Vista lawsuit spotlights ties between Microsoft, Intel

Newly unsealed documents in a class-action lawsuit challenging Microsoft's practices for Windows Vista reveal that a controversial change made in the "Windows Vista Capable" marketing program in early 2006 may have saved key partners, including Intel, billions of dollars in sales of soon-to-be-obsolete hardware.

U.S. District Court Judge Marsha Pechman ordered the documents unsealed late Thursday, letting loose a raft of internal Microsoft messages and e-mails between Microsoft and Intel executives.

While Pechman did not rule on any of the key issues in the case, the correspondence — which refers to communications between the companies' CEOs — pulls back the curtain on a high-stakes and often tense relationship at the heart of the computer industry.

The suit, filed in Seattle in March 2007, alleges consumers who purchased PCs labeled "Windows Vista Capable" in 2006 — before the operating system's launch — were deceived.

Some PCs that had the "Vista Capable" logos could only be upgraded to run a basic version of the operating system.

The program was designed to buoy demand ahead of the launch of Vista on Jan. 30, 2007. The PC industry was concerned about the "Osborne effect" — "the phenomenon of consumer purchase delays awaiting the release of products incorporating new technology," plaintiffs attorneys wrote.

A key issue in the case surrounds the inclusion in the "Vista Capable" requirements of a specific new graphics technology.

The plaintiffs, represented by Seattle law firms Keller Rohrback and Gordon Tilden Thomas & Cordell, filed a motion for partial summary judgment on the so-called Windows Device Driver Model (WDDM) issue in September. This motion and several others were unsealed Thursday.

WDDM was required to run the translucent "Aero" user interface, a key Vista selling point. But it would also improve stability, reliability and security, according to statements by Microsoft workers and plaintiffs' expert witness.

In January 2006, Microsoft changed the date Vista Capable-marked PCs would begin appearing in stores from June 1 to April 1.

In e-mails, including at least one marked confidential, an Intel executive asked Microsoft to stick to the original June start date, giving Intel and its PC-maker customers time to sell inventory that would not meet the Vista Capable requirements.

A Microsoft employee estimated the potential cost to Intel of starting the program in April at $600 million in lost sales, according to the motion. But the bigger issue was that a widely used Intel 915 chip set would not support WDDM.

"Intel will continue to see loss in market share due to this decision," Microsoft marketing director Rajesh Srinivasan wrote. "Here is how their potential costs could get into billions."

Between June 24, 2005, and Jan. 26, 2006, three PC manufacturers — Dell, Sony and Fujitsu — had asked Microsoft for waivers on the WDDM requirements.

Will Poole, who ran Microsoft's Windows Client business at the time, wouldn't budge on the date the marketing program would begin, the motion said.

But the matter caught the attention of Intel CEO Paul Otellini, who wanted to share "feedback" with Microsoft CEO Steve Ballmer, according to an e-mail from an Intel executive.

Microsoft continued to deliberate internally and Poole told Intel on Jan. 30 that Microsoft was dropping the WDDM requirement from the Vista Capable program.

Inside Microsoft, the decision was greeted with scorn.

Jim Allchin, then co-president of the Windows division, was described as "apoplectic." When he was briefed on the possibility of dropping WDDM, his initial reaction was "this plan is terrible."

"I believe we are going to be misleading customers with the Capable program," he wrote.

The move at first surprised Renee James, the Intel executive in charge of the company's relationship with Microsoft. But by the end of the day, her concerns were alleviated and she thanked Poole for his "commitment to embrace 915."

She also noted that Otellini sent a note to Ballmer "thanking him for listening and making these changes (I know you did it.)."

Microsoft spokesman David Bowermaster said via e-mail Thursday that "Ballmer has no unique knowledge of the facts in this case. Anything he knows about the Windows Vista Capable program he learned from executives whom he empowered to run the program and make decisions."

(The plaintiffs have asked to depose Ballmer. Pechman has yet to rule on that request.)

Bowermaster described the unsealed communications as "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.

"Ultimately, we provided choices to consumers, giving different options for Windows Vista Capable PCs at various price-points to meet their needs," Bowermaster said.

"We conducted a comprehensive education campaign through retailers, PC manufacturers, the press, and our own Web site that gave consumers the information they needed to choose an affordable computer that would run the edition of Windows Vista that best fit their needs or lifestyle."

Intel spokesman Chuck Mulloy said, "We typically do not comment on cases where we're not a party."

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com