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Barovic v. Ballmer

United States District Court, W.D. Washington

December 10, 2014

KIM BAROVIC, et al., derivatively on behalf of Microsoft Corporation, Plaintiffs,
v.
STEVEN A. BALLMER, et al., Defendants

Page 1211

For Kim Barovic, derivatively on behalf of Microsoft Corporation, Plaintiff: Brett D. Stecker, Jeffrey J. Ciarlanto, LEAD ATTORNEYS, PRO HAC VICE, WEISER LAW FIRM, BERWYN, PA; Kathleen A. Herkenhoff, LEAD ATTORNEY, PRO HAC VICE, THE WEISER LAW FIRM PC, SAN DIEGO, CA; Duncan Calvert Turner, BADGLEY MULLINS TURNER PLLC, SEATTLE, WA.

For Stephen Diphilipo, derivatively on behalf of Microsoft Corporation, Plaintiff: Duncan Calvert Turner, LEAD ATTORNEY, BADGLEY MULLINS TURNER PLLC, SEATTLE, WA; Katherine Ryan, Richard A Maniskas, LEAD ATTORNEYS, PRO HAC VICE, RYAN & MANISKAS, LLP, WAYNE, PA.

For Steven A. Ballmer, Dina D. Dublon, William H. Gates III, Maria M. Klawe, Stephen J. Luczo, David F. Marquardt, Charles H. Noski, Helmut Panke, John W. Thompson, Peter S. Klein, Brad Smith, B. Kevin Turner, Defendants: Brendan Thomas Mangan, Stephen M. Rummage, LEAD ATTORNEYS, Candice Tewell, DAVIS WRIGHT TREMAINE (SEA), SEATTLE, WA.

For Microsoft Corporation, Nominal Defendant: Charles J Ha, Daniel J Dunne, Jr., ORRICK HERRINGTON & SUTCLIFFE LLP (SEA), SEATTLE, WA; George E Greer, ORRICK HERRINGTON & SUTCLIFFE (WA), SEATTLE, WA.

Page 1212

ORDER

HONORABLE John C. Coughenour, UNITED STATES DISTRICT JUDGE.

This matter comes before the Court on Nominal Defendant Microsoft Corporation's Motion to Dismiss Complaint (Dkt. No. 19) and the Individual Defendants' Motion to Dismiss (Dkt. No. 23). Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby DENIES both Motions for the reasons explained herein.

I. BACKGROUND

In December of 2009, European Union (EU) regulators dropped an antitrust case against Microsoft after nominal Defendant Microsoft Corporation agreed to offer European purchasers of Windows software a choice of several Web browsers, including competitors of Microsoft's Internet Explorer. (Verified Complaint, Dkt. No. 1 at 2.) This agreement, referred to by Plaintiffs as " the Settlement," obligated Microsoft to include " browser choice screens" (BCS) in all Windows updates and new systems for the next five years. ( Id. at 2, 11; see also Individual Defendants' Motion to Dismiss, Dkt. No. 23 at 2.) By stipulating to this Settlement, Microsoft was relieved of both the antitrust suit and avoided EU fines. (Complaint, Dkt. No. 1 at 11.) Pursuant to the terms of the Settlement, Microsoft was directly responsible for monitoring its own compliance with the Settlement during this five-year period. ( Id.) Neither the Complaint nor any of the documents to which it refers offer in-depth information on the internal mechanisms by which Settlement compliance was monitored, verified, or ensured.

According to Plaintiffs, beginning in February 2011, Defendants ceased complying with the Settlement. ( Id. at 2.) At this time, Microsoft released at least 15 million installations of Windows 7 in Europe that

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lacked the BCS, and on which Internet Explorer was the only web browser, in contravention of the Settlement's terms. ( Id.)

Although Microsoft was responsible for self-monitoring its compliance with the Settlement, in the summer of 2012, almost a year and a half after the Settlement had first been breached, Microsoft was informed by the EU's antitrust chief, Joaquí n Almunia, that the European Commission had received word that some Windows versions available in the EU were lacking the BCS Defendants had committed to include. ( Id. at 3.) Microsoft offered an apology to Almunia and informed him that the omission was due to a technical error. ( Id.) Plaintiffs allege that Defendants did not correct the problem, despite this admission and apology. ( Id.)

Then, in October 2012, months after Almunia had first warned Defendants of the BCS omission, Almunia charged Microsoft with what Plaintiffs appear to allege was continued non-compliance with the Settlement terms, and ordered Microsoft to remedy the omission for the Windows 8 operating system then about to go on sale in the EU. ( Id. at 16.)

On March 6, 2013, the EU decided to fine Microsoft the U.S. equivalent of $732.2 million dollars for violating the Settlement. ( Id.) According to Plaintiffs, this marked the first time in history that the EU had punished a company for violating the terms of an antitrust settlement. ( Id.)

In response, Microsoft issued another apology, taking " full responsibility" for the error, but maintaining that the omission was caused when an engineering team forgot to update the code that distributed the BCS ...


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