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Marketing Free (Microsoft) Money

Microsoft has been on a reconciliation binge, rapidly settling consumer antitrust suits in state after state. While Redmond's exposure could be billions of dollars, it could get off lightly.

That's because the settlements call for returning money to consumers via rebate coupons good for hardware or software from any vendor. And when it comes to actually filling out the claim forms, consumers tend to leave an awful lot of money on the table.

Consumer participation in class action suits tends to be between 5 percent and 20 percent, according to Richard Grossman, an attorney with Townsend and Townsend and Crew, the San Francisco law firm in charge of managing the settlement distribution in California's class action against Microsoft.

Microsoft was the subject of class action suits brought on behalf of consumers in 18 states. The suits claimed that because the company dominated the market, it could and did overcharge for its software.

A cottage industry of claim filing services is springing up, offering to help consumers and businesses collect settlement rebates -- for a fee.

"I realized that if this went the way most class actions went, no one was going to take the money," said Howard Yellen, CEO of Settlement Recovery Center (SRC), a San Francisco company that provides online settlement claim processing for consumers and consultant services for businesses. "People don't trust the system," Yellen said. "It's too complicated."

According to SRC, while around 14 million people are eligible for a cut of the $1.1 billion judgment, only 600,000 or so have filed claims so far. "No matter what product you're selling -- and admittedly, free money is one of the best products you can 'sell' -- if you don't have sales, marketing and distribution, you're not going to be able to sell it," Yellen said.

To kick up the response rate, this week SRC launched a game, Redmond Raid, which lets users manipulate a penguin flying a bomber over a satellite photo of Redmond, Washington. After playing the game, which involves dropping bombs on the Microsoft campus, users arrive at the SRC Web site, where, for $12.95, they can fill out an online claim form.

"We became frustrated at the lack of consumer response, and tried a number of things," Yellen said. He said more than 100,000 people have hit the site since the game went live on Monday.

Another company, Lex Recovery Group of Burnsville, Minn., hopes to partner with radio stations. It offers a cut of fees in return for running radio spots promoting its claim service. The company didn't respond to several calls requesting comment.

An attorney for the California class said the lack of claim filings isn't unusual, however. "None of the claims periods are over, and you often find that most of the claims come in late in the process. So I wouldn't make any conclusions," said Michelle Lee, of Lieff Cabraser, a San Francisco firm that also helped with litigation in class action suits in Tennessee, North Carolina, Florida and New York; the latter is still in progress.

Lee said claim settlement services like SRC aren't necessary. "We're counsel of record, and we're happy to help claimants," she said. However, claimants would need to find her firm through court records.

Grossman said SRC's service could be useful, especially for businesses that didn't buy Microsoft products under the volume-licensing program. "The Settlement Recovery Center can help most for businesses that had early 1990s licenses, where they have to dig out the records." According to him, 80 percent of the licenses eligible for rebates under the settlement are owned by businesses.

Microsoft spokesperson Stacy Drake said that Microsoft must verify business licenses. The company offers a toll-free number and information on the volume licensing customer Web site on getting help with license validation. "It can be quite complicated with the various types and kinds of licenses," she said. "We have the information, and we're committed to getting it out there."

SRC charges businesses a percentage of claim funds they receive. Yellen said that he expected most business clients to be small to medium-sized companies, but the average client has around 2,000 seats. Delta Airlines, Charles Schwab and Accenture are among SRC's corporate customers.

Townsend and Townsend and Crew, the settlement manager, has done its own outreach. It maintains a Web site with claim forms that can be printed and mailed, as well as status information and the text of the judgment. Paper claim forms were mailed out to 18 million consumers, Grossman said, while 7 million more were e-mailed. "As soon as Judge Alvarado signs all the final paperwork, and we have a certain deadline [for filing claims], there will be a lot of publicity about that deadline," he said.

As in other state settlements, the California judgment provides for Microsoft getting a split of any unclaimed settlement funds. In California, Redmond gets to keep one third of any money left over, with underprivileged school districts getting the remainder. (Most state settlements let Microsoft recover half the unclaimed funds.)

"We were cognizant of the fact that people don't always get their benefits in class actions," Grossman said. "We wanted to make sure the class benefited in some way." The schools can use the vouchers for a variety of things besides software and hardware, including networking equipment, IT support, curriculum development and training.

SRC is evaluating whether to extend its services to North Carolina, Minnesota and Arizona. Some states aren't worth the trouble. For example, Yellen said, only 800 claims were filed in North Dakota.

"Right now," Yellen said, "California remains the mother lode, with hundreds of millions of dollars out there to claim."