Wednesday, March 05, 2008

Vista Capable class certified

Kelley v. Microsoft Corp., 2008 WL 509332 (W.D. Wash.)

This putative class action was based on Microsoft’s “Windows Vista Capable” and “Express Upgrade” marketing. In early 2006, nearly a year before the release of Vista, Microsoft allowed original equipment manufacturers (OEMs) such as Dell to place stickers on computers indicating they were certified as “Windows Vista Capable.” In fact, plaintiffs alleged, many of those computers could only run “Vista Home Basic,” which doesn’t include Vista’s unique enhanced features. Likewise, in late 2006, Microsoft offered an “Express Upgrade Guarantee Program,” which supposedly allowed consumers buying “Vista Capable” computers to receive upgrades to Vista for little or no cost. Again, plaintiffs alleged, the upgrade for many was only to Vista Home Basic.

Plaintiffs alleged that Vista Premium is the “real” Vista, while Microsoft argued that Vista Home Basic still provides material improvements over its predecessor, Windows XP. Some computers had a “Premium Ready” sticker distinguishing them from “Vista Capable” computers.

Plaintiffs also alleged that, because Microsoft was concerned about consumers delaying computer purchases over the 2006 holiday season in anticipation of Vista’s release, Microsoft engaged in deceptive practices to assure consumers that their new computers would run Vista. Plaintiffs’ evidence suggested that Microsoft included Home Basic computers in the “Vista Capable” marketing because Microsoft knew and was concerned that only a few computers on the market at the time could run premium versions of Vista.
Internally, Microsoft employees worried that consumers would be confused about whether their PCs could run the “real” Vista operating system. OEMs and retailers also complained to Microsoft about Microsoft’s decision to use “Vista Capable” to include Vista Home Basic.

Microsoft presented evidence that it created, and OEMs and retailers used, extensive marketing and training materials to explain the differences between Vista editions, and to explain that not every “Vista Capable” computer would be able to run every advanced Vista feature. For example, Microsoft’s “Get Ready” website described “Vista Capable” computers as providing the “core experiences” of Vista, but said they might not be able to support premium aditions, including the new Aero interface. This message was repeated in press releases, point of purchase displays, and emails. Press coverage also detailed the differences.

The named plaintiffs bought “Vista Capable” computers in late 2006. Kelley was not aware of the sticker when she bought hers and didn’t rely on the sticker. But the other named plaintiff, Hansen, testified in deposition that he ordered his computer “because ‘it would handle Vista,’ and that he was relieved when it arrived and had a ‘Windows Vista Capable’ sticker affixed to it.” He saw Vista marketing materials, but only knew to look for a “Vista” sticker.

Plaintiffs sued for violation of the Washington Consumer Protection Act or other state consumer protection acts and for unjust enrichment. They moved for class certification and for application of Washington law.

Given the importance of variations in state law to analysis of predominance and superiority for class certification purposes, the court addressed choice of law first. The first question was whether Washington state law could constitutionally apply to the entire class. The test is whether the forum state has a significant contact or aggregation of contacts to the claims asserted by each member of the class. This test was satisfied here: Microsoft created its allegedly deceptive marketing scheme in Washington; it’s incorporated, does business, and has its principal headquarters in the state; and it contractually required OEMs participating in the Vista program to litigate under Washington law. (I was wondering when I’d see a manufacturer’s choice of law provisions in its contracts of adhesion turned against it for class certification purposes.)

Next the court, applying Washington choice of law analysis, asked whether there was any conflict of laws and, if so, whether Washington had the most significant relationship to the action. The court found that there was an actual conflict: for example, Illinois consumer protection law requires a plaintiff to show that a defendant intended the plaintiff to rely on a misrepresentation or concealment, whereas Washington law doesn’t require a showing of specific intent. Washington law requires a showing that the defendant’s actions affected the public interest, but Illinois doesn’t. On unjust enrichment, Washington bars recovery if there’s an adequate remedy at law, but Rhode Island doesn’t. These are the types of variations that could change the outcome of claims, and thus an actual conflict of laws existed.

In cases of actual conflict, Washington requires application of the law of the forum with the most significant relationship to the action. Under the Restatement, the court determined that Washington had the most significant relationship to the claims. In multi-state fraud cases, because the place of the injury can be fortuitous, the place where the defendant’s conduct occurred will usually be given special consideration.

Even assuming that contacts with other states were equally balanced, the court determined that Washington law should apply. No other state had a greater interest in determining the issues. Where the primary purpose of the law is to deter or punish misconduct, as opposed to ensuring compensation for injury, the state where the conduct took place may have the most significant relationship. Thus, Washington had a paramount interest in applying its law. Its consumer protection law targets unfair trade practices originating from Washington businesses.

Certification, then, required showings under Rule 23(a): (1) numerosity, (2) commonality of questions of law or fact, (3) typicality of class representatives, and (4) adequate representation by class representatives, as well as a showing under Rule 23(b), here argued to be (b)(3), which requires that common questions of law or fact predominate and that a class action is superior to other available methods of adjudication.

Microsoft understandably conceded numerosity, and didn’t dispute adequate representation. Nor did it dispute the existence of common questions of law and fact. It did contest typicality, predominance, and superiority.

On typicality, Microsoft noted that neither named plaintiff participated in the “Express Upgrade” program. Plaintiffs argued that this was part of the same overarching marketing program, but the court found that plaintiffs were overreaching. “[A]ll potential class members purchased a ‘Windows Vista Capable’ PC and were allegedly injured by the fact that their PCs will not run the premium versions of Vista, but only the ‘Express Upgrade’ program participants paid for an upgrade to ‘Vista’ that turned out to be only an upgrade to Vista Home Basic.” The latter suffered an injury correlated to the cost of the upgrade program, not the allegedly inflated price of “Vista Capable” PCs.

Thus, the named plaintiffs’ claims were typical of those of “Vista Capable” buyers, but the “Express Upgrade” claims would be dismissed if plaintiffs couldn’t add a named plaintiff who participated in that program.

Microsoft argued that causation requires an individualized showing for each plaintiff, thus preventing predominance. An earlier Washington Supreme Court case held that, under Washington consumer protection law, plaintiffs must show that a defendant’s affirmative misrepresenation proximately caused their injuries. Microsoft argued that proximate cause is inherently individualized. The court agreed that deception-based theories of fraud regularly preclude class certification. A trier of fact would have to determine whether each consumer saw the “Vista Capable” sticker, whether each was aware of the differences between Basic and Premium, etc.

Plaintiffs, however, also argued that all potential class members paid for Vista capability but didn’t receive it. This is a price inflation/fraud on the market theory of causation, in which Microsoft’s deception created artificially high demand. Though other courts have rejected similar causation theories, this court determined that Washington state law might allow it. On a price inflation theory, plaintiffs had shown predominance.

On superiority, the standard considerations favored class treatment, especially the fact that individual claims are unlikely. But Microsoft argued that class treatment would create difficult management issues. Under the price inflation theory, however, class treatment would be manageable because only a few common liability issues would need to be decided. Thus, the court certified a class of “Vista Capable” purchasers.

No comments: