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November 13, 2008 4:00 PM

Unsealed docs from Vista Capable class-action suit detail exchanges between Microsoft, Intel

Posted by Benjamin J. Romano

U.S. District Court Judge Marsha Pechman unsealed several documents containing internal Microsoft and Intel e-mails, in the ongoing class action lawsuit against Microsoft over marketing of Windows Vista.

Update, Friday morning: For a more concise telling of what's in the documents, check out this story from today's paper.

In an unsealed version of a motion for partial summary judgment in the case, the plaintiffs lay out a timeline detailing how a graphics driver requirement -- called the Windows Device Driver Model, WDDM -- that was originally part of the requirements for a computer to be labeled "Windows Vista Capable" was removed from the requirements, after Microsoft's hardware partners, including Intel, complained.

Here's the unsealed motion (PDF, 29 pages), on which Pechman has not yet ruled.

Give it a read and tell me in the comments what jumps out at you. I'll be providing updates ASAP.

(Update, 5:30 p.m.: Microsoft spokesman David Bowermaster just issued a statement on the unsealed motion:

"The emails 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.


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

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


Update, ~4:45 p.m:

The WDDM requirement would have kept most PCs on the market in early 2006 from carrying the Vista Capable designation, which OEMs were concerned would diminish sales ahead of Vista's launch in early 2007.

Meanwhile, Microsoft employees, in communications excerpted in the plaintiffs' motion, were holding fast to the idea that WDDM had to remain a Vista Capable requirement. Plaintiffs cite an early draft of a Q&A on the Vista "Ready PC" program, as it was then known, from June 2005:

"LDDM is Longhorn Display Driver Model [an earlier name for WDDM] that improves stability over current XP display drivers. Since we want to make sure customers get a good, reliable experience with their Windows, LDDM support will be a core requirement for Longhorn [as Vista was previously called]."

The plaintiffs cite their own expert and Microsoft employees describing the benefits of WDDM beyond running the Aero user interface, which was one of the more visible features in Vista's marketing. Benefits included stability, improved performance, security, easier output for connecting a PC to a television or monitor and more.

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

Why did Microsoft try so hard to hold the line on WDDM? Plaintiffs outlined "Microsoft's internal reasoning," again based on internal communications disclosed as part of the suit, that highlight the tension between Microsoft, Intel and its other OEM [original equipment manufacturer] partners (note, the exact source of this material is hard to discern because plaintiffs have yet to file the full exhibit supporting this motion; they are required to do so within 10 days). Here's part of Microsoft's reasoning regarding Dell's request:

"1) It is critical to Microsoft's success with Longhorn [Vista] that our customers are truly delighted with LH as an operating system and it is seen to be stable, reliable and experientially different than Windows XP.


"2) Two key elements (stability and reliability) are dependent on many device drivers, but our data shows that customers are significantly impacted by the stability of the display drivers, and the LDDM architecture in LH is explicitly designed to address that customer issue.

"3) LDDM has been POR [plan of record] for many months, and it has been clearly articulated and Intel has received all of the briefings and Microsoft has been more than accommodating to address issues created by Intel's unique video architectural implementation.

"4) Intel made an experienced business decision as to which chipset they would provide resources toward for implementing an LDDM driver.

"5) Dell has at least three potential ways to solve their problem

"a. Ask Microsoft to grant an exception (impact: bad customer experience, defeats LH customer benefit pillars)

"b. Ask Intel to accelerate their pricing waterfall for Calistoga [a chipset] for implementation on LH parts, perhaps even limiting the value line Calistoga to equivalent Alviso [another chipset] levels.

"c. Go with an alternate discrete graphics provider that as an LDDM driver[.]

"I would ask Dell to consider other optiosn -- compromising the customer commitments of stability and reliability for LH does not benefit the customer or MS or Dell in the long run."

A key element to this broader back-and-forth between Microsoft and the OEMs was the widely-used Intel "915" chipset, which had an integrated graphics processor and which would not qualify for the logo program, a fact plaintiffs assert Microsoft knew as early as August 2005. Web links from Intel and Microsoft at the time gave conflicting views of the capability and suitability of the 915 chipset for Vista.

"In the aftermath of the publication of the Microsoft and Intel links, Microsoft employees internally viewed Intel as 'intentionally' trying to 'hide the ball' on the inability of its 915 chipsets to run WDDM," plaintiffs wrote.

Microsoft was preparing to begin the public phase of the Vista Capable marketing program in early 2006. But as it was shuffling spring start dates, Intel executive Renee James (currently vice president and general manager of the Software and Services Group; previously vice president and general manager of the Microsoft Program Office ... responsible for overseeing Intel's relationship and development efforts with Microsoft) wrote to Microsoft's Will Poole, who ran Microsoft's Windows Client business at the time. James asked Microsoft on Jan. 20, 2006, to delay the marketing program until June:


"Will,


"One thing that came out yesterday is that your team has the retailers in the US putting Vista Ready stickers on the shelf April 1st vs. the June 1st date we thought we had agreed.

"As a result, we are not going to have supply and chipsets aligned such that the SKUs are ready for April 1sft and now we are having discussions that we may have cancellations and returns b/c OEMs have to go to non Intel [chipsets] to get Vista REady as our schedule is post the date they would need stocking machines.

"We believe this will cause material business issues and would ask again that we relax the retailers back to June.

"Thank you for your attention here,

"Renee"

She wrote to Poole again three days later in an e-mail marked "CONFIDENTIAL":


"Will,


"I would prefer not to have this discussion on email.

"Needless to say, when we agreed on the June 1st date and asked you specifically to hold to that day for stickering in the channel, we knew our ramp rates and ability to ship vista ready parts. An April 1st date in retail means a significant change in terms of our ability to meet demand with Vista ready parts and in short will cost us significant business. While I do not want to discuss volume and $$ on email, it is material to our business, and we do not understand Microsoft's motivation to change the previously agreed upon date."

Poole was advised by Bob Aoki, who communicated that Intel's revenue impact is "#X billions" and the issue had been raised with Intel CEO Paul Otellini "who is awaiting our response." This was Jan. 24, 2006. Aoki wrote:

"My two cents. The real issue is Intel does not have parts to support the April timeframe. Specifically, Callistoga [sic] which is Intel's notebook graphics chipset. We have known for along [sic] time that Callistoga [sic] will not be meet [sic] glass specifications and Intel is trying to move their business to notebooks that have high profit margins. Intel's desktop is not a problem as they have processors and industry third party support of glass support (e.g., AT, nVidia)."

The next day, Poole told Intel that the program start dates would stay as they were.

Intel was not satisfied and indeed the issue had reached Otellini, who wanted an audience with Microsoft CEO Steve Ballmer. On Jan. 27, James again wrote Poole:

"Will,


"I know you are offsite. I left a longish VM [voicemail] on Paul's feedback to us last night -- that which he wants to share with with Steve [Ballmer].

"[Paul] doesn't understand why the date changed and we don't accept it is just 'labels on boxes' as the implication is these machines will be made to work some day and nobody has done any test or validation, and we do not think the potential liability of a consumer claim is a good idea. Our parts are not tested, not validated. NO OEMs based on Intel can make this claim -- with even our new CSets that should support vista. We don't believe there is a stable configuration data at this point. We could not articulate why April 1st made any sense to the industry from a platform perspective with no SW [software] yet, nor could we explain why Marketing in June was so critical given the Osborne potential between June in November" -- plaintiffs note here that the Osborn Effect, "well known in the PC industry" is "the phenomenon of consumer purchase delays awaiting the release of products incorporating new technology" -- "He thinks you really don't understand that almost all of our mobile SKUs for the next 5 months are with Centrino with Alviso and therefore NEVER Vista ready -- and Mobile is a huge portion of retail and growing."

The dialogue between Intel and Microsoft, and Microsoft internally, continued, highlighting the extensive interconnectedness of the two companies and the tension between them on this issue.

Late Thursday, Microsoft issued this statement on the information in the unsealed documents: "Microsoft CEO Steve 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 Judge Pechman to allow them to depose Ballmer. She has yet to rule on that request.

Back to 2006: Microsoft mulled Intel's request internally and eventually, Poole set his sights on the 915 chipset. But, plaintiffs state, because the 915 could not run WDDM, Microsoft considered removing WDDM from the Vista Capable requirements.

A Microsoft employee calculated the potential cost to Intel of not doing so. He estimated the company would sell 3 million 915 based motherboards in April and May 2006 -- sales that would be "Osborned" under the current schedule and Vista Capable requirements. Estimating the revenue for each 915 motherboard and CPU at $200, he calculated Intel's exposure at $600 million. But there was more at risk:

"The bigger deal is that they will continue to lose share due to 50% 915GM share even after June. Retailers are looking for 80+% notebooks to be Vista Capable and thus shift business to AMD [Intel's rival in the chip-making business].

"Intel will continue to see loss in market share due to this decision."

"Here is how their potential costs could get into billions."

On Jan. 30, Poole told Intel that the WDDM requirement would be dropped from the Vista Capable logo program, allowing the 915 chipset to qualify.

James of Intel replied to Poole, "We are seriously confused."

"We believed that 915 is NOT vista ready as it will never have WDDM drivers. We believed your Vista ready requirements doc said it had to be WDDM drivers to qualify for the program sticker. ... Are you saying that these parts qualify for Vista Ready logo?"

Poole replied:


"We need to separate what the 'Vista Capable' logo requirements are from the concept of being able to run Vista. ... Lots (many tens of millions) of systems that will NOT have WDDM, absolutely WILL be able to run Windows Vista. The [plan of record] is that although the 915 is upgradeable to Vista, it would not qualify for a Vista Capable logo, nor for a basic 'designed for Windows Visa' [sic] logo once we launch."

Microsoft's response surprised James, who had wanted to delay the start of the Vista Capable program "to gain the extra 30 days of sales during which the bulk of computers would not be Vista Capable," plaintiffs wrote. 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. :))."

On Jan. 31, Microsoft announced that it was dropping WDDM from the Vista Capable logo program. The internal reaction among Microsoft employees who felt WDDM was a key part of Vista was intensely negative.

Mark Croft, a marketing director, stated "If we give on these then the Logo does not 'mean' anything. I think that pulling out WDDM is a bad decision for customers." Windows boss Jim Allchin described himself as "beyond being upset" and Ballmer called him "apoplectic."

PC manufacturers had a range of reactions. Hewlett-Packard -- which, Plaintiffs write, "had made a large investment in WDDM technology, and found itself without a competitive low-end product in the newly expanded Vista Capable universe" -- was furious.

The plaintiffs' attorneys summarized their argument:

"Microsoft was concerned about ... the rapid evaporation of sales after a new product is announced. In conjunction with its customers and suppliers, it lowered the bar so that millions of in-channel computers with 915 chipsets, that were known not to be Vista Capable, magically became so---but only until the launch when, just as magically, they again became unqualified to carry a Vista logo."

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