More Disclosures in ‘Vista Capable’ Lawsuit

A filing by plaintiff’s attorneys in the Microsoft “Vista Capable” lawsuit says that newly unsealed documents imply that the software titan’s CEO was aware that the company lowered technical requirements for Vista in order to save Intel, and some PC makers, billions of dollars in lost revenues.

The documents were unsealed by federal judge Marsha J. Pechman on Thursday in Seattle, where the case is being conducted.

The lawsuit revolves around claims that Microsoft’s so-called “Windows Vista Capable” marketing campaign, promulgated to help keep the bottom from falling out from under the PC market during the 2006 holiday season, was deceptive.

The plaintiffs argue that Microsoft’s “Vista Capable” sticker on the boxes deliberately mislead consumers to believe that new PCs that they bought prior to Vista’s consumer delivery on January 30, 2007, could be upgraded to run higher-end editions of Vista that feature the Aero Glass user interface and other graphics intensive features of the operating system.

It’s no surprise that Microsoft’s (NASDAQ: MSFT) lawyers say the recently released materials show exactly the opposite of the plaintiffs’ assertions – that Microsoft CEO Steve Ballmer was only privy to the company’s agreement to let PCs with down-level graphics chipsets be sold under the “Vista Capable” logo program peripherally and after the fact.

In fact, Microsoft acknowledges that Ballmer had a phone conversation in January 2006 with Intel (NASDAQ: INTC) CEO Paul Otellini, which the software company’s attorneys referred to as a “courtesy” call. However, they assert that the entire issue had already been settled by lower level executives and that Ballmer was not aware of any operational details of the deal.

Thus, Microsoft’s attorneys claim, there is no reason for Ballmer to take a day out of his busy schedule to provide a day-long deposition in the federal class action suit.

On the other hand, the plaintiffs’ attorneys point to an e-mail thread, also released Thursday, that implied Otellini was in the loop and had played a role in convincing Ballmer to lower the logo program’s standards.

“I want to acknowledge incredible team work to turn this around … and sending in our #1 sales person Paul [Otellini] to close the deal,” Intel executive Renee James said in an e-mail that was addressed to Otellini and other Intel execs.

Microsoft disagrees with that interpretation.

“The e-mails highlighted by the plaintiffs reflect the normal back-and-forth discussion about an internal decision Microsoft made in January 2006, long before it began communicating about the Windows Vista Capable program to consumers in May 2006,” said a statement by David Bowermaster, a Microsoft spokesman, e-mailed to

“Microsoft CEO Steve Ballmer has no unique knowledge of the facts in this case,” Bowermaster continued. “Anything he knows about the Windows Vista Capable program he learned from executives whom he empowered to run the program and make decisions.”

Next page: Internal battles at Microsoft.

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Intel declined to comment on the newly-unsealed documents, saying it does not comment on cases on which it is not a party. Intel has not been named in the lawsuit, only Microsoft.

Discontent at the mid-level

As the filings appear to demonstrate, however, at the next lower level of Microsoft management, tempers flared when the co-president of platform products and services, Jim Allchin (who reported directly to Ballmer and is now retired), who was in charge of Vista, learned of the relaxation of graphics chipset standards for Intel and PC makers.

“I’m sorry to say that I think this plan is terrible and it will have to be changed …. The fact that Aero [Vista’s flashy user interface] won’t be there EVER for many of these machines is misleading to customers …. I know we don’t want to hurt the OEMs but end-customers must be the top priority,” said one key Allchin e-mail released as part of Thursday’s disclosures.

The plan, however, was not changed.

Plaintiffs’ attorneys also asked Judge Pechman for a partial summary judgment in the case declaring that Microsoft’s conduct was “unfair or deceptive.” Microsoft, meanwhile, has asked the judge to block Ballmer from giving a deposition.

The suit, which was filed in March 2007, alleges that Microsoft advertised less-powerful PCs as being “Vista Capable,” although the company knew many of those PCs would only run the most basic edition of Vista – one that does not include Vista’s signature Aero Glass 3-D user interface.

Judge Pechman certified the case as a class action lawsuit in February 2008.

Microsoft took another hit in April when the 9th U.S. Circuit Court of Appeals refused to let the software behemoth appeal the ruling.

The case has had its share of embarrassments for Microsoft, including the unsealing of more than 100 pages of confidential internal e-mails in late April.

Those e-mails that seemed to indicate company executives knew the Vista Capable program’s requirements had been deliberately relaxed in order to satisfy the software firm’s hardware partners, particularly Intel.

The case is currently scheduled to go to trial on April 13, 2009, according to a Microsoft spokesperson. It had initially been tentatively scheduled for October 2008.

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