California Settles Score with Microsoft… Coupons

The State of California won its antitrust suit against Microsoft . Now, the payoff: coupons good for cash off on still more hardware and software.

California consumers’ four-year-old class action suit against Microsoft came to a close on Friday, when the San Francisco Superior Court granted preliminary approval of the settlement.

Starting today, Californians can call a toll-free number to file their claims and request vouchers worth from $5 to $29. Consumers and businesses that bought Microsoft software for use in California between February 1995 and December 2001 can apply for refund vouchers. The catch is, the vouchers can only be used to buy hardware or software — from Microsoft or from competing vendors. The settlement could cost Redmond, Wash.-based Microsoft up to $1.1 billion.

This may seem like a huge settlement, but to Microsoft, it’s just a scratch, according to UC Berkeley law professor Aaron Edlin. That’s because the payout is in the form of coupons, not cash. Edlin pointed out that Microsoft could simply mark up its products a bit to make up the difference.

“Does that make the $10 coupon really equivalent to a $10 cash settlement? The answer is still no,” Edlin said in a January opinion piece.

For example, if a California consumer used a $10 coupon to buy a Microsoft product that had been marked up an additional $3, he actually saved only $7. Meanwhile, that other $7 is more than made up for by the $3 markup on sales to consumers in other states who didn’t get rebate coupons.

Furthermore, although the coupons are good for any manufacturer’s hardware or software, Edlin said, because Microsoft dominates software and operating systems, almost any purchase kicks in something to its bottom line. Meanwhile, what little Microsoft does pay will end up in the pockets of other vendors — not consumers.

“Remember that Microsoft has a monopoly of operating systems and a huge fraction of Office Suites. As a result, many customers will choose to use their coupon with Microsoft after all,” Edlin said.

The effect, Edlin said, will most likely be to raise prices to non-Californians. What about making the attorneys take their fees in the same coupons their clients had to settle for? Not a chance. The lawyers will get cash.

Two-thirds of the amount not claimed will be donated to 4,700 of California schools, according to legal counsel who worked the case. Microsoft would keep the remaining third of any unclaimed portion.

Microsoft had previously proposed a nationwide settlement of the class-action lawsuits that was rejected by a judge in Baltimore a year ago. Microsoft still faces smaller claims that it overcharged consumers in Massachusetts.