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February 18, 2009 at 2:48 PM

Split decision on major Vista Capable ruling; decertification of class action could bring case to a close

U.S. District Court Judge Marsha Pechman issued a key ruling in the ongoing Vista Capable class action lawsuit that could bring the case to a close. She denied Microsoft’s motion for summary judgment, but decertified the case as a class-action, according to Microsoft spokesman David Bowermaster. I’m reading the ruling now and will update this post ASAP.

Updated 3:30 p.m.: Pechman’s 17-page opinion (PDF) lays out her reason for decertifying the class, which, as I understand it (and I’m not a lawyer) will make proceeding with the case untenable for the plaintiffs as individuals because legal costs are much greater than the amount any individual plaintiff may hope to recover from Microsoft. (I’m trying to contact attorneys for the plaintiffs and I’ll update this with their comments when I do. Update, 5 p.m.: Jeffrey Thomas, a plaintiffs attorney, said of the ruling, “We’re reviewing it and reviewing the options.”)

Pechman wrote:

“In analyzing whether common issues of law and fact predominate over individual issues, the Court limited Plaintiffs’ theory of causation. With respect to Plaintiffs’ [Consumer Protection Act] CPA claims, the Court determined that class treatment was inappropriate for a deception-based theory of causation. Instead, the Court allowed the class to proceed under a ‘price inflation’ theory of causation where Plaintiffs would demonstrate a CPA violation by showing:

Microsoft artificially inflated demand for computers only capable of running Vista Home Basic, causing Plaintiffs to pay more for those PCs than they would have without the ‘Windows Vista Capable’ campaign.

“… Plaintiffs’ evidence fails to establish class-wide causation because it does not attempt

identify a specific shift in the demand for Vista Capable PCs. [The plaintiffs’ expert, Keith Leffler, a University of Washington economics professor] did not attempt any regression analysis, much less an econometric analysis of the impact of ‘Vista Capable’ on demand. Dr. Leffler concedes he could ‘not think of a way that one could quantify in the needed way the number . . . of individuals who—who would not have bought a Vista Capable but not Premium Ready but for the program.’ (Pechman’s emphasis added.) … Instead, Dr. Leffler offers exclusively testimonial evidence in support of his conclusion that WVC artificially increased demand. Citing internal Microsoft documents that describe the goals of the WVC campaign, Dr. Leffler asserts there is ‘clear evidence that the Vista Capable Program increased demand for XP based PCs.’ The problem with Dr. Leffler’s conclusion is that it merely assumes that Microsoft realized its goals. The Court cannot apply an assumption as class-wide proof of causation.”

Pechman went on to find other problems with the Plaintiffs’ evidence of price inflation. She wrote that they could not isolate the Vista Capable program from other factors that may have had an impact on PC demand. Likewise, no attempt was made to show a quantitative price increase as a result of the program.

She acknowledged so-called “smoking gun” documents entered into evidence. “Plaintiffs do cite several documents where some Microsoft or OEM employees attribute sustained PC sales to the WVC program.” But, “none of these descriptions isolate the impact of WVC in comparison to other factors, such as the OEMs’ holiday promotions.”

Pechman did not grant Microsoft’s motion for summary judgment, however.

“While the Court decertifies the class today, it is careful to note that this ruling makes no comment on the merits or veracity of Plaintiffs’ individual CPA and unjust enrichment claims,” Pechman wrote. “Defendant is mistaken to equate Plaintiffs’ failure to provide class-wide proof of causation with a failure to present an issue for trial.”

She wrote that Microsoft’s argument for summary judgment — “that it did ‘not portray “Windows Vista” in such a way that it would make it unfair to include Windows Vista Home Basic in the Windows Vista family.'” — “misses the issue.”

Pechman wrote:

“The question is not whether Basic can be called ‘Vista’ based on computer code similarity or whether Microsoft as a software developer has the right to offer multiple permutations of its product; it is whether Microsoft’s use of the ‘Vista Capable’ designation had the capacity to deceive. In this sense, Microsoft’s internal communications raise a serious question about whether customers were likely to be deceived by the [Windows Vista Capable] WVC campaign. Summary judgment is inappropriate on this issue.”

Microsoft had argued that its public communications about the Vista Capable program were clear, even if it had a “robust internal” debate about the merits of the program. But Pechman clearly thinks the internal communications are relevant. She singled out this excerpt from former Windows boss Jim Allchin:

“I believe we are going to be misleading customers with the Capable Program. OEMs will say a machine is Capable and customers will believe that it will run core Vista features.”

Allchin’s e-mail is an example of the reams of internal Microsoft communications and exchanges between Microsoft and its hardware-manufacturer partners that came to light in the case. They shed an often unflattering light on Microsoft’s marketing.

Update, 4:34 p.m.: Microsoft issued a statement on the ruling:

“We’re pleased that the court granted our motion to decertify the class, leaving only the claims of six individuals,” Spokesman Bowermaster said via e-mail. “We look forward to presenting our case to the jury, should the plaintiffs elect to pursue their individual claims.”

Update, 6:27 p.m.: I added to the headline of this post to better reflect what the story says: While it was a split decision, the decertification of the class is a much bigger deal than the rejection of the summary judgment. The class decertification makes it unlikely that the case will go forward to trial in April. Of course, that’s up to the plaintiffs, and, as Thomas notes above, they’re still reviewing their options.

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