A federal judge in Seattle last week granted class-action status to a lawsuit that claimed Microsoft Corp. duped consumers when it promoted PCs as "Vista Capable" in the run up to the 2006 holidays.
U.S. District Court Judge Marsha Pechman, however, also put some limitations on the plaintiffs, blocking them, for instance, from arguing that Microsoft deceived consumers. That would have required an individual determination for each member of the class action.
Instead, said Pechman, the lawsuit may pursue a "price inflation" line of reasoning, which would argue that PC buyers paid more than they would have otherwise, after Microsoft's marketing boosted demand and increased the prices of systems that could run Vista Home Basic. The decision was a setback to Microsoft, which now faces a much larger potential pool of plaintiffs.
The original lawsuit was filed almost a year ago by Washington state resident Diane Kelley, who charged Microsoft with deceptive practices in letting PC makers slap a "Vista Capable" sticker on PCs when "a large number" of the machines could run only Vista Home Basic, the entry-level version of the operating system. Kelley was later joined by a Californian Kenneth Hansen; together, they requested class-action status for the lawsuit in November.
In agreeing that the class-action suit could move forward, Pechman summarized Kelley's and Hansen's argument. "Plaintiffs argue that 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," she wrote in her 25-page opinion. "Consumers paid for Vista capability (i.e., the computers were priced higher because of their Vista capability), but allegedly did not receive 'real' Vista capability."
Microsoft, however, has argued that it went to great lengths before Vista's release to get out the word on the Vista Capable program, and about another marketing-campaign-cum-logo in late 2006 that labeled other PCs as "Premium Ready." It's also disputed claims that Vista Home Basic is not a legitimate version of the operating system, as Kelley and Hansen have alleged.
"Windows Vista Home Basic represents a major advancement over Microsoft's earlier operating systems," the company said in a November filing as it cited desktop gadgets and parental controls as two features that distinguish Home Basic from the earlier Windows XP Home operating system.
During a more recent hearing, however, internal Microsoft e-mails seemed to show some hesitation about the Vista Capable marketing plan.
At that hearing two weeks ago, an attorney for the plaintiffs read Microsoft e-mails into evidence. Although the contents of those messages have been sealed by Pechman, a reporter for the Seattle Post-Intelligencer was in the courtroom and transcribed the e-mails as they were read.
Mike Nash, now vice president for Windows product management, wrote in one message, "I personally got burnt. ... Are we seeing this from a lot of customers? ... I now have a $2,100 e-mail machine," according to the newspaper's account.
Another company executive put it more bluntly. "We really botched this. ...You guys have to do a better job with our customers," said Jim Allchin, the former co-president of Microsoft's platforms and services division. Allchin retired from Microsoft on Jan. 30, 2007, the day Vista was released to consumers and retail.
A third, unidentified Microsoft employee wrote, "Even a piece of junk will qualify" for the Vista Capable logo.
Today, Microsoft spokesman Jack Evans reacted to Pechman's Friday decision. "We are currently reviewing the court's ruling. We believe the facts will show that Microsoft offered different versions of Windows Vista, including Windows Vista Home Basic, to meet the varied needs of our customers purchasing computers at different price points," he said in an e-mail.
Pechman has tentatively set a jury trial date for Oct. 28.