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Microsoft May Owe $8.5B for 'Vista Capable' Debacle

Microsoft would have to come up with as much as $8.5 billion to settle accounts with the customers affected by its 2006 "Vista Capable" marketing program, according to documents unsealed by a federal court.

U.S. District Court Judge Marsha Pechman released the figures yesterday from the class-action lawsuit, which claims Microsoft misled consumers with the Vista Capable campaign in the months leading up to the January 2007 release of the operating system.

Microsoft dismissed the estimate in a filing of its own yesterday, saying it was "absurdly [valued]" and if damages were granted, added that it would be a "windfall to millions."

Keith Leffler, a University of Washington economist and expert witness for the plaintiffs, calculated that it would cost a minimum of $3.92 billion and as much as $8.52 billion to upgrade the 19.4 million PCs sold as Vista Capable to hardware able to run the premium versions of Windows Vista.

In a heavily-redacted report, Leffler said he had used data provided by Microsoft to arrive at the number of "Vista upgradeable" PCs sold in the U.S. from April 2006, when the Vista Capable campaign started, to January 2007, when Vista hit retail shelves and the program ended. Of those PCs, 13.75 million notebooks and 5.65 million desktop computers were classified as Vista Capable but not able to meet the more stringent requirements for the "Premium Ready" label, Leffler estimated.

By the criteria set by Microsoft and passed to computer makers, Vista Capable meant that the machine was able to run at least Windows Vista Basic, the entry-level edition of the line. Such a system, however, might not be able to run a more powerful version, or if it could, might not be able to execute all its features. A Premium Ready logo, on the other hand, indicated that the PC was able to run higher-end versions, such as Vista Home Premium, Vista Business and Vista Ultimate.

Vista Home Basic is key to the lawsuit, which alleges that Microsoft's Vista Capable program inflated the prices of PCs that could run only that edition, and enticed users into buying machines that could not be later upgraded to any other version of Vista. Home Basic, the plaintiffs have contended, is not the "real" Vista, in large part because it lacks the Aero user interface.

Microsoft has denied that it duped consumers, and has countered that Home Basic is a legitimate version of Vista.

Leffler arrived at his minimum and maximum upgrade costs by estimating how much it would cost to upgrade each Vista Capable machine to 1GB of memory and a graphic card capable of running Aero. It would cost a maximum of $155 to upgrade each desktop, and between $245 and $590 to upgrade each notebook.

The wide range on notebook upgrade costs, which in turn produced the large difference between Leffler's overall minimum and maximum numbers, were due to the more expensive replacement of a portable's graphics chipset. In some cases, Leffler said, the notebook would not be able to be upgraded sufficiently to handle any edition of Vista but Home Basic, and alluded to the need then to replace the system with a new machine.

All told, it would run Microsoft $832.7 million to upgrade the Vista Capable desktop PCs, and between $3.08 billion and $7.69 billion to fix the affected notebooks.

Those numbers dwarfed the $1.5 billion that Leffler had earlier estimated Microsoft earned from the sale of PCs marked as Vista Capable. Microsoft's lawyers may have been comparing the figures when they blasted the plaintiffs' call for upgrades. "Plaintiffs seek a remedy that would give them a Premium Ready PC even though they paid for a non-Premium Ready PC," said Microsoft in papers filed Wednesday with Pechman.

"To give class members free upgrade to Premium Ready PCs would provide a windfall to millions because no one can know who among the class (a) intended to upgrade to Windows Vista, or (b) wanted a Premium Ready PC, or (c) would have chosen to pay more for a Premium Ready PC just so they could run Windows Aero," Microsoft argued.

This morning, lawyers for the plaintiffs and Microsoft argued before Judge Pechman as she held the case's first hearing in months. At issue: A pair of motions that Microsoft made in November that asked her to decertify the class and rule on a summary judgment to dismiss the charges.

During the hearing, Pechman said she would issue an opinion on the motions, but did not set a deadline.

The lawsuit, which has revealed insider e-mails showing how Microsoft bent to pressure from Intel over Vista Capable's hardware requirements, is currently set for an April trial.

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