Thursday, March 20, 2008

Class Certified in Windows Vista Marketing Case

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A class of personal computer purchasers was certified by the federal district court in Seattle in an action alleging that Microsoft unfairly and deceptively marketed its Windows Vista operating system.

The purchasers alleged that Microsoft authorized original equipment manufacturers (such as Dell, Sony, etc.) to place a sticker on personal computers indicating that the PCs had been certified by Microsoft as “Windows Vista Capable.” Washington law was held applicable to the purchasers’ claims despite Microsoft’s contention that the laws of all 50 states were relevant and that application of only Washington law would run afoul of the U.S. Constitution.

Price Inflation

The purchasers were allowed to bring class claims on a “price inflation” theory—that purchasers paid more than they would have for their PCs had Microsoft’s “Windows Vista Capable” marketing campaign not created artificial demand for and/or increased prices of PCs only capable of running Vista Home Basic. Analyzing the purchasers’ claims through the lens of the “price inflation” theory, common issues were held to predominate. Those common issues, in terms of causation under the Washington Consumer Protection Act, were whether Vista Home Basic, in truth, could fairly be called “Vista” and whether Microsoft’s “Windows Vista Capable” marketing campaign inflated demand market-wide for “Windows Vista Capable” PCs, the court determined.

Unjust Enrichment

The purchasers were allowed to pursue an unjust enrichment claim on the theory that Microsoft’s marketing campaign artificially inflated the demand for and price of “Windows Vista Capable” PCs. Common issues—whether Microsoft retained a benefit (increased or sustained XP operating system license sales), whether Microsoft knew of that benefit, and whether purchasers paid more than they should have—would predominate, according to the court.

The class action was superior to other methods of adjudication, the court held. Individual interest in litigating the claims would be low. The size of the class was potentially very large and class members’ damages presumably varied, but the theory of the case had been limited such that only a few common liability issues would need to be decided, the court said.

The class would not include members who claimed injuries based on participation in Microsoft’s “Express Upgrade_ program, unless the complaint was amended to add a named plaintiff who had participated in the program (which purportedly allowed PC purchasers to upgrade to Vista for little or no cost). In addition, the purchasers could not pursue claims on the theory that Microsoft’s deceptive advertising induced consumers to purchase PCs that they would not otherwise have purchased.

Choice of Law

In choosing to apply Washington law, the court noted that a forum state’s substantive law may be applied in a class action if the forum state has a significant contact or significant aggregation of contacts to the claims asserted by each member of the class. Although actual conflicts existed between Washington’s Consumer Protection Act (CPA) and common law of unjust enrichment and the laws of other states, Washington had the most significant relationship to the case, the court found.

The allegedly unfair and deceptive marketing scheme originated in Washington at the headquarters of one of the state’s largest corporate citizens, the court pointed out. The CPA targeted all unfair trade practices originating from Washington businesses. Similarly, the law of unjust enrichment primarily deterred misconduct and punished unfair practices; it was not merely compensatory, according to the court.

The February 22 decision in Kelley v. Microsoft Corp. will be reported at CCH Advertising Law Guide ¶62,872.

On March 7, Microsoft filed a petition for an immediate appeal to the U.S. Court of Appeals for the Ninth Circuit. The Petition for Permission to Appeal appears here—along with other information about the case—on Microsoft’s website.

No comments: