Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Microsoft imposes corporate reforms to settle shareholder suit over $732 EC fine, (Oct 30, 2015)

By Linda O’Brien, J.D., LL.M.

Microsoft will impose corporate governance improvements, including dedicating $42.5 million to fund an antitrust compliance office, to resolve a shareholder derivative suit over the company’s $732 million fine for violating an antitrust settlement with the European Commission, according to a motion for preliminary approval of the settlement filed in the federal district court of Seattle (Barovic v. Ballmer, October 29, 2015).

In April 2014, shareholders Kim Barovic and Stephen DiPhilipo filed a derivative suit against current and former Microsoft Corp. directors and officers for breaches of fiduciary duties stemming from the company’s failure to adhere to an agreement reached with European antitrust regulators that required Microsoft to provide a choice of web browsers to users of Windows.

The shareholders claimed that the company violated the terms of the settlement, which required Microsoft to allow users a choice of 11 rival web browsers, including browsers made by Apple, Google, and Mozilla, as opposed to allowing only the installation of Microsoft’s browser, Internet Explorer. Microsoft failed to provide this choice and allowed only installation of Internet Explorer on at least 15 million copies of Windows 7 sold in Europe. Failure to abide by the agreement drew a $732.2 million fine from the European Commission in March 2013.

The shareholders are seeking preliminary approval of the proposed settlement under which Microsoft will institute substantial corporate governance reforms concerning the company’s antitrust compliance, including the establishment of an Antitrust Compliance Office responsible for monitoring Microsoft’s compliance with any future European Union or United States regulatory decisions, consent decrees, commitments, or undertakings. The Antitrust Compliance Office will operate for at least five years, and Microsoft will dedicate $42.5 million to fund the Office and its activities.

According to the motion, the proposed settlement is fair, reasonable, and adequate, and was reached after intense-arms-length negotiations by experienced counsel. Settlement was reached after extensive discovery, summary judgment had been fully briefed, and the parties’ counsel had thoroughly tested each other’s factual and legal positions during every stage of the litigation. There is strong policy favoring settlements that resolve litigation, particularly in class actions and complex cases where substantial judicial resources can be conserved.

The proposed settlement serves the interest of Microsoft and its current shareholders. The creation of the Antitrust Compliance Office will be responsible for ensuring that the company’s compliance policies and procedures are implemented, monitoring employee training to ensure compliance with antitrust laws, and preparing yearly overviews of its activities for inclusion in the company’s annual report on Form 10-K and annual proxy statement.

The separately-negotiated amount of attorneys’ fees and costs to be paid to the plaintiffs’ counsel is fair and reasonable as it resulted from the settlement’s arms-length negotiations and there is no evidence of collusion or detriment to the parties.

Finally, the motion proposed that a hearing be scheduled for January 5, 2016 for final approval of the settlement, which provides current shareholders adequate time to consider the proposed settlement.

Attorneys: Duncan Calvert Turner (Badgley Mullins Turner PLLC) for Kim Barovic. Brendan Thomas Mangan (Davis Wright Tremaine) for Steven A. Ballmer. Charles J. Ha (Orrick Herrington & Sutcliffe LLP) for Microsoft Corp.

Companies: Microsoft Corp.

News: Antitrust WashingtonNews