Class action lawsuit filed against Microsoft over Surface RT sales

The exact sales of Microsoft's Surface RT tablets are the subject of a newly filed class action lawsuit against the company. The lawsuit alleges that Microsoft has issued "false and misleading statements" concerning the sales of its first PC hardware product, which Microsoft launched in October 2012.

The law firm of Robbins Geller Rudman & Dowd filed the suit on behalf of the plaintiff, Gail Fialkov, and Microsoft is named as a defendant in the case. In addition, the lawsuit names CEO Steve Ballmer as a defendant along with former CFO Peter Klein; Corporate Vice President Frank Brod; and Tami Reller, who served as the head of business and marketing for the Windows division until the company's recent restructuring, when she was then named as head of all marketing.

The lawsuit claims that Microsoft failed to state how bad sales of the Surface RT have been and that the company's inventory of the tablet "experienced a material decline in value during the quarter ended March 31, 2013." The lawsuit also alleges that Microsoft's financial statements for that same quarter were "materially false and misleading" and violated both general accounting practices along with Microsoft's own "policy of accounting for inventories." The law firm is seeking an unspecified amount of damages from Microsoft.

While the company has never publicly disclosed just how many of its Surface RT tablets it has sold, it did admit in a recent filing with the U.S. Securities and Exchange Commission that total sales of its Surface hardware products (including the Surface Pro) reached $853 million by June 30, 2013. It also recently took a one time charge of $900 million due to a price cut on the Surface RT. We have emailed Microsoft to see if they wish to comment on this lawsuit.

Update: Microsoft has now told Neowin they have no comment on the lawsuit.

Thanks to Boyejo in our forums for the tip!

Source: Robbins Geller Rudman & Dowd LLP | Image via Microsoft

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"'false and misleading statements' ... Microsoft has now told Neowin they have no comment on the lawsuit.'

lmao. yeah right. just report what we (microsoft) want you to report, neowin, and not what you think you want to report. lol.

Praetor said,
Is this the begging of the end for MS? most anti-ms fanboys would say so.

No, technically, the "Beginning of the End" was when Ballmer was put in charge. Everything since then is a result of his EPIC mismanagement.

John Nemesh said,

No, technically, the "Beginning of the End" was when Ballmer was put in charge. Everything since then is a result of his EPIC mismanagement.

Can't tell if serious...

Legally, MS lied about the sales. While they never mentioned numbers but they said "good sales". However, it wasn't true, the sale wasn't good or even so-so, the sales was disastrous. The credibility of the board member is hitting a new low.

It will turn in a snowball. MS never warned shareholder about this situation. However, MS fired a lot of top-brass without an explanation why they did that.

I am not sure what it has less than an ipad or galaxy tab?? if apps is important most of them are accessible through browser. IE even supports flash where ipad doesn't. plus you get free office suit. I think people are getting anal.

COKid said,
Wtf, I never got a free suit. That's it, I'm suing!

For RT version you get it for free. Pro version is a class above iPad and android because it runs on Intel Processor not ARM and supports all desktop apps as well.

can anyone just file this type of lawsuit? What does the sales of the tablet got to do? Even if Microsoft didn't do a full disclosure, doesn't mean it warrant a lawsuit for any Tom, Dick or Harry?

Shareholders are not customers, shareholders are "owner" of the business. So, when the business is running in some sort of troubles then, the board should warn shareholder about this situation.

Dot Matrix said,
Multiple sources are now saying it's not even certified, and that nothing is going to come of this.

And how many of these alleged "multiple sources" are fanboy sites and how many are credible?

I bet I know...

Order_66 said,

And how many of these alleged "multiple sources" are fanboy sites and how many are credible?

I bet I know...

Take your pick... Tom Warren, Mary Jo Foley, Jon Brodkin...

Who knows what the truth is right now. Anyone picking sides is being silly in my opinion. I have seen enough of these cases to know that the info we have right now is merely what both sides are 'claiming', not what is reality.

The only part that seems strange to me is that this isn't a new thing for a company to not release sales figures for a product that is doing poorly or even sometimes products that are doing fine. MS never released concrete figures for things like the Zune and companies like Apple, Google, and Amazon have at one time or another, been vague on various sales figures.

MS never claimed Surface RT was selling like hotcakes. When they did mention sales, they lumped the Surface RT and Surface Pro together, but is that illegal?

Either way, we will see how it plays out.

I guess this would be one of the few situations where half the Internet can be all "I believe everything the lawyer is saying."

No, I use it for a plethora of things. Answering Emails, Office, Skydrive, Xbox Music, Smartglass, Web Browsing, Netflix, Games and other types of consumption and work. While it doesn't run my Adobe Suite that's not what I use it for. Personally I have no use for the PRO model at the moment, mainly because this little device does all my simple computing. I have a desktop with 2 screens for the rest of my needs, working on a 3rd monitor.

The point of RT is to stay in Sync with the rest of my devices. Not only that but it supports multiple users, so my wife and I can use our profiles that we use on our desktop, and Windows Phones. This is something I've yet to see on other devices, and It's pretty fantastic really, it even syncs your desktop wallpaper, lockscreens, and various other settings that need to be carried over from device to device.

I don't understand how they can be sued for that, nor how it's 'false or misleading'. They stated how much they've made from sales and what the cost was.

j2006 said,
I don't understand how they can be sued for that, nor how it's 'false or misleading'. They stated how much they've made from sales and what the cost was.

What seems to be questioned is when they did it.

Could also be a sign that you have no idea what you are talking about
Stock price is up. Profits are up. Balmer...not going anywhere.

ahhell said,
Could also be a sign that you have no idea what you are talking about
Stock price is up. Profits are up. Balmer...not going anywhere.

Windows 8 has completely bombed at retail, RT has tanked as well and wp8 is going nowhere.

I wouldn't be so quick to assume Ballmer is completely secure in his job.

Order_66 said,

Windows 8 has completely bombed at retail, RT has tanked as well and wp8 is going nowhere.

I wouldn't be so quick to assume Ballmer is completely secure in his job.

Everything I've read contains the words growth, and up... where are you reading your "facts"

SierraSonic said,
Everything I've read contains the words growth, and up... where are you reading your "facts"

Pretty much everywhere, but of course if you only go to Microsoft and their fanboys sites you will obviously see "growth, up" etc...

Order_66 said,

Pretty much everywhere, but of course if you only go to Microsoft and their fanboys sites you will obviously see "growth, up" etc...

Ah the wonderfully accurate words accustomed to trolls as proof of things. "everyone knows", "it's just the truth", "pretty much everywhere."

Getting tired of your comments appearing here. Why do you even visit these articles? You clearly have no interest in Microsoft or their products, in fact you seem weirdly obsessed with coming in just to post generalistic anti-MS/Fanboy comments. Why bother?

headsoup said,

Ah the wonderfully accurate words accustomed to trolls as proof of things. "everyone knows", "it's just the truth", "pretty much everywhere."

Getting tired of your comments appearing here. Why do you even visit these articles? You clearly have no interest in Microsoft or their products, in fact you seem weirdly obsessed with coming in just to post generalistic anti-MS/Fanboy comments. Why bother?

If you are that "tired of" reading my comments then perhaps you should just learn how to ignore them instead of whining about them?

Spicoli said,
MS is under no obligation to report specific product sales number.

The matter is not sales but issued financial statements. If the accusation is true or not is of course a different matter.

Fritzly said,

The matter is not sales but issued financial statements. If the accusation is true or not is of course a different matter.

No, it doesn't appear to be. That would be doing something like reporting revenue wrong.

Cyborg_X said,
Not that new. Only reason you need a lawyer is to try and keep another lawyer from screwing you.

Well, that and deciphering EULAs!

They may actually have a case, Microsoft is a publicly traded company, not a personal company, and publicly traded companies follow strict rolls, it looks like Microsoft misled investors about Windows 8.

john.smith_2084 said,
They may actually have a case, Microsoft is a publicly traded company, not a personal company, and publicly traded companies follow strict rolls, it looks like Microsoft misled investors about Windows 8.

Where? They already posted that they had a write down on the tablet. There's no misleadings there.

The write down wasn't until July. The decline happened before the end of the quarter ending in March and should have been filed then, not this quarter. The fact that the decline happened last quarter, and they are just now doing the write down means they are fixing a $900 million dollar mistake in the books.

john.smith_2084 said,
They may actually have a case, Microsoft is a publicly traded company, not a personal company, and publicly traded companies follow strict rolls, it looks like Microsoft misled investors about Windows 8.

WTF? This has ZERO to do with Windows 8.

ahhell said,

WTF? This has ZERO to do with Windows 8.

Don't mind John, he has a bit of a track record of being anti Windows 8 on here. He obviously didn't notice this article had nothing to do with Windows 8 lol.

ILikeTobacco said,
The write down wasn't until July. The decline happened before the end of the quarter ending in March and should have been filed then, not this quarter. The fact that the decline happened last quarter, and they are just now doing the write down means they are fixing a $900 million dollar mistake in the books.

No, not really. Doing a write-down too early would be misreporting.

Dot Matrix said,

Where? They already posted that they had a write down on the tablet. There's no misleadings there.

Agreed. Absurd. lol

Spicoli said,

No, not really. Doing a write-down too early would be misreporting.

Why does nobody ever bother reading the article before commenting.

Nobody said anything about doing it too early. They wrote down the loss at the beginning of the 3rd quarter for a loss that happened in the 1st quarter. It would seem they waited intentionally to do it because the first 2 quarters are historically slower. They didn't do it when it happened which FYI isn't early. They didn't do it the quarter after it happened. They did it two quarters after it happened.

ILikeTobacco said,
Why does nobody ever bother reading the article before commenting.

Nobody said anything about doing it too early. They wrote down the loss at the beginning of the 3rd quarter for a loss that happened in the 1st quarter. It would seem they waited intentionally to do it because the first 2 quarters are historically slower. They didn't do it when it happened which FYI isn't early. They didn't do it the quarter after it happened. They did it two quarters after it happened.

You may have to run this by me again. The surface RT devices were introduced 9 months ago, are you claiming the 900 million write off is based upon the first three months alone ? That doesn't make any sense and I would like to see some actual proof of this, as it is very unlikely the 900 million write off is due to the first quarter, it is much more likely that the write off is because of low sales for all three quarters and since they have reduced the price at the end of the third quarter, the associated write off is booked in this quarter, which should be well within accounting rules and regulations.

Therefore I believe this law suit will never even get to court.

"experienced a material decline in value during the quarter ended March 31, 2013."

The devices actually start losing value the moment they hit the market. I also doubt the entirety of the 900 million loss happened in just the first quarter but it also didn't all just happen last month. The way Microsoft does its quarterly reports, it is suppose to declare any losses from inventory depreciation. Because this number is slightly hard to predict, it is usually done in the following quarter with adjustments to the inventory value. They failed to do this also. Instead, they waited until the two quarters AFTER the loss to report the loss. 900 million didn't happen in a single quarter. While it is unlikely, you could look at it as 3 quarters with a total of 300 million lost per quarter, so the second quarter should have reported a 300 million loss for the first quarter and the third quarter with another 300 loss, and finally next quarter adjusting for this quarters lost. Instead of reporting the losses immediately after it happened(the following quarter) it seems they waited another quarter which misleads the investors into thinking that sales are going just fine and the company didn't manage to lose $300-$900 million(whatever the true value is is a bit irrelevant because of the large amount regardless) This is a massive failure on the companies part in regards to inventory turnover which is a huge deal when it comes to financial/investor information.

ILikeTobacco said,
"experienced a material decline in value during the quarter ended March 31, 2013."

The devices actually start losing value the moment they hit the market. I also doubt the entirety of the 900 million loss happened in just the first quarter but it also didn't all just happen last month. The way Microsoft does its quarterly reports, it is suppose to declare any losses from inventory depreciation. Because this number is slightly hard to predict, it is usually done in the following quarter with adjustments to the inventory value. They failed to do this also. Instead, they waited until the two quarters AFTER the loss to report the loss. 900 million didn't happen in a single quarter. While it is unlikely, you could look at it as 3 quarters with a total of 300 million lost per quarter, so the second quarter should have reported a 300 million loss for the first quarter and the third quarter with another 300 loss, and finally next quarter adjusting for this quarters lost. Instead of reporting the losses immediately after it happened(the following quarter) it seems they waited another quarter which misleads the investors into thinking that sales are going just fine and the company didn't manage to lose $300-$900 million(whatever the true value is is a bit irrelevant because of the large amount regardless) This is a massive failure on the companies part in regards to inventory turnover which is a huge deal when it comes to financial/investor information.

Fair enough, so they waited too long to do the actual write off, even though I believe it was mainly due to the price break which was announced and put into place last quarter. Of course even if this is the case, the question would be if it had enough of an effect to seriously effect Microsoft profitibility, looking at the total numbers in those three quarters, it actually is just a drop in the ocean and this write off lowers tax liability, therfore the effect on shareholders is minimal.

The effects my me minimal, but it is illegal which is all they need to be able to sue and make the effect more than minimal for the shareholders would will profit from the suit.

Studio384 said,
How can you give fill a lawsuit against a company because they don't sold enough?

Your answer's right there in the article:
The lawsuit alleges that Microsoft has issued "false and misleading statements"


Microsoft has issued "false and misleading statements"

and fanboys will assume anything Microsoft statements at as absolute truth.

Studio384 said,
How can you give fill a lawsuit against a company because they don't sold enough?
They aren't being sued for that. Please reread the article assuming you already read it once.

ILikeTobacco said,
They aren't being sued for that. Please reread the article assuming you already read it once.

Asking some people on this site to RTFA even once is impossible.

Torolol said,

and fanboys will assume anything Microsoft statements at as absolute truth.

Actually it's quite the opposite: "We respect your privacy" Next day's headline - "Microsoft first company to participate in PRISM"

"We listen to our customers" After IGNORING complaints for SEVEN YEARS (Microsoft points vs. real cash)

"Our policy is our policy and it will not change" Right before pulling a 180 on the DRM scheme for the XBox One.

"The future of desktop computing is touch" Julie Larsen-Green on Windows 8's touch centric interface.

So yeah, I trust Microsoft about as far as I could spit them these days.

ians18 said,
If any of those people let themselves use RT for awhile they would not be suing.

Right, they would probably kill themselves instead lol

spy beef said,
Have you used RT? I have one, and it crashes every half hour or so; maybe I should sue MS for lost productivity.

I have one and mine never crashes. Perhaps you're holding it wrong. Try 2 hands.

spy beef said,
Have you used RT? I have one, and it crashes every half hour or so; maybe I should sue MS for lost productivity.

Nope it may lag a bit but it clears up within a second no restart needed.

ians18 said,

Nope it may lag a bit but it clears up within a second no restart needed.

Funny, my 2 year old Toshiba Thrive doesn't lag. Must be a software issue.

spy beef said,
Have you used RT? I have one, and it crashes every half hour or so; maybe I should sue MS for lost productivity.

You probably have defective hardware that is manifesting itself in crashes. I have an RT, and it's never crashed.

spy beef said,
maybe I should sue MS for lost productivity.

If you agreed to the EULA, that's on you. Lost productivity damage exemption has been in the EULA from day one.

John Nemesh said,

Funny, my 2 year old Toshiba Thrive doesn't lag. Must be a software issue.


Does it have a touch screen, portability of rt, and great battery life?

The sale numbers of Microsoft Surface RT must really not be good, if Microsoft still hasn't (or wont) released the exact sales numbers. If the sales are good, then there should be no reason to not release the sales numbers!

Lone Wanderer Chicken said,
The sale numbers of Microsoft Surface RT must really not be good, if Microsoft still hasn't (or wont) released the exact sales numbers. If the sales are good, then there should be no reason to not release the sales numbers!

Exactly. That's why Amazon stopped producing that total sales bomb they called Kindle.

Dot Matrix said,
Wut.
They lied to investors is what it amounts to. They didn't properly report what amounts to depreciation on their inventory while also not reporting how terrible the sales were. It is against federal law for a publicly traded company to not be honest about things like that.

ILikeTobacco said,
They lied to investors is what it amounts to. They didn't properly report what amounts to depreciation on their inventory while also not reporting how terrible the sales were. It is against federal law for a publicly traded company to not be honest about things like that.

They did in fact report a depreciation on the inventory.

Spicoli said,

They did in fact report a depreciation on the inventory.

+1

I don't know who this plaintiff is, but I question their real and actualized losses... It's likely nothing but an illegitimate money grab anyway...