Ballmer: All I Want for Xmas is Fewer Lawsuits
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'Tis the season to be litigious and for Microsoft, Santa is apparently coming down the chimney dressed in judge's robes this year.
Like a gift that keeps on giving, the latest legal hassle for the company began on Thursday, when z4 Technologies, whose giant damage award against Microsoft for patent infringement was just upheld on appeal earlier this month, sued Microsoft yet again. Microsoft continues to infringe its patents, z4 claims. However, this time the infringement lies in its latest consumer products -- Windows Vista and Office 2007.
The new suit may be just the latest legal headache for Microsoft, but overall its legal headaches have eased as CEO Steve Ballmer pushes the company to settle long running lawsuits as he tries to keep Microsoft focused on customers and products. Still, lawyers and legal fees remain a significant expense, as well as a distraction, for Microsoft this holiday season.
Besides the z4 case, pre-trial arguments continue in what could turn out to be a key consumer lawsuit. In the latest filing, Microsoft's lawyers are trying to head off "class action" status for the case. The plaintiffs claim that they bought "Windows Vista Capable" PCs last Christmas, only to find out that they were duped into buying less-than-Vista-capable computers.
Santa's Got a New Suit
In mid-November, the U.S. Court of Appeals for the Federal Circuit delivered Microsoft a lump of coal when it completely upheld a lower court's ruling that Microsoft's product activation technologies infringed two patents owned by tiny z4 Technologies. Commerce Township, Mich.-based z4 develops technologies for product activation and digital rights management.
Filed in 2004 and tried in 2006, the lower court awarded $140 million in damages plus attorneys fees to z4. (Autodesk was also found liable by the lower court but settled with z4 prior to the appeal.) Microsoft appealed but this month the higher court denied its motions.
While Microsoft's lawyers consider whether to appeal further, company spokespersons emphasized that they believe any infringement which they adamantly deny occurred was in the past.
"The product activation technology at issue in the z4 case is used primarily in retail versions of our older products. [The] retail version of Office 2003 and Windows XP make up the bulk of the affected sales," a company spokesperson said in a statement e-mailed to InternetNews.com.
Obviously, z4 disagrees and Thursday filed suit regarding the new products, saying all Microsoft has done was to make "an insignificant change" in its product activation technology. The infringement, they claim, continues.
In a terse response, Microsoft denied the new charges. "Microsoft respects intellectual property rights. We do not believe Windows Vista or Office 2007 violate any z4 patents," said a statement e-mailed to InternetNews.com.
Did You Mean 'Capable' or 'Ready?'
Meanwhile, Microsoft's legal department is trying to keep another lawsuit from escalating into a class action. That case had its genesis during last year's Christmas season, when Microsoft's "Windows Vista Capable" logo program for new PCs debuted.
When Microsoft was forced to push the availability date for consumer editions of Vista to January 2007 in early 2006, that meant new PCs bought for Christmas 2006 would ship with the company's aging Windows XP operating system. In a move to stave off a pre-Vista PC sales slump during the Christmas season, Microsoft came up with a marketing program that let PC vendors label new computers as either "Vista Capable" or "Vista Premium Ready."
Plaintiffs argue that the marketing program deceived consumers into thinking that lower-end PCs with the "Capable" logo would run what they characterize as the "real" Vista that is, the editions shown in virtually all Microsoft's Vista marketing materials which prominently feature its signature Aero Glass user interface.
However, their argument goes, in actuality the only edition of Vista that many of those "Capable" PCs would run was Vista Home Basic, which lacks support for Aero Glass and several other flashy new features. To guarantee that they could run the higher-end editions of the new operating system, they needed to buy a PC labeled "Premium Ready."
The lawsuit was filed last March on behalf of a consumer in the Seattle area. A second consumer in California later joined the suit and, in August, the judge ruled that the case could go forward.
Last month, the plaintiffs filed to have their suit upgraded to "class action" status, arguing that many consumers had been mislead, as they had been, as a result of Microsoft's attempts to maintain sales of Windows XP through the 2006 Christmas buying season.
In their filing, the plaintiffs claimed that even a senior Microsoft marketing manager had become confused during a deposition in the case as to which logo meant which Vista editions a PC could run. Last week, Microsoft responded with its counter filing arguing that class action status is not warranted.
"Microsoft, OEMs, retailers and the media disseminated a wealth of information concerning the Windows Vista Capable program on Web sites, in stores, in newspapers, in periodicals, and on the [PCs'] boxes publicizing the very facts plaintiffs say the three-word sticker misrepresented," the company's filing said.
Because of that, Microsoft's filing argued, no class exists because, "one cannot tell who saw what, and what role the information made in a particular purchasing decision, without individual examinations and fact finding."
Overall, analysts seemed unimpressed with Microsoft's latest spate of legal woes.
"It's not a huge issue like it was five or even two years ago. In fact, Microsoft's legal situation is the best it's been in many years," Matt Rosoff, legal affairs analyst at researcher Directions on Microsoft, told InternetNews.com in an e-mail interview. The company, he said, faces no new antitrust investigations from government agencies. Plus, in recent years, it has also settled private antitrust lawsuits with many major competitors.
"There's always going to be a steady stream of smaller IP-related cases, as is the case with any large, cash-rich company whose business is based on intellectual property, but I don't think any of these will impact Microsoft's bottom line," Rosoff said.
Dwight Davis, vice president at researcher Ovum Summit, agrees, but points out that it still can be distracting to a company with Microsoft's market dominance. "Microsoft will inevitably be bedeviled by lawsuits because it's a big target with deep pockets," Davis told said. "Some of this is just the cost of doing business."
U.S. District Judge Marsha Pechman has not set a date when she'll deliver her ruling regarding the request for class action designation in the Vista Capable case. However, the trial is currently slated to begin on October 28, 2008 just in time for the next holiday season.
Erin Joyce contributed to this article.