The Honorable J. Frederick Motz
United States District Court
District of Maryland
101 West Lombard Street
Room 510
Baltimore, MD 21201

Fax: +1.410.962.2698

RE: Microsoft Corp. Antitrust Litigation, MDL No. 1332

Dear Judge Motz:

We are writing to ask that you reject the proposed settlement to the private antitrust actions against Microsoft, on the grounds that the settlement is inadequate in terms of the relief, anticompetitive in terms of its structure, and is among the least effective mechanisms for expanding access to educational services.

Microsoft has extraordinary global monopoly power in several essential software markets, including most notably its more than 90 percent market share for the operating systems (Windows), word processing (Word), spreadsheets (Excel) and presentation graphics (Powerpoint), and it has engaged in the equivalent of an antitrust crime spree, using an astonishing array of anticompetitive practices to consolidate and expand its monopoly power. As a consequence, consumers are denied the benefits of competition, and suffer from sluggish innovation, poor quality products, fewer choices, and high prices.

The Microsoft monopoly is highly profitable, and allowed Microsoft to accumulate an astonishing $1.5 billion per month in cash last quarter. The proposed settlement of the private antitrust claim is not only a tiny sum in comparison to Microsoft's sales ($1 billion every 13 days currently), but it will not even be paid in cash. It isn't as if Microsoft can't afford to pay. It has cash reserves more than $36 billion right now. Microsoft simply sees the resolution of this antitrust case as a great opportunity to engage in more anticompetitive conduct -- in this case converting its liabilities for antitrust damages into a slush fund to undermine its competitors in the educational market.

The court should not allow the lawyers who have proposed this settlement to bury this important antitrust case with yet another disappointment in the long history of weak efforts to reign in Microsoft's assaults on consumers. The settlement should not be yet another marketing effort by Microsoft aimed at the strategically important education market. It should provide a measure of justice that has yet eluded a long list of law enforcement officials.

We object to many aspects of the settlement.

• The size of the damages is small by any reasonable interpretation of the harm to consumers.

• Microsoft is demonstrating zero remorse for its price gouging, and indeed has engaged in its most aggressive price hikes to date, as it continues to narrow consumer rights in license agreements, raises standard and negotiated license fees (including those for the educational market), and steps up its coercive strategies to force upgrades, such as its abandonment of support for older licenses, and the introduction of new non-interoperable technologies that will not work without increasingly frequent upgrades.

• The proposal will make it even less attractive for schools to purchase products from Microsoft competitors, because Microsoft will subsidize its sales from the antitrust settlement costs, having the intended and entirely predictable effect of strengthening Microsoft's marketshare and weakening further its few remaining rivals. Moreover, to the degree that the funds from the settlement are small relative to the number of schools that will seek grants or donations, and if Microsoft is perceived to play any role in determining who obtains grants, schools may be reluctant to purchase products from Microsoft rivals, thinking this will undermine their chances of receiving benefits from the settlement fund, allowing Microsoft to leverage the anticompetitive effect of the settlement fund. (One need only look at the comments filed in this proceeding to appreciate how eager various non-profit institutions are to curry favor with Microsoft. Many groups that have received Microsoft grants are now on record opposing efforts to reject this settlement as inadequate and anticompetitive.) For schools, the more important issue is dealing with skyrocketing license fees, which this settlement will only address in a minor way, for a small number of users, and for only a short time.

If the court wishes to direct the settlement resources for the educational market, it should do so in such a way as to promote competition, rather than to reduce competition. One solution would be to place the money into a trust fund to be used only for purchases of non-Microsoft products, creating a needed boost to the market for alternatives. Another would be to require the funds be donated to groups who develop free software alternatives -- these very alternatives that Microsoft executives have claimed were their main competitive threat during the USDOJ/State AG antitrust litigation. Either of these approaches will directly address the longer term concern over software pricing, the problem this case seeks to remedy.

Sincerely,

Ralph Nader

James Love
Consumer Project on Technology