Barbara's Sales, Inc. v. Intel Corp.

• Decision Date: 29 November 2007
• Docket Number: No. 103287.,103287.
• Parties: BARBARA'S SALES, INC., et al., Indiv. and on Behalf of All Others Similarly Situated, Appellees, v. INTEL CORPORATION et al. (Intel Corporation, Appellant).
• Court: Illinois Supreme Court

879 N.E.2d 910

227 Ill.2d 45

316 Ill.Dec. 522

BARBARA'S SALES, INC., et al., Indiv. and on Behalf of All Others Similarly Situated, Appellees, v. INTEL CORPORATION et al. (Intel Corporation, Appellant).

No. 103287.

Supreme Court of Illinois.

November 29, 2007.

Gordon R. Broom, Wayne D. Skigen, of Burroughs, Hepler, Broom, MacDonald, Hebrank & True, LLP, Edwardsville, Wayne W. Whalen, Edward M. Crane, R. Ryan Stoll, Gregory S. Bailey, of Skadden, Arps, Slate, Meagher & Flom LLP, Chicago (Terry E. Fenzl, Anthony L. Marks, Dan L. Bagatell, of Perkins Coie Brown & Bain, P.A., Phoenix, Arizona, of counsel), for appellant.

Stephen A. Swedlow, Chicago, for appellees.

Miguel A. Estrada, David Debold, Justin S. Herring, of Gibson, Dunn & Crutcher LLP, Washington, D.C., for amicus curiae DaimlerChrysler Corporation.

Michele Odorizzi, Stephen Sanders, of Mayer, Brown, Rowe & Maw LLP, Chicago, for amicus curiae Product Liability Advisory Council, Inc.

Robert J. Sprague, of Sprague & Urban, Belleville, for amicus curiae Conflict-of-Laws Professors.

OPINION

Justice FITZGERALD delivered the judgment of the court, with opinion:

In the early part of this decade, Intel Corporation (Intel) engaged in a massive worldwide advertising campaign touting the high performance of its "Pentium 4" microprocessor. The alleged disappointment of a nationwide group of purchasers led to this class action filed in Madison County, Illinois, by named plaintiffs from Illinois and Missouri against Intel, a Delaware corporation with its principal place of business in California. With alternate counts under California and Illinois consumer fraud laws, plaintiffs alleged that Intel deceived the entire class with a false representation implicit in the name Pentium 4, that the microprocessor was the best and fastest processor on the market. The circuit court ruled that Illinois substantive law controls this case and certified a class of Illinois consumers only. Pursuant to Supreme Court Rule 308 (155 Ill.2d R. 308), the circuit court certified questions for an interlocutory appeal of this ruling. The appellate court answered that California law governs and that the circuit court should reconsider its class certification order in light of California law. 367 Ill. App.3d 1013, 306 Ill.Dec. 318, 857 N.E.2d 717. We allowed Intel's petition for leave to appeal. 210 Ill.2d R. 315(a). For the following reasons, we conclude that Illinois law governs this case and that class certification was improper.

BACKGROUND

The record reveals the following background information which, although not directly relevant to the named plaintiffs, is pertinent to the motion for class certification. A computer's microprocessor is often referred to as the "brain" of a computer. The performance of microprocessors has steadily increased since they were first introduced in the 1970s. A principal measure of performance for the common consumer is speed. As the speed of a processor increases, the more instructions a processor can process, resulting in less time a computer requires to open software applications, refresh screens, and depict ever more realistic video game characters. One historical measure of speed is called "clock speed," which is measured in hertz. Intel's first microprocessor, the 4004, ran at 108 kilohertz per second (108,000 hertz), compared to the Intel Pentium 4 processor's initial speed of 1.4 gigahertz per second (1.4 billion hertz). Intel has marketed various performance advancements in succeeding generations of microprocessors under advancing brand names such as the 286, 386, 486, Pentium, Pentium Pro, Pentium II, Pentium III, and the Pentium 4. At issue is whether the initial version of the Pentium 4 microprocessor, known within Intel as the "Willamette" family (hereinafter "Pentium 4," "P4" or "Willamette"), lived up to Intel's explicit and implicit representations as to its advancement in performance over the Pentium III and the processors of a competitor manufacturer, American Micro Devices ("AMD").

Intel introduced the Pentium 4 in November 2000 and shipped its one millionth Pentium 4 processor sometime in the first quarter of 2001. Along with various new features in its architecture, these processors had higher clock speeds than the Pentium III and AMD processors. Further, computers with a Pentium 4 processor were priced, at least initially, at a premium over similarly equipped computers containing a Pentium III processor. However, the actual superiority of the Willamette Pentium 4 over the Pentium III and the AMD processor was in doubt.

The record reveals various internet and mass media reports questioned the Pentium 4's performance immediately after it was released. These reports noted that superior clock speed does not tell the whole story as to the actual performance of a microprocessor. Several sources criticized the microarchitecture underlying the Pentium 4 as being "marchitecture." In other words, Intel's representations as to high clock speeds were a deliberate marketing attempt to make it appear faster to the uninformed consumer than the slower-clocked Pentium III and AMD processors. Performance tests, commonly known as benchmarks, showed that the slower-clocked Pentium III and an AMD processor were "faster" than the Pentium 4. The extent of the speed discrepancy between the processors depended on the benchmark and was often measured in milliseconds. Other benchmarks noted the Willamette's excessive heat dissipation and power usage. For example, the Pentium 4 was slower at some common office applications using older operating software, but faster at the video game Quake. Another common criticism of the Willamette Pentium 4 concerned its memory capabilities.

Intel's public response to these criticisms varied. According to Intel, testing software had not been optimized for the Pentium 4. Further, according to Intel, the Pentium 4's greatest advances were in areas such as 3D gaming, digital video creation, MP3 encoding, and streaming video. Intel also emphasized that the new microarchitecture had a high potential for increased performance as the manufacturing process improved. Intel explained that differences in system hardware and software design may affect actual performance for particular users, apart from the performance of the actual microprocessor. Finally, Intel emphasized that the processor itself was not defective, and that it performed well even on those benchmarks that labeled it "slower."

On June 3, 2002, plaintiffs filed a nationwide class action complaint asserting consumer fraud claims against Intel, Gateway Inc., Hewlett Packard Company, and HP Direct, Inc.¹ The plaintiffs' original complaint alleged that Intel misled the public by asserting in public statements that the Pentium 4 was the "highest performance processor." Intel also allegedly suppressed and concealed the Pentium 4's lack of performance gains over the Pentium III. Plaintiffs brought consumer fraud claims under California's Unfair Competition Law (Cal. Bus. & Prof.Code § 17200 (Deering 2007)), the California Consumer Legal Remedies Act (Cal. Civ.Code § 1750 et seq. (Deering 2005)), and, alternatively, under the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 2002)). Plaintiffs sought an award of actual damages, restitution, attorneys' fees, prejudgment and postjudgment interest, and their costs of suit, amounting to cumulatively less than $75,000 per class member.

Intel filed several motions to dismiss. The circuit court denied Intel's first motion to dismiss the California counts premised upon choice-of-law principles. A motion to dismiss based upon forum non conveniens principles was similarly denied. Intel also moved to dismiss the Illinois Consumer Fraud Act counts, arguing, inter alia, that plaintiffs failed to state a cause of action because of a failure to allege proximate cause. Specifically, Intel argued that plaintiffs were required, under Oliveira v. Amoco Oil Co., 201 Ill.2d 134, 267 Ill.Dec. 14, 776 N.E.2d 151 (2002), to allege actual deception of the named plaintiffs. As no named plaintiff was allegedly aware of any specific representation made by Intel, these representations could not have proximately caused plaintiffs' injuries. The circuit court agreed and dismissed plaintiffs' Illinois Consumer Fraud Act counts.

Plaintiffs subsequently added allegations in their first amended and second amended complaints that they were actually deceived by Intel. The circuit court found, over yet another motion to dismiss based on Oliveira, that these new allegations adequately stated a cause of action. These allegations included: (1) "Plaintiffs and Class Members have been actually deceived by Defendant's failure to disclose material information and/or by their affirmative misrepresentations," and (2) "Intel has conditioned the consumer, through its marketing and naming practices, to believe that each of its high-performance processors is superior in speed and performance to the previous model." On April 24, 2004, plaintiffs filed the current, third amended complaint, which included another relevant allegation that Intel, through its marketing practices, "conditioned the market to believe that megahertz measures relative performance and that a processor with a higher clock speed will deliver faster performance."

Plaintiffs thereafter moved for certification of the nationwide class. The evidence submitted by both parties is voluminous, and we highlight only those portions of the evidence submitted to the court that are necessary for this opinion. Plaintiffs relied on extensive evidence obtained in discovery concerning Intel's marketing practices and the performance of Pentium 4 processors. Plaintiffs stressed Intel's massive advertising campaign and its overall strategy for that campaign. Plaintiffs noted that as part of Intel's worldwide billion-dollar marketing scheme, the Pentium...