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Nine weeks after it started, this case is closed

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It was a Sunday at 3:30 in the afternoon, and the opposing attorneys for one of the most publicized trials in Iowa history had to meet someplace where they wouldn’t be noticed. A settlement was in the works, but the last thing either side needed was for word to get out about just how close they were to agreeing on terms.

“We don’t want to distract our teams who need to keep moving forward in case there isn’t a settlement,” said Roxanne Conlin, co-lead counsel for the plaintiffs in the Iowa class-action antitrust case against Microsoft Corp.

And that’s how it came to be that after nearly seven years, three trips to the Iowa Supreme Court, nine weeks of trial and 3,000 pieces of submitted evidence, the Microsoft case wasn’t settled in the courtroom. It was settled over a chocolate malt and an omelet at the Perkins restaurant on Fleur Drive.

To outsiders, the two sides couldn’t have seemed further apart. Microsoft questioned Conlin’s legal ethics, saying she recruited the named plaintiffs in the case to file the lawsuit. Early in the proceedings, Microsoft attempted to have Conlin banished from the case, alleging she had engaged in misconduct while obtaining certain documents.

For her part, Conlin’s legal team had made accusations recently that Microsoft might be in violation of a federal decree that marked the end of the U.S. Department of Justice’s lawsuit against software giant.

But throughout the trial, Conlin and Rich Wallis, Microsoft’s associate general counsel, had been having these clandestine meetings.

“Roxanne and I had a good working relationship,” Wallis said. “We talked from time to time, and on Sunday (Feb. 11), we finally were able to put it all together.”

After ironing out the details on Tuesday, Feb. 13, the litigants gave a Valentine’s Day gift to the jury the next day when Polk County District Judge Scott Rosenberg announced that a settlement had been reached.

“They started to file out into the jury room, and after about four of them were out of the courtroom, you could hear this ‘Wooo!'” Wallis said. “But you could tell in their faces they were surprised. They expected this to go on for months. It’s like they left in the middle of the movie.”

Everyone’s case

Details of the settlement won’t be announced until a preliminary hearing on April 20. Between now and then, lawyers will work out a system for telling eligible Iowans how to file claims for their share of the settlement.

Every Iowan who purchased Microsoft Windows, Office, Excel or Word software between May 18, 1994, and June 30, 2006, can claim a piece   of the settlement. In previous settlements, Microsoft has issued vouchers to class members for discounts on future purchases. Conlin said before the trial started that Iowa consumers “don’t want coupons,” so it remains to be seen if this method will be used in this case.

The only detail released was that Microsoft will donate half of any unclaimed settlement to the Iowa Department of Education to be used by public schools. Microsoft has made similar arrangements to benefit schools in other states where it has settled cases.

“What’s different about Iowa is that we’re going to do this in a way specifically designed to close the digital divide,” Conlin said, adding: “We’re all going to be involved in making a plan for the best possible use of these amounts to ensure that every single child graduates from Iowa schools with the technical skills to compete and survive in a very technical world.”

Microsoft has settled dozens of similar antitrust cases in state courts in recent years. In only one other case, in Minnesota in 2004, was the settlement reached after trial had begun. In that case, the lawyers, who included Conlin and her co-lead counsel in Iowa, Rick Hagstrom, sought more than $300 million from the company. The case was settled for $174.5 million. Attorney’s fees were about $59.4 million, according to court documents. The six plaintiffs who brought the case forward received $5,000 each.

The Iowa lawsuit sought more than $330 million from Microsoft for allegedly engaging in monopolistic and anti-competitive conduct that caused customers to pay more for software than they would have if there had been competition.

Final stages

So how, after all the legal maneuvering, did this settlement come about?

“As lawyers for a large number of people, we have an ethical obligation to them to do what is in their best interests,” Conlin said. “However we might feel about pressing forward, there is substantial risk and lots of uncertainty in any lawsuit. When we got to the point where we and the class representatives felt that this was fair, we had to say yes.”

Wallis agreed, saying that though he and his team are disappointed that they didn’t get to tell their side of the story, they are excited to finally put this chapter of Microsoft’s history officially behind them.

“This case focused on what happened from 1988 to 1994,” Wallis said. “This was all matters that have long since been resolved.”

Brett Trout, an Iowa intellectual property attorney who has been following the case, said he felt it was Judge Rosenberg’s dismissal of Conlin’s “loss of the benefits of software innovation” claim that ultimately led to the plaintiffs hoping to settle. The plaintiffs were contending that Microsoft’s actions stifled innovation, and thus, consumers should be compensated for that loss. The loss of that claim lowered the overall damages, and Trout said he believes it was a turning point in the case.

“With that claim, I think the plaintiffs would have had more leverage,” he said. “When the innovation theory was thrown out, it changed the scope of the trial altogether.”

Other observers say that it was the release of a series of embarrassing internal documents, such as an e-mail in which Jim Allchin, then Microsoft’s Windows development chief, complained about the progress of Windows Vista and said that he would buy a Macintosh if he weren’t a Microsoft employee, that pushed Microsoft to settle to avoid more public relations disasters.

Rush Nigut, a business lawyer at Sullivan & Ward P.C., said he wasn’t surprised that the case was settled.

“These cases involve a great deal of risk for both sides,” he said. “It’s a roll of the dice if you let it go to the jury.”

William Raisch, an adjunct professor at Drake University School of Law, where he has taught antitrust law since 1984, and a former Iowa assistant attorney general from 1975 to 1986, said both sides probably knew coming into the trial that this case wasn’t going to go to the jury.

“I’m sure a lot of their strategy in this case was to improve their position for a good settlement,” he said. “Sometimes, both sides have to convince each other of just how good their case is.”

Conlin and Wallis both said that until that Sunday, they assumed this case was going to be turned over to the jury.

Legacy

“This lawsuit made a lot of law,”   Conlin said. “The first thing this lawsuit did was make it possible for consumers to sue. Up to Comes vs. Microsoft, consumer lawsuits were not permitted in Iowa. The only people who could have sued Microsoft would be the computer manufacturers, and Lord knows they’re not going to do it. The Iowa Supreme Court wrote a spectacular decision about purposes of the antitrust law, about who really suffers and who really benefits. It’s a model for the nation.”

Raisch said this was a huge change in Iowa law that could have ripple effects for years to come.

“This set a precedent, and I think we’re going to see a lot more of these types of cases in the future,” he said.

Wallis said he hopes the legacy of the case will be in Iowa’s schools, where computers and software will be made available to districts that might not have been able to afford them.

“We are all really excited about that aspect of the settlement,” he said. “I am personally going to stay very involved and work to get that money to the schools that need it.”

Wallis said this case might represent the end of Microsoft’s antitrust saga, which dates back to the original U.S. Justice Department case in the mid-1990s. Only one case remains, in Mississippi, and it has already been dismissed once. Wallis said a decision on that   case should be reached by the end of this month.

Raisch questions whether the portion of the settlement that goes to Iowa schools will be cash or discounts on Microsoft products.

“If it were a money settlement, the monies could be used to buy whatever vendor’s products the so-called injured parties wanted to purchase,” he said, adding: “This is what the plaintiffs argued – that Microsoft deprived the injured class members of a competitive choice. If the schools are outfitted with Microsoft products, where is the choice for Apple products or other competitive products?”

He also questions the payday for the plaintiffs’ attorneys, saying that he hopes this entire case will not amount to simply a windfall for the lawyers.

“It seems to me that in the end, the lawyers will end up with a sizable chunk of the settlement and the individual class members will receive a very small piece, and Microsoft will have paid a relatively small price for the gains it made when it exercised its monopoly power in the mid-to-late ’90s and early 2000s. Competition will not be the better from this lawsuit,” he said.

What’s next?

For Microsoft’s Wallis, the settlement means a return to Washington state after basically taking up residence in Des Moines.

“I want to get reacquainted with my family,” he said. “I’m definitely taking some time off. But I want to bring my family back here to visit, and I will not miss the state fair. I’ve been in around 37 states because of different litigation, and I felt the most comfortable here in Iowa.”

Conlin said the only way she was able to focus on the case and absorb the material she needed to absorb was to move into her home office two years ago. Now that the case is over, she may have to, grudgingly, go back to the office.

“I’ve gotten so accustomed to the lovely office I have at my house,” she said. “It looks out onto the back of Water Works Park. I’ve got deer, squirrels, wild turkey and a family of foxes.

“I’m going to take the afternoon off, then get back to my legal practice.”