Aduc files class action against Microsoft

Aduc, an Italian Consumers association, has served on Microsoft Italia (the local branch of Microsoft Corp) a class action complaining that the company consistently refuses to reimburse users the price of ubiquitous windows licenses, bundled with OEM (Original Equipement Manufacturers) computers. I am part of a much larger legal team that has produced it and I can briefly illustrate what it is about.

Italy has adopted a regulation (Art. 140 bis of the Italian Consumers Code) that allows consumers individually (not consumers associations, which is strange) to file class actions, through ordinary proceedings, open to be joined at a later time. A class action is a case which is arguably identical to a class of users and which is likely to protect the interest of this class. Unfortunately, the Italian version has been adopted with very odd provisions that limit the effectiveness of it, as one can read in this document by Aduc (in Italian).

The case

The case is about the refusal to reimburse the license costs when a user buys a computer with Windows preloaded. This is invariably the case when we speak of mass distribution, and 100% of notebooks/netbooks on the shelfs are sold with that system on board. Users have a right to require reimbursement, if they do not want the operating system (maybe they have anoter copy, or they want to install a different operating system, like GNU/Linux). The right is clearly stated in Microsoft License to the End User (EULA) and it is reminded to the user at the first bootup.

It is not a liberal concession of either Microsoft or the OEM, it is an antitrust measure that Microsoft has undertook to avoid being found guilty of yet another anticompetitive abusive behaviour in breach of antitrust regulations. The case originating that was about Microsoft imposing “per CPU” royalties, so that it could earn a license fee out of any CPU that an OEM sold, regardless of whether it had Windows aboard or not. As a measure, per CPU royalties were relinquished and the right for the user to demand reimbursement if they didn't want the operating system was later adopted.

Pity that consistently this ritght is denied. First, there is no information of what the price is. The consumers are not aware that they are buying many things at once, in this case software and hardware. So when they are informed that they have a right to be reimbursed, they do not know how they can claim. Nobody knows.

Second, if they ask, the OEM says “cool, but it's not our agreement, you have to ask Microsoft, they wrote that”. This has been HP defence in Florence when first Aduc sued them for the recovery. Indeed they are right, this reimbursement thing is imposed by Microsoft, for them it is quite a burden to put this “recall” practice in place, given that they have very low margins on this (unlike Microsoft, which has a margin that might range between 70% and 80% on each copy). So the burden is better placed on Microsoft, which is the one an only that both benefits from the practice (also by avoiding antitrust concerns) and issues the promise, for vague and imprecise that it is. Cuius commoda, eius et incommoda.

Let's ask Microsoft. They say nothing. Do not bother answering. Reading the license, one finds that the OEM is supposed to pay. All in all, the OEM is not likely to pass this reimbursement onto Microsoft, which arguably does not have an RMA policy (on software, which is just provided on one master copy to the OEM!) and so they are back in a situation of per-CPU sales. OEM very likely do not report sales of Microsoft, but sales of units sold.

What does a class action mean for the consumers

The consumer can join the case after it passess an initial scrutiny by the Court. No legal representation, hence no lawyer, is needed. One just files an application with the Court Clerk, stating that they have a case which is identical to the one presented to the Court. After doing that, if the Court finds for the plaintiff, the consumer is supposed to receive the established compensation.

How individual cases are dealt and how the court establishes that the case is identical, that is still to be assessed. For the time being it seems a mess. Again, the document by Aduc explains this quite well, albeit in Italian.

Why Microsoft, not Apple?

Apple has a very similar practice of bundling software and hardware. But Apple is not dominant by any measure in the PC sector, even including Mac sales. It has no policy of returning the operating system, and by all means one can buy a non Apple product and have Windows pre-installed. Apple for sure feels the competition of Microsoft, the reverse is not true. Whereas, Microsoft has OEM dealings with all the PC OEM, with the only exception of Apple.

So the legal basis for demanding so are very different, although I personally would favor an obligation to separate the two products also for Apple. Whereas identifying a price would be difficult, because it is not a multi-tiered distribution as in the PC OEM segment.

Why you?

Because I can, I have some knowledge about the case, and I find the current situation largely unfortunate. I was asked to provide my expertise, I accepted. Luckily there are several lawyers who have started this and I have just added some salt to a dish others have cooked.

If the result is that the parties are forced to inform the consumers that they are paying a certain price for the PC and an additional price for the operating system, and after that they still want Microsoft's software, fine with them, fine with me. But now they have neither information, nor choice. This is against the law and shall not endure.

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