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Lindows, Inc Caught in the Cross-Hairs of Microsoft's Legal Rifle

Lawyers issue a "take-down notice" for MSfreePC.com

[herewith a verbatim copy of a fax received last Friday by Lindows, Inc. CEO, Michael Robertson]

HellerEhrman
Robert A. Rosenfeld
[email protected]
Direct (415) 772-6609
Main (415) 772-6000
Fax (415) 772-6268

September 26, 2003

Via Facsimile

Mr. Michael Robertson Chief Executive Officer Lindows Inc. 9333 Genesee Ave. 3rd Floor San Diego, California 92121

Re: Microsoft Cases, J.C.C.P. No. 4106, San Francisco Superior Court

Dear Mr. Robertson:

This firm represents Microsoft Corporation in a class action pending in San Francisco Superior Court, in which the Court has recently granted preliminary approval to a settlement. We just received a copy of a letter sent to you by counsel for the plaintiffs, raising some concerns about your www.msfreepc.com website. Our concerns about the website go far beyond those noted by plaintiffs’ counsel. Your unauthorized website offers class members the opportunity to submit claims under the Microsoft settlement and obtain an “Instant Settlement” that they may use to purchase between $50 to $100 worth of Lindows software. The website also states that it offers a free PC to “the first 10,000 people who buy $100 worth of products.”

For the reasons set forth below, your website is deceptive, seriously mischaracterizes the settlement, misleads the public and encourages class members to submit improper fraudulent claims that will be denied by the Settlement Claims Administrator. Microsoft strongly supports the right of the class members to claim benefits under the settlement and use those benefits to purchase qualifying computer hardware and/or software of any manufacturer, including Lindows. Microsoft is also committed to protecting the integrity of the settlement, the authorized website established by Court order and the claims process preliminarily approved by the Court.

The claims procedures established to implement the settlement reflect the parties’ concerns about the submission of improper or fraudulent claims. Such claims, if approved, will take settlement benefits away from legitimate class members and from California’s public schools, which will receive vouchers worth two-thirds of any unclaimed settlement funds. The www.msfreepc.com website recommends procedures that will lead consumers to file improper claims that will be denied.

The Website Misleads Claimants Into Following Improper Claim Procedures That May Lead To The Denial Of Their Claims.

The website encourages consumers to submit claims that may be denied because they do not comply with the claims procedure set out in the Settlement Agreement presented to the Court.

A. Claims Submitted Through The Website Will BE Invalid Because They Will Not Be Signed.

The settlement requires that all claimants print out, sign and mail their claim forms and certify the accuracy of their claims under penalty of perjury. See Settlement Agreement, section V.A.1.a. For this reason, the electronic submission of claims are not permitted – claimants must actually sign their claim forms and mail them to the Settlement Claims Administrator. See Settlement Agreement, section V. A. Claim forms submitted through the www.msfreepc.com website will be invalid because they will not be signed. Instead, these claims will include only the claimant's typed name (called a “digital signature” by the website) which is invalid under the Settlement Agreement.

B. Claims Submitted Through The Website Will Be Invalid Because They Will Not Include A Certification That The Entire Claim Form Is Accurate.

It appears from the website that Lindows.com is planning to submit claims through the “combined claims” procedure authorized by the Settlement Agreement, rather than by obtaining vouchers and subsequently redeeming them. Under that procedure, each claimant must submit: (1) a completed claim form, including “Part E” of the form (which relates to the claimant's use of settlement benefits to purchase qualifying hardware or software); and (2) proof of purchase of the qualifying software that the claimant selected from the www.msfreepc.com website.

The certification under penalty of perjury on the claim form requires claimants to certify that “all of the information on this form [including Part E] is true and correct.” However the website does not show a completed Part E to the claimant, so the claimant's certification is incomplete. For this reason, all “combined claims” submitted through the www.msfreepc.com website will be invalid.

C. Claims Submitted Through The Website Will Be Invalid Because The Settlement Agreement Requires That Claimants Submit Their Own Claims.

The www.msfreepc.com website requires claimants to “digitally sign” an Authorization, which purports to authorize Lindows.com to take certain actions to pursue the claimant’s claim. Among other things, the Authorization purports to authorize Lindows.com to: (1) submit to the Settlement Claims Administrator the claimant’s claim form and proof of purchase of Lindows software; (2) modify the Claim Form to provide that all future correspondence (including vouchers and checks) will be sent to the claimant at Lindows.com’s address; (3) open the claimant’s mail and cash the claimant’s check; and (4) take actions to “enforce payment rights,” which Lindows.com apparently intends to include the right to appeal to the Court any claims denied by the Settlement Claims Administrator.

Claims submitted through the www.msfreepc.com website will be invalid because the Settlement Agreement does not permit retailers or other vendors of qualifying hardware and software to submit claims on behalf of claimants. In addition, to prevent the development of a “gray market” for settlement vouchers, the Agreement contains clear restrictions on the transferability of claims and vouchers. Claims cannot be transferred at all and a transferee of vouchers may not redeem more than $10,000 in transferred vouchers. See Settlement Agreement, sections IV.F and V.B.2.(1)

I.The Website Encourages People To Submit Fraudulent Claims.

In addition to mischaracterizing the settlement and encouraging consumers to submit defective claims that will denied, the website also encourages people to submit fraudulent claims. The Settlement Agreement authorizes the Settlement Claims Administrator and the parties to reject these claims or to request additional supporting documentation, on the ground that “there is reasonable cause to suspect that the [claims are] fraudulent or otherwise improper.” See Settlement Agreement, section V.A.2 see also section V.D.2 (Settlement Claims Administrator “shall reject any invalid claims unless Lead Counsel for the California Class and Microsoft otherwise direct....If Lead Counsel for the California Class or Microsoft disputes any claim, the Settlement Claims Administrator may request additional documentation from the claimant.”).

The www.msfreepc.com website clearly encourages people to submit fraudulent claims. The website's clear objective is to encourage claimants to maximize the amount of their claims rather than submit claims that accurately reflect purchases made or benefits to which they are entitled. For example, the website encourages claimants to submit claims for combinations of products that total exactly $100, and offers a “free PC” only to claimants who submit claims for only one purchased product, only allows claimants to submit claims for certain combinations of purchased products (with high total values), and does not allow claims that total less than $50. The website also offers a prepared list of “sellers” of software which encourages claimants to make a hasty, careless or false designation of the seller of their products instead of accurately identify their software purchases before submitting their claim.

All of these problems are compounded by the fact that the settlement notice provided to class members does not accompany the “claim form” that claimants are asked to “digitally sign.” The settlement notice is supposed to accompany the claim form, so that potential claimants can make an informed decision about whether to file a claim, object or do nothing. However, the www.msfreepc.com website does not provide a copy of the notice, so most people who submit claims through the website will not have read the notice and will not be making an informed decision.

For the foregoing reasons, Lindows.com must correct or take down the www.msfreepc.com website to rectify the many serious defects we have identified above. Please let us know by noon on Monday, September 29, 2003 of the corrective actions you intend to take. If we do not hear from you by then, Microsoft will take all appropriate action to protect the integrity of the settlement claims process and the settlement benefits to which the class members and California's public schools are entitled as well as its own interests.

Very truly yours,

Robert A. Rosenfeld

(1) The www.msfreepc.com website mischaracterizes a number of other aspects of the settlement: for example, the website does not clearly inform consumers at the outset that they are only eligible to obtain vouchers if they purchased software for use in California; the website does not mention the benefits provided by the settlement to California’s public schools, which class members might wish to consider in determining whether to submit a claim; the website does not explain that direct purchases of Microsoft software cannot make claims under the settlement. In addition, the website’s reference to the Department of Justice action against Microsoft suggests incorrectly that the settlement in this case is somehow based on the findings of liability in the Department of Justice action against Microsoft. There has been no determination of wrongful conduct, guilt or liability in the Settlement. Moreover, the website’s description of the Department of Justice action itself is inaccurate. The website incorrectly states that Microsoft was “found guilty of antitrust violations” in the Department of Justice case. The Department of Justice action was a civil proceeding, and the findings of liability in that action do not constitute criminal convictions or findings of “guilt.”

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