The settlement would have required the company to provide software and computers to more than 12,500 of the poorest public schools in the U.S. for five years, at an estimated cost of about $1.1 billion. Microsoft also would have provided about $900 million worth of software for five years to schools in which most students qualify for federal lunch programs, and would have provided 200,000 reconditioned desktop and laptop computers, and $90 million in technical support. The company would have contributed another $250 million to set up an independent foundation to meet project goals.

But Microsoft competitors, including Apple Computer, fought the settlement terms, arguing that it would strengthen the company's position in schools, one of Apple's prime markets.

U.S. District Court Judge J. Frederick Motz ruled that he could not support the deal, noting the cases had not progressed to the point that he could determine what damages might have been obtained through litigation. He also said the private foundation charged with overseeing Microsoft's obligations would not have been adequately funded.

"While we are confident that Microsoft ultimately will prevail in these lawsuits, we are disappointed that we have missed this opportunity to improve education for disadvantaged children while resolving litigation," said Tom Burt, deputy general counsel for Microsoft.

"Microsoft went the extra mile to make this settlement work. We sought input from educators to fully address issues regarding the independence of the education foundation that was a key part of the proposed settlement. We also made modifications to the original agreement to ensure that schools would have the option to use the software and platform of their choice. Microsoft is always open to looking for reasonable ways to resolve litigation. We will review the court's opinion and at the same time move forward with the next steps in the litigation."

Microsoft must now choose between negotiating a new settlement or fighting the suits in court.