and innovative software at fair and reasonable prices."

The paperwork then goes on to say, "The Court did not decide in favor of the Plaintiffs or Microsoft. Instead, both sides agreed to a settlement. That way they avoid the uncertainty and cost of trial and those included in the Class will get an opportunity to receive vouchers. The Class Representatives and the attorneys appointed by the Court to represent the Class believe the settlement is best for all Class Members."

Apparently, no one was responsible for determining whether the settlement serves the public good.

It provides vouchers worth up to $174.5 million to Minnesota consumers who purchased certain Microsoft products between May 18, 1994 and March 17, 2003. The vouchers are worth $15 for each copy of Microsoft Windows or MS-DOS, $23 for each copy of Microsoft Office, $9 for each copy of Microsoft Word, Home Essentials, or Works Suite, and $23 for each copy of Microsoft Excel.

Obtaining the vouchers gets complicated if you want to get more than $100 in vouchers. You need to provide a Product ID Number, a Product Key Number, a CD Key Number, or a copy of an invoice, packing slip, receipt, or original Certificate of Authenticity. (To provide the later, you may need the cover, box, manual, or CD case from a ten-year-old Microsoft product.)

Once you complete the form, a special court administrator will send you a voucher. Then, if you purchase certain computer hardware or software in the next four years, you need to send in your receipts and your voucher in order to receive a cash refund.

The voucher provisions are rather convoluted, but the remaining payouts provided in the settlement are nothing short of astonishing. According to the settlement, the "lawyers representing you" (namely Zelle, Hofmann, Voelbel, Mason & Gette, LLP of Minneapolis and Kirby McInerney & Squire, LLP of New York) "will seek an award of attorneys' fees not to exceed $59.4 million plus expenses." The two "Class Representatives" on whose behalf the suit was ostensibly filed get $5,000 each. The University of Minnesota gets $2.5 million in cash and $2.5 million in vouchers for technology development purposes. The Minnesota Legal Aid Society gets $2.5 million. Finally, if the full amount of the settlement is not redeemed in vouchers, "Minnesota public schools that are most in need of the vouchers" will get a portion of them "under a program to be approved by the Court."

This is mind-boggling. Microsoft customers get vouchers redeemable only if they buy more computer hardware or software. The two alleged original claimants get $5,000 each. Legal Aid and the University of Minnesota each get $2.5 million and the University gets another $2.5 million in vouchers, but there's no explanation of this bonanza. Two law firms get $59.4 million plus expenses, but no explanation is offered for such whopping figures.

This amounts to legal extortion. Find a few claimants. File a class action lawsuit. Convince the company it's cheaper to settle than to fight the case. The result is a massive transfer of millions of dollars from Microsoft to the attorneys.

Sadly, this is part of an on-going transfer of wealth to powerful class action lawyers. Still sitting on my desk from last month is a class action notice for i2 Technologies, Inc., a company in which I hold shares currently valued at $126 through my IRA account. (They'll be worth even less after the settlement.) A second copy of the 22-page notice arrived last week. The settlement provides an $84 million settlement fund for certain stockholders who bought stock from March 22, 2000 to July 21, 2003. In this case, the "Plaintiff's Counsel" who "represent you" are applying for attorneys' fees of not more than $28.6 million and "reimbursement of their expenses in the approximate amount of $1,500,000 plus interest." Once again, the "Settling Defendants deny that they are liable to the plaintiffs or the Settlement Class and deny that plaintiffs or the Settlement Class have suffered any damages." They've just found it's easier to pay off the lawyers.

This period in history may one day be known as the "Era of Class Action Extortion." Today there is very little coverage by the media. However, these settlements provide certain class action law firms with such massive amounts of money that they can easily fund huge future lawsuits while contributing generously to political candidates who oppose tort reform. Where will it end?

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