Microsoft 2008 Annual Report Download - page 58

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NOTE 15 CONTINGENCIES
Government competition law matters. In March 2004, the European Commission issued a competition law
decision that, among other things, ordered us to license certain Windows server protocol technology to our
competitors. In March 2007, the European Commission issued a statement of objections claiming that the pricing
terms we proposed for licensing the technology as required by the March 2004 decision were “not reasonable.”
Following additional steps we took to address these concerns, the Commission announced on October 22, 2007
that we were in compliance with the March 2004 decision and that no further penalty should accrue after that
date. On February 27, 2008, the Commission issued a fine of $1.4 billion (€899 million) relating to the period prior
to October 22, 2007. In January 2008, the Commission announced that it was opening two new competition law
investigations. These investigations relate primarily to interoperability with respect to our Microsoft Office family of
products and the inclusion of various capabilities in our Windows operating system software, including Web
browsing software. These investigations were precipitated by complaints filed with the Commission by a trade
association of Microsoft’s competitors and a firm that offers Web browsing software. In May 2008, we filed an
application with the European Court of First Instance to annul the February 2008 fine. We paid the $1.4 billion
(€899 million) fine in June 2008.
We are subject to a Consent Decree and Final Judgment that resolved lawsuits brought by the U.S.
Department of Justice, 18 states, and the District of Columbia in two separate actions. The Consent Decree
imposed various constraints on our Windows operating system businesses. Portions of the Consent Decree were
scheduled to expire on January 31, 2008; we voluntarily agreed to extend other elements of the Consent Decree
to November 2009. In October 2007, some states filed a motion with the U.S. District Court for the District of
Columbia seeking to have most of the remaining provisions of the Final Judgment in the action to which they are
party extended for five years. The U.S. Department of Justice and other states advised the Court that they would
not seek any extension of the Final Judgments to which they are party. In January 2008, the court issued a
decision granting the states’ motion to extend these additional provisions of the consent decree until November
2009.
In other ongoing investigations, various foreign governments and several state attorneys general have
requested information from us concerning competition, privacy, and security issues.
Antitrust, unfair competition, and overcharge class actions. A large number of antitrust and unfair
competition class action lawsuits have been filed against us in various state, federal, and Canadian courts on
behalf of various classes of direct and indirect purchasers of our PC operating system and certain other software
products. We obtained dismissals of damages claims of indirect purchasers under federal law and in 15 states.
Courts refused to certify classes in two additional states. We have reached agreements to settle all claims that
have been made to date in 19 states and the District of Columbia.
Under the settlements, generally class members can obtain vouchers that entitle them to be reimbursed for
purchases of a wide variety of platform-neutral computer hardware and software. The total value of vouchers that
we may issue varies by state. We will make available to certain schools a percentage of those vouchers that are
not issued or claimed (one-half to two-thirds depending on the state). The total value of vouchers we ultimately
issue will depend on the number of class members who make claims and are issued vouchers. The maximum
value of vouchers to be issued is approximately $2.7 billion. The actual costs of these settlements will be less
than that maximum amount, depending on the number of class members and schools that are issued and redeem
vouchers.
The settlements in all states have received final court approval. Cases in Arizona, Mississippi and Canada
have not been settled. We estimate the total cost to resolve all of these cases will range between $1.7 billion and
$1.9 billion. The actual cost depends on factors such as the quantity and mix of products for which claims will be
made, the number of eligible class members who ultimately use the vouchers, the nature of hardware and
software that is acquired using the vouchers, and the cost of administering the claims. At June 30, 2008, we have
recorded a liability related to these claims of approximately $900 million, which reflects our estimated exposure of
$1.7 billion less payments made to date of approximately $800 million, mostly for administrative expenses,
vouchers, and legal fees.
Other antitrust litigation and claims. In November 2004, Novell, Inc. filed a complaint in U.S. District Court in
Utah, now transferred with other cases to Maryland, asserting antitrust and unfair competition claims against us
related to Novell’s ownership of WordPerfect and other productivity applications during the period between June
1994 and March 1996. In June 2005, the trial court granted our motion to dismiss four of six claims of the
complaint. Both parties appealed, and in October 2007, the court of appeals affirmed the decision of the trial
court, remanding the case to that court for further proceedings.