Case Name: Janet Skold, et al. vs. Intel Corporation, et al.
Case No.: 1-05-CV-039231

This is a class action by plaintiffs Janet Skold and David Dossantos (“Plaintiffs”) against defendants Intel Corporation (“Intel”) and Hewlett-Packard Company (“HP”) (collectively “Defendants”) regarding Intel’s Pentium 4 (“P4”) microprocessors. In the operative Sixth Amended Complaint (“SAC”), Plaintiffs allege that in order to “falsely improve” the P4’s poor performance scores, Intel secretly wrote benchmark tests that would give the P4 higher scores and released and marketed these “new” benchmarks (called WebMark 2001 and SYSmark 2001) to performance reviewers as “independent third-party” benchmarks. Intel allegedly passed off the new benchmarks to the market as developed by a seemingly independent, objective third party called Business Applications Performance Corporation or BAPCo. The new benchmarks allowed the P4’s performance score to improve considerably. Plaintiffs further allege that Intel paid software companies for “focused code optimizations” so that their applications would generate better scores for the P4. Because a processor’s price is linked directly to its performance perception, Intel’s manipulation of the P4’s performance scores allowed Intel to charge an inflated price for the P4 – higher than the Pentium III and Advanced Micro Devices’ Athlon processor, which was a competitive threat to Intel. The inflated prices were passed on to end-consumers by computer manufacturers, or original equipment manufacturers, who incorporated the P4’s price into the price of their P4-equipped computers. Plaintiffs allege that HP aided and abetted Intel’s conduct by facilitating the release of the benchmarks under the BAPCo name touting the benchmark scores in HP press and marketing materials, and concealing Intel’s manipulation of the benchmarks.

The case was originally filed by Skold in Alameda County on March 12, 2004. The case was transferred to this Court on April 13, 2005. On August 11, 2006, Plaintiffs filed the Fourth Amended Complaint (“FAC”) asserting causes of action for: (1) violation of the Consumers Legal Remedies Act (“CLRA”), Civ. Code § 1750, et seq. (individual and class claim by Dossantos only); (2) unlawful, unfair, and fraudulent business practices in violation of Bus. & Prof. Code §17200, et seq. (“UCL”) (individual claim by both Plaintiffs); (3) unlawful, unfair, and fraudulent business practices in violation of UCL (individual and class claim by both Plaintiffs); and (4) violation of the False Advertising Act (“FAL”), Bus. & Prof. Code § 17500, et seq. (individual and class claim by Plaintiff Dossantos only).

On March 27, 2008, the Court denied Plaintiffs’ motion for class certification without prejudice on the grounds that the nation-wide class was overly broad, and there were questions about sufficient commonality and typicality. On October 22, 2008, the Court denied Plaintiffs’ second motion for class certification without prejudice on the ground of lack of commonality. On February 27, 2009, the Court denied Plaintiffs’ third motion for class certification with prejudice. Plaintiffs appealed, and on August 24, 2011, in an unpublished opinion, the Court of Appeal reversed, finding that the trial court committed legal error by making a merits-based decision on the motion for class certification. (See Skold v. Intel (Aug. 24, 2011) 2011 Cal.App.Unpub. LEXIS 6391, *18-27.)

On April 19, 2012, the Court granted in part Plaintiffs’ motion for class certification and certified the following nationwide class against Intel:

All residents of the United States, other than those residing in Illinois, who (i) purchased a new computer equipped with a first-generation (Willamette) Pentium 4 processor, (ii) purchased the computer between November 20, 2000 and June 30, 2002, and (iii) purchased the computer for personal, family, or household use.

The Court also certified a subclass of California class members who purchased their computers from HP.

On May 31, 2012, Plaintiffs filed the operative SAC, asserting two causes of action for: (1) violation of the Unfair Competition Law (“UCL”) (Cal. Bus. & Prof. Code, § 17200 et seq.) (by Plaintiffs and the Class against Intel); and (2) violation of the UCL (by Plaintiffs and the Subclass against HP).

On March 14, 2013, the Court approved of Plaintiffs’ proposed class notice program, which would provide notice through a combination of print media and the Internet.

On April 18, 2013, the Court denied Defendants’ motion to dismiss pursuant to California Code of Civil Procedure section 583.310 for failure to bring the action to trial within five years after it was commenced.

On September 3, 2013, the Court modified the class definition pursuant to a motion by Intel raising issues about the ascertainability of class members given that many have long since disposed of their P4 computers and would not be able to present proof of purchase.

On May 15, 2014, the Court denied Intel’s motion for summary judgment, or alternatively summary adjudication.

The day before trial was scheduled to begin, the parties agreed to a class-wide settlement. The settlement was the culmination of more than six months of negotiations conducted with two experienced mediators. Ultimately, with the assistance of Judge Pro Tem Bradley Bening, the parties reached an agreement on or about June 30, 2014. Thereafter on July 22, 2014, this Court granted preliminary approval to the settlement and set the matter for a final fairness hearing and final approval hearing of the settlement and request for attorney’s fees and costs. Under the Stipulation and Agreement of Settlement, in exchange for release from liability for all claims that were or could have been asserted by Plaintiffs and the class based on the allegations in this class action, Intel agrees to pay $15 to every class member who submits a valid claim under a reduced standard of proof to establish class membership. Claimants need only complete and sign a simple claim form under penalty of perjury that asks for their contact information and basic information about their computer purchase (e.g., make, approximate date of purchase, store or website where the computer was purchased, location of purchase). Intel will also donate $4 million in computer products or funds to cy pres recipients agreed to and approved by the Court. The parties have tentatively agreed that Teach for America, Inc. will be a cy pres recipient. Intel will also pay up to $700,000 to notify the class of the settlement. Class members will be notified using substantially the same Notice Plan that was previously approved by the Court. Finally, Intel agrees to pay reasonable fees and costs to Plaintiffs’ counsel up to $16.45 million, as well as incentive payments of $25,000 to each of the named Plaintiffs.

Plaintiffs now move for Final Approval of the Class Settlement and Final Approval of Attorney’s Fees, Costs and Incentive Awards.

Discussion

“The well-recognized factors that the trial court should consider in evaluating the reasonableness of a class action settlement agreement include ‘the strength of plaintiffs’ case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement.’ [Citations.] This list ‘is not exhaustive and should be tailored to each case.’ [Citation.]” (Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 128.) “[A] presumption of fairness exists where: (1) the settlement is reached through arm’s-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small. [Citation.]” (Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1802.)

“[T]he court should not give rubber-stamp approval. Rather, to protect the interests of absent class members, the court must independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interests of those whose claims will be extinguished. To make this determination, the factual record before the … court must be sufficiently developed… . The proposed settlement cannot be judged without reference to the strength of plaintiffs’ claims. The most important factor is the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement. The court must stop short of the detailed and thorough investigation that it would undertake if it were actually trying the case, but nonetheless it must eschew any rubber stamp approval in favor of an independent evaluation.” (Kullar, supra, 168 Cal.App.4th at p. 130, internal citations and quotation marks omitted.)

As noted in the Preliminary Approval Order, the settlement is entitled to a presumption of fairness because it was reached through arm’s-length bargaining between experienced counsel after two settlement conferences with Judge Pro Tem Bradley A. Bening on the eve of trial. There was significant investigation and discovery in this ten-year old case to inform the settlement. In both their preliminary approval papers and final approval papers, Plaintiffs detail the respective strengths and weaknesses of their case as well as the lengthy and protracted history of this litigation. Plaintiffs also highlight the risks of continued litigation, including the difficulty of proving their theory of causation, Intel’s motion for decertification, and the issues on appeal (e.g., interpretation of the 5-year rule in class actions). Balanced against these issues is the settlement amount. According to Plaintiffs, the $15 claim amount represents roughly 10% of the price that Intel charged for a P4 during the class period ($160). In balance, the settlement amount is facially fair and reasonable. These issues were fully addressed in the Preliminary Approval Order.

According to the Final Approval Papers, the exact size of the class is unknown, but estimates range between 3.3 Million and 4.7 Million for purposes of calculating restitution. Excluding computers that were sold outside the United States during the class period and further excluding Illinois purchasers, the moving papers indicate that Intel estimates it sold 10 million Pentium 4 PC’s during the relevant time frame. Applying statistical percentages based upon market research and internal projections to calculate class size, it is estimated that of the 10 million estimated purchasers referenced-above, approximately 4.7 million fall within the projected class, i.e. those that purchased it for personal, family or household use. As Plaintiffs’ note, the class size is likely larger as Plaintiffs class-wide restitution calculations drew only from Intel’s P4 sales to OEMs. Intel acknowledges that it did not include those sales of the Pentium 4 to consumers that wanted to assemble their own computers, to smaller “white box” computer manufacturers, and to OEM’s that needed extra supplies. In other words, the potential class size could be increased by at least another one million.

The Court has carefully reviewed the Declarations of Kenneth Jue (Case Manager for Administrator Gilardi and Co. LLC) and Richard W. Simmons (President of Analytics Consulting LLC) regarding the issue of class notice. In his Declaration, Mr. Simmons indicated that he was responsible for designing and implementing the plan to disseminate Class Notice in connection with the proposed Settlement. Analytics was appointed as the “notice provider” in this Court’s Preliminary Approval Order and worked with counsel to develop an updated Notice Program which was designed to reach a substantial percentage of the class members with multiple opportunities to be exposed to the Notice through a variety of media channels including, but not limited to, a dedicated case website, paid notice placements in a variety of national editions of select newspapers and magazines, a nationwide press release to more than 10,000 traditional media outlets and 5000 online outlets and paid advertising of 24,000,000 Internet banner advertisements targeting potential class members. Mr. Simmons details implementation of the Notice Program in his Declaration and attaches exemplars of the advertisements and Summary Notices and accordingly, this Court will not further paraphrase the details of how the Plan was implemented in this Order. It is worth noting, however, that the Notice language used in all of the different media outlets properly described the nature of the lawsuit, the terms of the Settlement, and the procedures on how a Class Member could submit a claim, object to, or be excluded from the Class Settlement. According to Mr. Simmon’s, banner advertisements targeted to Class Members were viewed 27,459,072 times by an estimated 9,153,024 individuals. Furthermore, it was estimated that 70% of likely Class Members viewed the display advertisements an average of 2.9 times each. Mr. Simmons concludes that the Notice Program provided the best notice practicable under the circumstances and met the requirement set forth both in local rules and statutes as well as case law pertaining to notice. In addition, the Declaration of Kenneth Jue details the steps employed by Gilardi to administrate the settlement. A Postcard Notice was sent to 15,406 Class Members identified by Intel and a website and automated Interactive Voice Response telephone system was implemented. As of December 28, 2014, Gilardi had received 37,726 claims submitted online and 350 claims submitted via postal mail. Mr. Jue indicates that one timely objection was received and the moving papers indicate that there was a total of two objections and no requests for exclusion. According to the moving papers, neither party was able to demonstrate that they were actual Class Members.

The Court also has an independent right and responsibility to review the attorney fee provision of the settlement agreement and award only so much as it determines reasonable. (Garabedian v. Los Angeles Cellular Telephone Co. (2004) 118 Cal.App.4th 123, 127-128.) “Even where the parties agree as to the amount of attorney fees in such a settlement agreement, courts properly review and modify the agreed upon fees if the amount is not reasonable.” (Id.) Here, the parties have agreed on up to $16.45 million in attorney’s fees. In this Court’s Preliminary Approval Order, it acknowledged the significant amount of work performed in this case over a very lengthy time period and also acknowledged the relative success of Plaintiffs in achieving their litigation objectives and accordingly, preliminarily approved the requested fees up to $16.45 million. This Court did indicate that it would review any objections submitted and further require a lodestar cross-check to determine and assess the reasonable fee recovery for this case. In their separately filed moving papers, Class Counsel indicates that they have invested over 19,000 hours over the past ten years and advanced more than $2.6 million of their own money to litigate this case. This Court has carefully reviewed the Declaration of Eric Gibbs regarding the issue of reasonableness of fees and a lodestar cross-check. In his Declaration, Mr. Gibbs provides a breakdown of the hours worked per year and the corresponding lodestar amount. He testified that over the past ten years, 17,651.2 hours was spent litigating this case. The total lodestar amount between 2004-2014 was $10,622,261. Mr. Gibbs details the procedural history of the case as well as providing a summary of the work done as well as a breakdown of the time spent by each lawyer and paralegal per year. The hourly billing rates for each attorney and paralegal are provided as well. Mr. Gibbs also testified that over $2.6 million in litigation expenses were incurred and a breakdown of those expenses is included. This Court has also carefully reviewed the Declaration of Robert H. Klonoff (Jordan D. Schnitzer Professor of Law at Lewis and Clark). In his Declaration, Professor Klonoff details his employment history including his experience as an expert in numerous class action lawsuits. Regarding attorney’s fees, Professor Klonoff opines that the lodestar amount requested by Class Counsel is well justified and that the requested multiplier of 1.3 is justified as well. Professor Klonoff notes the ability to recover attorney’s fees and costs pursuant to California’s private attorney general statute, CCP 1021.5 in certain situations which, he opines, apply to the instant case.

Recognizing the length and complexity of this lawsuit and the amount of work involved over an extended period of time as well as the risks associated with the outcome, this Court agrees with Professor Klonoff both with respect to the lodestar (approving the time and hourly rates) as well as the multiplier. It is abundantly clear that Class Counsel invested an incredible amount of time and costs in a case which lasted approximately 10 years with no guarantee that they would prevail or recoup any of the time or costs invested. Moreover, the benefit to the Class Members is also factored in to the Court’s analysis regarding the reasonableness and appropriateness of the negotiated fees. Simply put, Class Counsel earned their fees in this case.

Regarding class representative awards, “‘[t]he rationale for making enhancement or incentive awards to named plaintiffs is that they should be compensated for the expense or risk they have incurred in conferring a benefit on other members of the class.’ [Citation.] An incentive award is appropriate ‘“if it is necessary to induce an individual to participate in the suit[.]” … [Citation.]’ [Citation.] ‘[C]riteria courts may consider in determining whether to make an incentive award include: 1) the risk to the class representative in commencing suit, both financial and otherwise; 2) the notoriety and personal difficulties encountered by the class representative; 3) the amount of time and effort spent by the class representative; 4) the duration of the litigation and; 5) the personal benefit (or lack thereof) enjoyed by the class representative as a result of the litigation. [Citations.]’ [Citation.] These ‘incentive awards’ to class representatives must not be disproportionate to the amount of time and energy expended in pursuit of the lawsuit. [Citation.]” (Cellphone Termination Fee Cases (2010) 186 Cal.App.4th 1380, 1394-1395.) As noted in the Preliminary Approval Order, the incentive award of $25,000 is this case is higher than those typically awarded in settled class actions, however, the Court noted the unusual circumstances of this case (i.e. ten years of litigation) and preliminarily approved the award subject to further evidence supporting the amount of time and energy expended in pursuit of this lawsuit. In response, the moving papers and the Declaration of Mr. Gibbs provide further detail on the time expended by both Class representatives during the pendency of this litigation. The Court is satisfied that the incentive award of $25,000 to Ms. Skold and Mr. Dossantos is reasonable and appropriate given the unique circumstances of this case and their participation and involvement as documented.

Regarding the cy pres portion of the settlement, In re Microsoft I-V Cases (2006) 135 Cal.App.4th 706 is instructive. This was a class action alleging violations of the Cartwright Act (Cal. Bus. & Prof. Code, § 16720 et seq.) by defendant Microsoft Corporation for software overcharges imposed on consumer who bought computers with the preinstalled software. The case eventually settled for $1.1 billion, in which Microsoft agreed to provide consumer vouchers worth varying amounts depending on the licenses acquired. The vouchers ranged from $5 to $29 and could be aggregated for licenses authorizing multiple installations of the software. The settlement also provided for a cy pres remedy “to benefit public schools in California at which a substantial percentage of the attending students come from low-income households.” (In re Microsoft, supra, 135 Cal.App.4th at p. 713.) This was a residual cy pres distribution if the $1.1 billion face value amount of the settlement was not exhausted by the vouchers. In upholding the trial court’s approval of the settlement against an objector’s appeal, the Court of Appeal observed:

In the class action context, the cy pres doctrine is generally denominated fluid recovery. [Citations.] Under the latter doctrine, when it is not possible or practicable in a class action judgment to compensate class members according to their respective damages, the best alternative for the court is to award damages in a way that benefits as many of the class members as possible, despite the probability that some class members will not benefit whereas some nonmembers will. [Citation.]

(Id. at p. 716, internal quotation marks omitted.) The Court of Appeal held:

The trial court was not called upon to fashion a cy pres distribution of residue, but rather it was called upon to approve a distribution the parties fashioned through extensive negotiated compromise. . . . The court’s proper focus in this context is not so much whether another type of distribution might be better, but the extent to which the distribution, as proposed, is appropriately useful in fulfilling the purposes of the underlying cause of action. [Citation.] Certainly, the trial court may consider whether another distribution would be more useful in fulfilling this purpose, particularly when an alternate distribution is proposed by a class member objecting to the settlement agreement. . . [but] a trial court is not required to initiate an investigation to determine other possible cy pres distributions when it conducts a reasonable assessment of a cy pres distribution proposed in a settlement agreement.

(Id. at pp. 724-725, original italics.) The Court of Appeal went on to find that the proposed cy pres distribution providing vouchers for computer equipment and education services to low income public schools “benefits the Class by insuring that a new generation of computer literate children will enter the work force fully trained to make the best use of computer technology.” (Id. at p. 726.) The record included estimates from the California Department of Education on the benefits of the cy pres program, and a letter from the State Superintended of Public Instruction. (Ibid.) “The fact that the compensatory effect for class members was indirect, as compared with the more direct benefit to low-income students having little correlation with the plaintiff class, does not alter this conclusion.” (Id. at p. 727, original italics.) Finally, the Court of Appeal found that “cy pres distribution would not ‘inappropriately benefit Microsoft or extend its market power’ because ‘[t]he schools will receive both general purpose vouchers and software vouchers that may be used for a vast array of products and services, including those offered by Microsoft’s competitors…’ ” (Id. at p. 729.)

In the Preliminary Approval Order, this Court noted that the proposed cy pres distribution of $4 million in computer products or funds to Teach for America appears to be an appropriate way to address the impractical aspects of consumer recovery in this case while potentially providing an indirect benefit to the class, but requested additional information as to how the proposed distribution to Teach for America will fulfill the purposes of the underlying causes of action and some of the issues raised in In re Microsoft noted above. In the final approval moving papers, Class Counsel provides the Declarations of Thomas Licciardello and Suzan Miller in support of the cy pres distribution to Teach for America. Under the settlement, Teach for America will receive (1) 100 Dell or similar laptops; (2) 3000 Lenovo or similar laptops; (3) a technology refresh for their existing Intel Blade Server Chassis Platform. According to Mr. Licciardello, TFA ordinarily purchases servers, laptops, and desktops containing Intel processors and these donations (valued at least $4 million) will provide an indirect benefit to those class members who are not otherwise participating in the settlement as it will promote technology as a classroom tool and will meet TFA’s technology needs for at least three years. Class Counsel notes that the purpose of the litigation was to flush out and deter sophisticated benchmarking practices that were antithetical to a fair marketplace in computer technology. Class Counsel argues that requiring Intel to donate $4 million to a nationwide organization like TFA will promote the use of technology to advance education and add a level of deterrence consistent with the objectives of the lawsuit. While one could cynically argue that this does not meet the standards set forth in In re Microsoft, this Court is satisfied that there is some relationship, albeit indirect, between the cy pres distribution and the objectives of the class action lawsuit.

For the reasons set forth above, this Plaintiffs’ Motion for Final Approval of Class Action Settlement and Approval of Attorney’s Fees and Incentive Payments is GRANTED