A federal judge has refused to dismiss a suit filed by shareholders against Microsoft Corp. The suit is over the actions that led to a $732 million antitrust fine in the European Union. U.S. District Judge John Coughenous said in his ruling that Microsoft’s alleged decision not to interview a European Commission official while investigating shareholder claims suggests unsound business judgment. The derivative suit filed by stockholders alleges the company and executives breached their fiduciary duties by willfully violating a European Union antitrust settlement and incurring a $732.2 million fine. Microsoft had asked the court to dismiss the suit, saying there wasn’t a solid enough showing that the executives knowingly breached their duties.
Judge Coughenour said there was enough reason to think the company should have done things like interview the European Commission’s antitrust chief, Joaquin Almunia, in response to a presuit demand. Judge Coughenour said:
Plaintiffs argue that the fact that the DRC and board did not interview Mr. Almunia or any other European Commission official regarding the company’s violation of the 2009 settlement agreement with the EU is sufficient grounds for calling into question the reasonableness and good faith nature of the board’s investigation. This court agrees. It is plausible that Mr. Almunia or another member of the commission could reasonably have been expected to hold highly material information on topics such as the EU’s expectations of Microsoft’s internal compliance methodology, the content of the summer 2012 noncompliance warning, the reactions of the company to such warning, [and] promises that were made in response to this warning.
Judge Coughenour also denied the individual Defendants’ motions to dismiss. In October, Microsoft’s directors and officers had asked Judge Coughenour to reject arguments made by shareholders Kim Barovic and Stephen DiPhilipo in opposition to two August motions to dismiss the case filed by Microsoft and the individual executives. The defendants’ argued in their brief that the shareholders had failed to sufficiently state claims against the executives for inadequate oversight, failure to disclose and unjust enrichment. Barovic and DiPhilipo filed individual suits in April, and the cases were later consolidated. The two filed a consolidated shareholder derivative complaint in June.
The shareholders are accusing the company’s board of directors, including ex-CEO Steve Ballmer and founder Bill Gates, of “blatantly and continuously” violating a 2009 antitrust settlement with EU regulators that required Microsoft to offer consumers a choice of 11 rival Web browsers with its Windows operating system. In February 2011, Microsoft purportedly eliminated the “choice screen” that allowed consumers to select their default Web browser from at least 15 million installations of Windows 7 in Europe, making its own Internet Explorer the only browser available on those installations, according to Barovic’s complaint. That led Almunia to fine the company $732.2 million.
The Plaintiffs contend they made a pre-suit demand that Microsoft’s board of directors investigate and commence an action against the executives responsible for the breach of the settlement agreement, but that Microsoft summarily denied the demand without interviewing witnesses who could corroborate the allegations of wrongdoing, such as Almunia. The Microsoft executives had contended that the law does not impose a responsibility on executives of the company for software coding mistakes by rank and file employees without proof showing the executives knew about and intentionally disregarded the errors or “utterly failed to establish internal controls.” The case is in the U.S. District Court for the Western District of Washington.