Microsoft officials were elated when a Fourth Circuit judge recently threw out portions of the private antitrust lawsuits filed by consumers, saying that they could not sue the company because they did not purchase Windows directly from Microsoft. This victory comes as bad news to trial lawyers—the prime beneficiaries of these cases.

More than 130 private antitrust cases have been filed against Microsoft since June, when federal judge Thomas Penfield Jackson ordered the breakup of Microsoft in the landmark antitrust case. Roughly 80 of these cases are still active, according to Microsoft officials.

Last week, Judge J. Frederick Motz dismissed 20 of the 63 suits consolidated in his Baltimore court and tossed out portions of another 18 cases. But he let stand a number of suits that originated in states such as California and New York that don’t subscribe to a certain indirect purchaser restriction.

A 1977 U.S. Supreme Court ruling says that indirect purchasers of goods cannot qualify for damages in antitrust class-action cases. Since 1977, however, 18 states have passed laws that allow indirect purchasers to recover triple damages in antitrust class actions.

The indirect purchaser rule may help to lessen Microsoft’s liability, since the majority of computer users obtains Windows pre-loaded on computers, instead of purchasing it directly from retail software stores. But it doesn’t put Microsoft in the clear in terms of monetary damages.

Attorneys driving the class-action cases claim that the software giant has used its dominant market position to bilk consumers of countless dollars for products, including the Windows operating system, and Word and Excel software programs. But it will be a difficult task for attorneys to demonstrate how Microsoft wronged consumers.

Microsoft may be tempted to offer a settlement to avoid the risk of an inflated jury award, just as Toshiba did last year when attorneys confronted the company with a suit over allegedly defective floppy disks. But California consumers should not await a check in the mail from Microsoft.

Experts say that the company is more likely to settle the lawsuits with coupons—the latest trend in class-action suits. In that scenario, consumers could use the coupons to offset the cost of a new Microsoft product. But few consumer litigants end up redeeming their coupons, particularly when they have to complete complicated paperwork in order to get the rebate.

For example, the record shows that in a settlement with loan firm ITT Financial, only two of 96,754 people used the coupons sent to them for $29 toward a membership in the company’s hotel and airline discount club. Lawyers, however, do not have such problems.

They get paid in hard cash, usually 10 to 15 percent of the total value of the coupons. The lawyers in the Microsoft case will probably say that the price of Windows was at least $40 too high, as the Justice Department also claimed. Triple punitive damages—the rule in anti-trust class-action suits—would bring the coupon to $120.

If one million people are certified in the California class, the damages will amount to $120 million. A case that settled at 50 cents on the dollar would bring the figure to $60 million, sending at least $6 million to the plaintiffs’ lawyers and a bunch of coupons to consumers.

It’s difficult to imagine how the case will benefit consumers. Consider the outcome of the billion-dollar tobacco settlement between the 46 states and the major cigarette companies: the average price of cigarettes rose by 45 cents a pack immediately following the settlement in late 1998 and has risen even more since.

Smokers won’t receive any monetary compensation under the settlement. The states, however, will collect $246 billion over 25 years as reimbursement for the cost of treating smoking-related illnesses. Since there are no rules on how the money must be spent, states have been earmarking the settlement funds for general funds and a variety of non-health related programs.

A recent report released by the National Conference of State Legislatures reveals that states plan to spend $8 billion of the tobacco settlement money within the next year. Less than 10 percent of that figure will be used to fund smoking prevention programs.

While smokers are shelling out more as a result of the settlement, lawyers are cashing in on a vast fortune, upwards of $20 billion in legal fees to be paid over the 25-year period. The fees—which will be split among approximately 100 law firms—are already nearing the $11 billion mark.

Turning Microsoft into the next Philip Morris will not benefit the economy or consumers. It will only help trial lawyers live a lifestyle more like Bill Gates.

* Helen Chaney is a public policy fellow in the Center for Freedom and Technology at the California-based Pacific Research Institute for Public Policy.  This article is based in part on an opinion-editorial that originally ran on Bridge News on October 7, 2000.