Microsoft/Vista Class Action Defense Cases–Kelley v. Microsoft: Washington Federal Court Grants Microsoft Motion To Decertify Class Action Because Rule 23(b)(3)’s Predominance Requirement No Longer Met

Mar 3, 2009 | By: Michael J. Hassen

Though District Court Initially Granted Class Action Treatment in Class Action Challenging Microsoft’s Marketing of “Vista Capable” PCs, Motion to Decertify Class Action Granted because Plaintiffs could not Establish Causation Element on a Class-Wide Basis Washington Federal Court Holds

Plaintiffs filed a putative nationwide class action against Microsoft alleging inter alia violations of Washington’s Consumer Protection Act or similar state consumer protection statutes and for unjust enrichment; the class action complaint “challenge[d] various aspects of Microsoft’s marketing of its Windows Vista…operating system.” Kelley v. Microsoft Corp., ___ F.Supp.2d ___ (W.D. Wash. February 18, 2009) [Slip Opn., at 2-3]. According to the allegations underlying the class action, nearly a year before releasing Vista, Microsoft authorized PC manufacturers to place stickers on their computers indicating that they were “Windows Vista Capable”; the class action complained that “a large number” of these computers were in fact capable of operating only the “Basic” version of Vista, not the Premium, Business or Ultimate versions of Vista. Id., at 2. The class action additionally alleged that Microsoft’s “Express Upgrade Guarantee Program” permitted customers to upgrade from Windows XP only to Vista Basic, id. The gravamen of the class action complaint is that “Basic cannot fairly be called ‘The Real Vista.’” Id. Defense attorneys countered that “Basic provides customers with a number of benefits over XP and is part of the Vista line.” Id. The district court certified the litigation as a class action, and Microsoft subsequently moved to decertify the class and for summary judgment, id., at 1. The district court granted the motion to decertify the litigation as a class action but denied summary judgment.

The federal court began by noting that “a district court may revisit its decision to certify a class in order to address developments that arise during the course of litigation.” Kelley, at 4 (citations omitted). Indeed, “[a] court’s power to revisit certification is ‘a vital ingredient in the flexibility of courts to realize the full potential benefits from the judicious use of the class action device.’” Id., at 5 (citation omitted). Microsoft’s motion for class decertification centered on Rule 23(b)(3)’s predominance requirement, id. “Courts have recognized that consumer fraud cases may present unique considerations when determining predominance” and “courts have decertified classes when it becomes apparent that the predominance factor can no longer be satisfied.” Id. (citations omitted). Defense attorneys argued that plaintiffs cannot establish on a class-wide basis the “causation” element of the complaint’s consumer fraud claim. Id., at 8. The district court agreed.

In originally agreeing to grant class action treatment, the district court had found that the Vista Capable marketing campaign “created artificial demand for and/or increased prices of PCs only capable of running Vista Home Basic.” Kelley v. Microsoft Corp., 251 F.R.D. 544, 560 (W.D. Wash. 2008). The federal court recognized that the class action’s “price inflation theory is novel in the context of consumer protection claims.” Kelley, at 9. The defense argued that cases discussing “artificial increases in demand” were analogous, and that plaintiffs’ case did not meet the tests outlined in such cases, id., at 9-10. The district court agreed, explaining at page 10, “Plaintiffs’ evidence fails to establish class-wide causation because it does not identify a specific shift in the demand for Vista Capable PCs.” In short, plaintiffs could not provide “a sense of the number of consumers who changed their purchases” based on the marketing campaign, id. Rather, plaintiffs merely pointed to internal Microsoft documents identifying a goal of increasing demand for Vista Capable PCs running XP, and assumed that Microsoft met that goal. Id., at 11. Plaintiffs’ reliance on testimonial evidence also failed, as it could not properly be used to “extrapolate individual claims of ‘but for’ causation to the entire class.” Id. Moreover, “Plaintiffs’ evidence is problematic because it fails to isolate Vista Capable as a cause of a shift in demand in the market for non-Premium Ready PCs from other potential demand factors.” Id. For example, certain class members purchased “non-Premium Ready” PCs during sales or promotions, id. “By failing to observe any isolated demand effect, Plaintiffs cannot offer the trier of fact any viable method for determining class-wide causation.” Id., at 12. The district court concluded at page 12, “Plaintiffs’ failure to adequately describe Vista Capable’s impact on demand precludes a class-wide determination of [consumer protection statute] causation.” The district court also found that plaintiffs could not establish “price effects” on a class-wide basis, see id., at 12-14.

For similar reasons, the district court agreed that class action treatment of the unjust enrichment claim also failed. Kelley, at 15. The court concluded that plaintiffs’ analysis of the unjust enrichment claim was “too broad because it does not isolate the increased or sustained XP license sales from those sales Defendant would have made without the Vista Capable program.” Id. Accordingly, common issues did not predominate as to the unjust enrichment claim, so decertification was warranted. Id., at 15-16. In short, while the district court certified the litigation as a class action to permit plaintiffs “to further develop their ‘price inflation’ theory,’” it found that “class treatment is no longer appropriate.” Id., at 16. Accordingly, it granted the defense motion to decertify the class, id., at 17.

NOTE: We do not discuss the summary judgment motion in any detail. We note only that Microsoft argued in part that it did not misrepresent to the public what aspect of Vista the various PCs designated as “Vista capable” would be able to run, and that plaintiffs pointed to internal emails from Microsoft executives that expressed concern “we are going to be misleading customers with the Capable Program” because “customers will believe that [the computer] will run core Vista features.” Kelley, at 7. The district court denied summary judgment finding that the issue is not “whether Basic can be called ‘Vista’” but whether “the ‘Vista Capable’ designation had the capacity to deceive.” Id., at 7-8.

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