Microsoft denies it profits from Vista-to-XP downgrades

Microsoft Corp. has denied that it makes money when users “downgrade” Windows Vista to the older XP, as a lawsuit filed last week alleges.

The lawsuit, submitted to a Seattle federal court last Wednesday, stems from the $59.25 fee that a California woman was charged in mid-2008 when she bought a Lenovo laptop and downgraded from Vista to XP.

“Microsoft does not charge or receive any additional royalty if a customer exercises those [downgrade] rights,” said Microsoft spokesman David Bowermaster in an e-mail late last week. “Some customers may choose or need to obtain media or installation services from third parties to install the downgrade version.”

In fact, it's computer makers, not Microsoft per se, who charge users the additional fees for downgrading a new PC from Vista to XP at the factory. Dell Inc., for example, adds an extra $20 to the price to downgrade a PC.

Microsoft, however, may profit from the way it structures downgrade rights. Only buyers of PCs with pre-installed editions of Vista Business and Vista Ultimate can downgrade, and then only to Windows XP Professional. All three editions are higher-priced versions of their respective lines, a fact that the lawsuit mentioned in passing.

“Customers have been forced to purchase the most expensive version of [Windows XP] in order to 'downgrade' from the Windows Vista operating system,” the complaint read.

That was the cause of some confusion last year, when Dell Inc. was accused of gouging customers by charging $150 to downgrade a new computer to XP. Dell, however, countered that although it did charge $20 to install XP on the machine, as well as to cover the cost of the additional media, the bulk — $120 of the $150 — was the price of upgrading the PC from the standard Home Premium to the more expensive Business edition.

Microsoft does not offer downgrade rights with its Vista Home Premium, the most popular of Vista's editions.

“Microsoft mandates that customers who want to downgrade to XP must purchase the license to Vista Business or Vista Ultimate,” said Dell spokesman David Frink last December. “[That's] typically about a $130 premium, though some retail outlets charge more.”

“Downgrade” describes the Windows licensing rights that Microsoft gives users, who are allowed under some circumstances to replace newer versions of Windows with an older edition without having to pay for another license. The practice became popular last year when users, unhappy with Vista's performance on the new PCs they bought, instead sought ways to run the leaner XP.

The lawsuit, filed by Los Angeles resident Emma Alvarado, charged Microsoft with multiple violations of Washington state's unfair business practices and consumer protection laws through its policy of barring computer makers from continuing to offer XP on new PCs after Vista's early-2007 launch. She claimed Microsoft's practice resulted in customers paying more for XP than they otherwise would. “They have been forced to pay substantially more to acquire the Windows XP operating system than they would have to pay in a competitive marketplace,” the suit said.

Alvarado also named 100 “John Doe” co-defendants. “[They] are the persons, firms and corporations who have participated with Microsoft in the wrongdoings complained of and performed acts and made statements in furtherance thereof,” the lawsuit read. “The Doe Defendants acts as co-conspirators and aided and abetted, or participated with, Microsoft in the commission of wrongful acts.”

Bowermaster claimed that Microsoft had no downgrade program as such. “Microsoft does not have a downgrade program. It does offer downgrade rights as part of some Windows Vista licenses, including Windows Vista Business purchased through the OEM channel.” That, however, belies the fact that Microsoft has regularly offered downgrade rights to users. When it released Windows XP in 2001, it allowed people who had XP licenses to downgrade to Windows 2000, Windows NT 4.0 or Windows 98, according to Gartner analyst Michael Silver.

Alvarado is seeking compensatory damages and wants the case declared a class-action suit.